You might call them leasing eagles instead of legal eagles.
Law firms have signed deals for more than 450,000 square feet in the Times Square area during the first seven months of 2006.
It’s part of a continuing westward trend. The “Mason-Dixon line” for law firms used to be the Avenue of the Americas; that changed six years ago, with the move of Skadden, Arps, Slate, Meagher & Flom to Times Square, said Lewis Miller, vice chairman at CB Richard Ellis. He noted that when Skadden took space in the then-new Conde Nast building at 4 Times Square, it legitimized that “Crossroads of the World” for other legal offices.
The drift of law firms west built with last month’s announcement that Akin Gump Strauss Hauer & Feld LLP had leased 203,000 square feet in the new Bank of America Tower at One Bryant Park. The firm, currently based at 590 Madison Avenue, will move to the 51-story, 2.1-million-square-foot tower at Sixth Avenue and 42nd Street when it opens in 2008.
Akin Gump reportedly paid the highest amount ever shelled out for a block of space that size in New York — more than $100 per square foot for floors 41 to 46 of the building, which is a joint venture of the Durst Organization and Bank of America. (The Cushman & Wakefield numbers don’t include August’s Akin Gump deal.)
At 620 Eighth Avenue at 41st Street, site of the new headquarters for the New York Times, 320,000 square feet of the 700,000 square feet available in the building has been leased to law firms Covington & Burling, Osler, Hoskin & Harcourt and Seyfarth Shaw, and occupancy is expected next spring.
Besides the three leases at 620 Eighth Avenue, six other major deals involved law firms leasing in Times Square. As a submarket, it’s clear the area has been targeted by the legal services industry in 2006, and activity is moving more to the once run-down western reaches of Times Square.
“The traditional Midtown grid has shifted west with a steady migration to Broadway, Times Square and Eighth Avenue,” said Richard Goldstein, executive managing director of commercial brokerage Studley, which represented Covington & Burling.
The firm, which currently has more than 100 lawyers at 1330 Avenue of the Americas, is leasing 160,000 square feet on five floors in the New York Times building. The digs come with a 20-year lease with an option to grow at an asking price of $85 a foot.
Goldstein points out the new Hearst Tower and Times building, just completed and under construction, respectively, and Worldwide Plaza, home to Cravath, Swaine & Moore LLP, all bring world-class architecture to New York. “The bulk of new product is here on the West Side,” he said.
In the recent deals, Skadden, Arps added to its Times Square presence with a 10-year sublease for 36,000 square feet at 1440 Broadway at 40th Street, two blocks from its headquarters at the Conde Nast building. Brown Rudnick Berlack Israels signed a 27,000-square-foot lease at Seven Times Square and Duane Morris LLP signed an 82,000-square-foot lease at 1540 Broadway, moving from 43,000 square feet at 380 Lexington Avenue, part of an expansion by the Philadelphia-based firm in New York.
Osler, Hoskin & Harcourt, which is taking a 15-year lease for 64,000 square feet on two floors in the new Times building, is currently at 1221 Avenue of the Americas.
Seyfarth Shaw LLP was the first tenant to sign on in the new Times building, completing a 17-year lease for floors 31, 32 and 33 — almost 100,000 square feet of space. The law firm is currently in 50,000 square feet at 1270 Avenue of the Americas. Seyfarth, which is headquartered in Chicago, has eight other offices in such cities as Boston, Washington, D.C., Sacramento, Calif., and Brussels. It specializes in labor and employment, employee benefits, business services, government and education.
“In Seyfarth’s case, it’s growing very rapidly and expects that the number of lawyers in its New York office will increase from 70 now to 125 over the next two-to-three years,” said Miller, part of a CBRE team that represented the law firm in the deal.
And just next door, Eighth Avenue and 42nd Street is in for a new building.
“Just to the north of the Times Building, SJP Properties is planning another building to open around 2011,” Miller said. “There’s tremendous interest in it already.”
Why lawyers argued in favor of Times building
What about the new New York Times building attracted law firm Seyfarth Shaw? “It’s spectacular,” said Lewis Miller, vice chairman at CB Richard Ellis, which represented the firm in lease negotiations. “The scale of the lobby, with wood floors, ceiling heights of 13-and-a-half feet and finished ceiling heights of more than 10 feet, and an open-air garden.”
“And the real estate taxes are a draw as well,” he added. “For 15 to 20 years, tenants won’t have to worry about escalations in rent.”
Richard Goldstein, executive managing director of commercial brokerage Studley, which represented D.C.-based Covington & Burling in their lease in the building, added that it’s a pilot program. “The taxes are known for a significant portion of the lease terms, which means certainty — you know your increases.”
Other amenities that particularly attracted the firms included column-free floors measuring 32,000 square feet; as Goldstein put it, “you can fit a lot of lawyers.” Miller added that there are six corner offices and plenty of interior space for support staff.
The large floor plate size allows for efficiency in recruiting attorneys and clients as well. “This location is close to the fray of Times Square, but out of the traffic,” said Miller. The 40th Street side of the building will accommodate the Town Cars that wait for attorneys, a special deal that couldn’t happen right in Times Square. Not only can drivers idle while the lawyers are working late, but a subway entrance is being built right on the grounds of the building.
Seyfarth will also get signage outside the building and that will help with recruiting, too, said Miller. (The fact that Washington, D.C.-based Covington & Burling is leasing such a large block of space — 160,000 square feet — means that signage is available to this firm as well.) As MaryAnne Gilmartin, executive vice president at Forest City Ratner, the developer of the Times building, notes: “There will be three entrances to the building and two signages per entrance are available.”
Miller said the Seyfarth deal happened quickly because the law firm was well aware of the tightening office market. “In a market that’s moving very quickly, I give them a lot of credit for moving quickly — it took just under a month from term sheet to a lease. Usually, it takes six months.”
Asking rates for the building were $70 to $80 per square foot, said Miller. Seyfarth looked seriously at 10 to 12 buildings before committing, he said.
Lawyers now trail only bankers in office leasing
The lawyers are right behind the bankers; legal services have been the second most active industry in leasing in Manhattan, making up 13 percent of leasing by industry year-to-date, behind only financial services firms, according to Cushman & Wakefield.
Figures from Newmark Knight Frank’s Peter Kozel, executive managing director of research and real estate strategies, show that from January through July 1 of 2005, 1.3 million square feet of space was leased in Manhattan by law firms; for the same period this year, the number is 1.4 million, a figure somewhat higher than Cushman & Wakefield estimates. (For the entire year of 2005, the figure was 1.8 million, according to Newmark.)
“Will we exceed the 2005 level? It’s certainly possible,” said Kozel. He attributed the activity to the pickup in mergers and acquisitions, capital markets work and the emerging options dating issue.
“The official employment numbers for law firms in New York is just starting to show some modest improvement,” he said. “Our brokers continue to report that law firms are still very much interested in finding space that can improve the efficiency of their operation.”