As money continues to chase real estate and office towers trade at a dizzying rate, landlord representatives must be prepared for the possibility of losing an assignment due to circumstances beyond their control, such as the sale of a building. In the event that occurs, landlord reps must move swiftly to find a suitable replacement.
Investment sales figures in the U.S. are compelling. In the first six months of 2005, 1,373 sales of office buildings larger than 15,000 sq. ft. closed, representing a total sales volume of nearly $31 billion, according to CoStar's National Office Market report. That compares with 1,387 office sales totaling about $22 billion in the first half of 2004.
At the same time, office vacancy rates remain several points higher than the equilibrium point of 10% in many submarkets. This situation creates a doubly difficult task for landlord representatives: They must work to attract the attention of prospective tenants and their brokers, while at the same time keep an eye on the office sales market.
Landlord reps must anticipate that the buildings they market and lease will be put up for sale during their tenure. In August 2005, for example, Colonial Properties Trust acquired a majority interest in The Peachtree Office Tower in Atlanta. It appeared to be a good deal for all parties involved in the transaction. Colonial added a landmark office tower on Atlanta's famous Peachtree Street to its portfolio, and Prudential Real Estate Investors/TMW Real Estate received a payment of nearly $44 million for selling 76% of the asset to the real estate investment trust.
Behind the scenes, though, PM Realty Group, which had the contract to lease and manage The Peachtree, quickly realized that the sale meant that the firm would be replaced. Colonial had a joint venture agreement with DRA Advisors LLC to manage The Peachtree and other properties in Atlanta.
Getting up off the mat
Instead of dwelling on the loss, PM Realty Group's Atlanta team got busy securing new leasing and management assignments. In the two months following The Peachtree transaction, PM Realty Group added two assets to its Atlanta leasing portfolio: Holcomb Woods Business Park, a four-building park in the North Fulton submarket, and the Peachtree Lenox Building, a well-known office tower in Buckhead. Moreover, in a span of six months, PM Realty's Atlanta region added about 2 million rentable sq. ft. of new assignments.
At the Peachtree Lenox Building, PM Realty Group's knowledge of the Buckhead submarket played a critical role in landing the assignment. Moreover, landlord reps in PM Realty's Atlanta office had marketed and leased the building in the past. Their intimate knowledge of the property was hard for a competitor to match. To seal the deal, PM Realty Group agreed to move its Atlanta offices to the Peachtree Lenox Building in early 2006.
Pulling out all the stops
A little marketing creativity can do wonders. When SouthTrust Bank vacated the building at 2000 RiverEdge Parkway along I-285 in Atlanta's Northwest submarket a few years ago, one of PM Realty Group's clients was left with a large block of space that included two floors below the lobby on the “garden level.” The space was very difficult to describe over the phone or in a mailer.
To drum up interest in the asset, scores of brokers were invited to tour the building and pick up a bottle of fine wine during a three-week giveaway. The heavy promotion paid off. Cognisa Security, a provider of commercial security services, ultimately decided to lease nearly 13,000 sq. ft. at the building.
The truth is that landlord reps can work themselves out of a job by successfully filling up office buildings with tenants. By doing so, owners are prompted to consider putting the property on the market to reap the benefits.
The key is to establish and maintain relationships with as many owners as possible. Landlord reps and property managers must anticipate that a certain portion of their leasing and management portfolio will turnover, and they must court new prospects. Real estate is a relationship business, and never is that more evident than in this tumultuous market.
Bill Weghorst is a senior vice president of PM Realty Group and director of its Atlanta region.