Outside of a handful of primary markets and property types, real estate continues to suffer. Yet in many jurisdictions, assessors have failed to decrease taxable values to keep pace with real estate market declines. As a result, savvy owners and managers have been appealing their assessments with ever-increasing regularity, weighing down local and state tax board and court dockets with a ponderous backlog.

In some communities, assessment appeals are now years behind. In litigious markets, the appeals themselves often last several years. Thus, tax cases are taking years longer to resolve at a time when taxpayers needed relief yesterday.

In Ohio, Pennsylvania and New Jersey, to name a few states, tax cases commonly wait on the docket for two or more years, but today some cases are unlikely to be resolved for four or more years.

On the other hand, in states like Florida and Texas, taxpayers are still getting relief at the informal and board levels. These states have annual assessments and are accustomed to a large number of appeals. Moreover, since assessors in those states have tended to keep pace with the changing market in annual revaluations, assessments have already been reduced in many instances.

The length of time it takes to resolve a case in a particular state often reflects at which stage of the appeal process most cases reach a resolution. States with a faster turnaround time are generally those that grant greater leniency for assessors to resolve issues.

Where greater flexibility exists, taxpayers with limited evidence can discuss the macroeconomic changes that took place while offering specific evidence, allowing for a true give-and-take negotiation and resulting in fast, meaningful changes to tax assessments. Where assessors and boards are deprived of sufficient latitude, assessment appeals tend to take on a court-like atmosphere where each fact is argued, often resulting in an appeal of the local board’s decision. This litigation delay is com- pounded when other taxing authorities, such as school districts, intervene in the process.

A tax appeal backlog is a symptom of a system that disfavors taxpayers. There will always be a group of cases that are complex and require further appeal, or that involve taxpayers who are not fully satisfied. But delay is almost always against taxpayers’ interests, while if a great number of taxpayers routinely appeal to a higher board or court, it is clear they did not get a proper result at the lower level.

Backlog is unfortunately viewed as the problem, and as a result administrators address the backlog and not the underlying issue. For instance, some states are shortening the trial time of a case. For commercial cases, the taxes contested are often in the tens or hundreds of thousands of dollars, having the effect of reducing taxpayers’ investment value by millions of dollars.

In Kansas, there has been talk of potentially limiting trials to a half-day. That may be insufficient time for cases involving complex commercial properties. In Ohio, the tax commissioner has proposed a small-claims section to alleviate pressure on court time. Several Pennsylvania counties are turning to arbitration, with great success. Other states look at funding or ease of filing as the problem, and are imposing higher filing fees to either raise funds or dissuade taxpayers from filing appeals.

Navigating the Logjam

The key to successful litigation in a state with significant backlog is to consider that backlog at the outset and to determine if the benefits of a quick result outweigh a more satisfactory result months or years later.

Local counsel is a key to understanding the ebb and flow of court dockets, as well as understanding opposing counsel’s needs and wants, to be able to structure the best deal possible for a taxpayer. In some instances, taxpayers can take advantage of the backlog when there is a large pending refund. It may be possible to negotiate a reduction in the refund by taking it as a tax credit over time instead of having the possibility of that refund being reduced dramatically or taken away completely in a trial.

Finally, in an environment where government fiscal needs may be in direct opposition to taxpayers’ need for fairness and uniformity of taxation, it is helpful to get involved with regional and state chambers of commerce and trade groups. These organizations are working toward solutions to real taxation problems and not just the issue of backlog.

Kieran Jennings is a partner with the law firm of Siegel Siegel Johnson and Jennings, which focuses its practice on property tax disputes and is the Ohio and Western Pennsylvania member of the American Property Tax Counsel, the national affiliation of property tax attorneys. He can be reached at kjennings@siegeltax.com.

Technology is changing the rules for real estate management. A constantly expanding roster of new tools offers potential for automating formerly labor-intensive tasks in a way that could improve the efficiency and effectiveness of operations. Real estate managers today use technology for a bewildering variety of tasks, from managing expenses and depositing rent checks in the bank to processing lease applications and maintenance requests.

Innovative tools that seemed unimaginable not long ago are a sure bet to come on the market in the next few years. Technology that automates many new functions is on the way. These trends will demand “a need for competence and understanding of information technology net- works,” observed Frank Santella, director of the U.S. General Services Administration’s Smart Buildings program. “During the next five or 10 years, property managers are going to have to have that basic understanding of IT networks.”

Managing these new property management tools itself calls for a strategic approach. One critical choice is whether to select products for each task that are considered best-in-class but may not be designed to integrate with popular platforms. The other path is to favor technology with an eye toward its ability to work with the most common products.

For many property management executives, the choice is clear. “If a software (product) does not integrate, we won’t talk to the vendor,” said Lori Burger, senior vice president & director of marketing for Eugene Burger Management Corp. “We want everything to integrate.” That way, accounting, maintenance, bill paying and other tasks can function all of a piece. Yet Burger also warned that the idea of integration itself appears to have different meanings to different vendors. Managers will select a product that is billed as clicking with a given platform, only to find that the product actually needs significant modification before it works smoothly with the larger platform. That requires diligence on the part of the real estate manager to determine the true parameters of integration for a particular product.

As in other commercial real estate special- ties, the spread of technology in property management has had fringe benefits. The opportunity to learn cutting-edge skills “tends to attract sharp people who value training,” noted Joe Greenblatt, president of Sunrise Management, a San Diego-based multi-family management specialist. “We also attract and retain sharp people who truly want to be part of a progressive organization.” This is good news for those worried about the forthcoming wave of retirements by Baby-Boom generation property management professionals. The opportunity to work with innovative, sophisticated technology platforms could prove to be an enticement to young people who have their pick of commercial real estate specialties.

Given the sophistication of today’s products, property managers need continuous training to keep up. Among forward-thinking owners and third-party providers, learning never stops. At the same time, education in technology requires choices. One area that can call for trade-offs is the time dedicated to training the staff. “A lot of these software packages will make you more efficient, but there are only so many hours in the day for training and integration,” Burger explained. One strategy that has proved particularly effective, she added, is hiring a staff member dedicated to training the team in specific platforms and troubleshooting any problems that the property management team may have. Rather than attempting to use every aspect of a platform from the beginning, Burger Management prefers to introduce its functions one by one as the staff masters each element.

Making the most of today’s new tools calls for nimbleness and circumspection. “Technology is advancing fairly rapidly. You’ve got to be able to deploy it pretty quickly,” said Charles Rau, senior vice president & chief technology officer for Forest City Enterprises Inc. Equally important, however, “you don’t want to go down the wrong path.” Rau cites the iPad as an example of a popular product that has a few significant gaps when it comes to the needs of real estate professionals. For example, the most recent version lacks both a USB port and the capacity to run Adobe applications.

Another balancing act occurs for firms that manage geographically diverse portfolios, whether in house or through outside service providers. The challenge is to maintain as much consistency as possible while still addressing the diverse needs of a company’s end users. In an effort to meet both goals, the General Services Administration is in the early stages of an exercise that will help to standardize elements of its IT system over the next several years.

Currently, the agency oversees eight to 10 computer maintenance management systems nationwide. Recently, it took the first steps toward creating a uniform platform, including developing naming conventions to promote consistency in asset inventory. Standardizing the system will allow the agency to more systematically assess operation trends and building performance across a portfolio that encompasses upwards of 364 million square feet of owned or leased space in 9,600 buildings that house a broad spectrum of federal agencies.

“We can make decisions around the cost of equipment, and we can provide analysis on a national level,” Santella explained. “We feel that coming up with a standard approach is going to have some financial benefits.”

Even for portfolios much smaller and less far flung than the GSA’s, geographic diversity can present a hurdle to meeting the IT needs of property managers. As it turns out, there is no substitute for legwork. “You have to be very aggressive in reaching out to (outside) customers and internal customers and understanding what they’re trying to accomplish,” Rau said. “You can’t just sit in your ivory tower.” In working with its in- house and third-party property management clients, Forest City’s IT team is tasked with under- standing the nuances of operating a retail, office or residential property in a specific local market, he explained.

Today’s sophisticated, multi-faceted property management products have capabilities galore when they come off the shelf, but there is a high probability that they will need tweaking before they are ready for prime time. Burger Management recently went through such an exercise. The condominium associations that make up a sizeable portion of the company’s clients have widely varying formulas for calculating fees for late payments. But Burger quickly discovered that the software it had selected did not account for that variety, a gap that limited the product’s usefulness to condo associations.

Alerted to the problem, the vendor worked closely with the Burger team in order to create a mechanism capable of adjusting to each condo association’s needs. The modifications took time, but the effort paid off for all concerned. “We explained to them what we needed, and they fixed it,” Lori Burger explained. “They were able to use our knowledge to make a better product—and make a better product for us.”

Occupy Wall Street protesters in Zuccotti Park.

When Brookfield Office Properties Inc. delivers its combined fourth-quarter and full-year financial report for 2011 early this year, the New York City-based REIT will have no shortage of highlights to report. In December, Brookfield led a consortium in the $215 million purchase of Denver’s second-tallest building, the 54-story, 1.4 million-square-foot trophy tower located at 1801 California St. That deal followed one of the nation’s biggest office renewals of the year: a 767,000-square-foot lease with Bank of America/Merrill Lynch at the World Financial Center in Downtown Manhattan.

Yet the most remarkable event of 2011 for Brookfield—as unusual as anything encountered by a U.S. real estate firm in the last few years—will probably not appear on a financial statement. That, of course, was Brookfield’s unsought role last fall as the host of the Occupy Wall Street protests. The demonstrators picked a park managed by the REIT as the site of the occupation because of its proximity to Downtown Manhattan’s financial district. For decades, Brookfield had owned and maintained the park as a public amenity without incident. In a matter of weeks, Occupy Wall Street turned it into the subject of national debate and sparked imitators around the country.

Whether the circumstances of Occupy Wall Street are duplicated in another major city, the degree of the challenges—and Brookfield’s response—raises broader questions for real estate investors, operators and managers. As the owner of a property that became the focus of global attention overnight, Brookfield faced a host of legal, political, ethical and media relations dilemmas. The challenges addressed by Brookfield should strike a responsive chord across the industry. Many executives, if not most, will face a situation that compares with the Zuccotti Park incident in degree of difficulty, if not the specifics. Brookfield’s public conduct during the crisis offers food for thought to executives dealing with difficult, high-profile situations not of their own making.

“The situation in Zuccotti Park was unusual, but when you’re in real estate, you’re constantly faced with unusual situations,” said Stuart Saft, partner & chair of the global real estate practice at the law firm Dewey & Leboeuf L.L.P.

To begin with, the occupation of Zuccotti Park presented Brookfield and New York City officials with hard-to-reconcile imperatives. On one side was the need to practice good corporate citizenship and to respect the protesters’ First Amendment rights, priorities that New York City Mayor Michael Bloomberg made clear early in the occupation.

On the other side of the dilemma, Brook- field also had obligations to keep the park safe, clean and available to the public at large— even though steps taken toward that end risked public misunderstanding and ill will. Evicting a group of protesters that had gained public sympathy and favorable media attention had little obvious upside. Throughout the occupation, the company also had to carry on the regular business of a large, publicly traded real estate investor and operator while dealing with a politically sensitive issue.

Dealt this unattractive hand, Brookfield could only make the best of a situation that offered little upside. Brookfield itself has so far refrained from talking publicly about its strategy, and could not be reached to comment for this article. But all evidence suggests so far that the REIT managed the occupation of Zuccotti Park with model patience and restraint.

“I think they handled it as well as anybody could have,” said Jahn Brodwin, managing director with the advisory firm FTI Schonbraun Mc- Cann. “I think what they did was they allowed the fire to burn itself out, with a little nudging.”

One challenge for Brookfield during the occupation stemmed from Zuccotti Park’s dual identity. Under a zoning variance common in New York City, Brookfield, like other Manhattan developers, provided privately owned open space to the public in exchange for permission to add height to its development projects. Toward that end, Brookfield established Liberty Park—renamed in 2005 for John Zuccotti, the firm’s co-chairman and a former city official. The public side of that public-private equation places considerable restrictions on the owner that became an issue in this case. For instance, zoning regulations limited Brookfield’s latitude to evacuate and close the park, even though it owns the space.

A telling incident unfolded 27 days into the occupation. Brookfield announced a cleanup scheduled for 7 a.m. Friday, Oct. 14, that would have required the protesters to leave the park, at least temporarily. Prior to the announced action, the company informed protesters that they would not be allowed to bring back items that aid overnight stays, like tents, tarps and sleeping bags.

A confrontation between police and protesters seemed imminent. On the eve of the planned cleanup, however, Brookfield announced that it was putting the action on hold. Its stated reasons for the change emerged the following morning in a statement by Cas Halloway, the city’s deputy mayor. “Brookfield believes they can work out an arrangement with the protesters that ensures the park remains clean, safe (and) available for public use, and that the situation is respectful of residents and businesses downtown,” Halloway said, “and we will continue to monitor the situation.”

Occupy Wall Street seized on the postponement as a victory; there are suggestions that complexities behind the scenes had mounted for Brookfield and the city. Bloomberg himself dropped a strong hint. “My understanding is that Brookfield got lots of calls from many elected officials threatening them,” the mayor said during his weekly radio program on WOR-AM.

That pause only delayed a final reckoning, however. Brookfield and city officials were increasingly concerned that the round-the-clock
habitation of the park posed unacceptable risks to public health and safety, as well as effectively preventing its use by others. The legal basis for removing the demonstrators was confirmed by judicial rulings: According to established case law, constitutional guarantees of free speech and free assembly do not imply an unlimited right to occupy a public space indefinitely.

Outreach & Communication

As the police cleared the park after midnight on Nov. 15, Brookfield communicated enhanced safety and security measures to tenants at One Liberty Place. In an email obtained by the Village Voice, Brookfield named preferred building entrances in case the operation interrupted access at other points. The memo added that management would keep tenants informed by email and the building’s public address system, and promised to alert police to suspicious activity.

Though Occupy Wall Street’s supporters roundly criticized the removal of the encampment, police accomplished the action with a minimum of the violence that had marred similar operations. In a brief statement issued later that morning, Brookfield thanked Bloom- berg and participating city agencies. Given the “dangerous, unhealthy and unsafe” conditions at the park, the REIT explained, “it would have been irresponsible not to request that the city take action.”

Moreover, Brookfield continued, “we have a legal obligation to the city and to this neighborhood to keep the park accessible to all who wish to enjoy it, which had become impossible.” As demonstrators regroup for the next few months, winter weather will probably put a temporary chill on the nationwide protests sparked by the Zuccotti Park occupation.

Yet veteran industry advisors warn against complacency. Brookfield’s experience, they say, sends an urgent message. “Come the spring, we’re going to see more of this,” Saft predicted. In the meantime, he said, take the opportunity to get ready. Waiting until a surprise incident occurs, and then being forced to improvise, is a poor substitute for a strategy to address the unexpected: “It’s really something to plan (for) way in advance,” he said.

Exterior sun-shading devices, long popular in Europe, are just starting to attract a following in the United States. They carry a number of benefits, although their long-term payback period remains a deterrent to adoption.

Those pursuing them, among them sustainability leader Hines, may choose from a couple of different options. One is the fixed shading devices that appear poised for increasing popularity among the next generation of U.S. high-rises; the other a modern motorized, or “dynamic,” alternative.

A meaningful benefit of motorized systems is that they adjust movable parts to maximize daylighting on cloudy days—or pretty much any time the sun isn’t shining directly onto the corresponding façade.

But while retractable operable shading elements such as louvers and rollers tend to be quite effective minimizing heat gain in low-rise buildings, their applicability is limited for now because high winds become a daunting challenge above five stories or so, related Mark Perepelitza, associate partner with Zimmer Gunsul Frasca Architects.

More new low-rise commercial developments will likely see combinations of fixed and dynamic systems—as is the case at First Western Development’s four-story The Terry Thomas in central Seattle’s South Lake Union district. The property’s automated louvers and blinds and fixed shading devices are coordinated with operable windows and various other design and operational strategies allowing for passive cooling via natural ventilation.

Accordingly, the Weber Thompson-designed project doesn’t need a mechanical cooling component whatsoever, a fact that also provides space for higher ceilings that help with ventilation as well as tenant marketing. Likewise, its fixed glass shades are strategically tinted, installed and angled outside certain windows to help retain views while minimizing heat gain and glare.

For his part, Jerry Lea, Hines’ vice president of conceptual construction, expects U.S. developers to opt for more motorized models going forward as subcontractors here become accustomed to installing sophisticated systems that have become popular in Europe.

And Rob Kistler, founding principal of The Façade Group, suggested the shading-system discipline generally is bound to see even more innovation in coming years as it adapts to quite an array of high-tech energy-efficient and even energy-generating glazing systems that are about to take hold in commercial buildings.

Shading device developers in fact already have all manner of as-yet-unrevealed cool and futuristic systems in the works based on client input, he added—but purposefully avoid showing their hands to competitors before initial installations.

For more on the benefits of these shading systems, see “Aid in the Shade,” which appeared in the January 2012 issue of Commercial Property Executive (available in the digital edition).

Blackstone is no stranger to huge deals, and its latest transaction makes it the owner of 3.5 million square feet of industrial property in the United Kingdom. Prologis Inc. sold the 13-property portfolio for an aggregate $335 million.

“We were pleased with the amount of interest this portfolio garnered as the combination of quality assets and lease term appealed to multiple investors,” Philip Dunne, president of Prologis Europe, said. “We have sold this portfolio as it no longer fit within our investment strategy, and offered us the ability to redeploy our capital.”

The portfolio comprises 13 properties located in England’s Midlands and Yorkshire. The properties are 100 percent leased with an average unexpired lease term that exceeds nine years.

Blackstone has been picking up large parcels of property in multiple sectors of late. In early January, the firm — in a partnership with DDR Corp. — spent $1.4 billion on a 47-property retail portfolio across 20 states. In December, Blackstone purchased 36 shopping centers from Equity One Inc. for $473 million, including the assumption of $177.4 million in debt. In October of last year, the firm purchased $1.1 billion of office assets from Duke Realty Corp., netting it 10.1 million square feet of property across 82 buildings.

The U.K. industrial market is similar to its Stateside counterpart, ending the year on a mixed note as events in Europe threaten to erode the confidence that rose toward the end of 2011. According to a fourth-quarter report by services firm Cushman & Wakefield Inc., manufacturing surveys at year’s end pointed to improved performance in December, but the strong showing didn’t erase the weaker outturns for October and November – when many producers reported their worst quarters since the middle of 2009.

Image courtesy Wikipedia user Wyn Van Devanter

The U.S. General Services Administration has selected the Trump Organization as its preferred team to handle a $200 million redevelopment of the Old Post Office building and annex in Washington’s Federal Triangle neighborhood, the GSA announced Tuesday. Under the Trump Organization’s proposal, the Old Post Office will, perhaps unsurprisingly, be converted into a luxury hotel with more than 250 rooms, upscale restaurants, a spa and conference facilities, while still preserving the building’s Romanesque Revival architecture.

Under the RFP, GSA and the Trump Organization will spend the next year negotiating a detailed redevelopment agreement that will specify usage, historic-preservation requirements and the federal government’s revenue stream. In the meantime, GSA will relocate the building’s current federal tenants, which include the Advisory Council on Historic Preservation, National Endowment for the Arts and National Endowment for the Humanities.

If negotiations proceed as expected, redevelopment is expected to start in 2014, with occupancy in 2016. At the end of the lease, control of the building will revert to the federal government.

Built between 1892 and 1899, the Old Post Office was already considered old-fashioned when it opened. The D.C. Mail Depot was moved to a larger building in 1914, and in the 1920s the Old Post Office faced demolition.

A lack of money during the Great Depression kept the building open, but in 1964 a federal commission recommended taking the building down. Though demolition permits were issued, historic preservationists fought for the building. In 1973 it was added to the National Register of Historic Places, and an extensive renovation began in 1976.

A generation later, the building had outlived its usefulness as federal office space, and Congress directed GSA in 2008 to enter into a long-term lease under Section 111 of the National Historic Preservation Act, thereby guaranteeing the restoration and retention of all of the building’s historic features, while allowing the private sector to determine how to develop it to its fullest potential.

Although redeveloping historic properties is often perceived as a niche activity, GSA is currently involved in several such projects.

One is in Grand Junction, Colo., where in February 2011 the agency announced plans to turn the 92-year-old Wayne Aspinall Federal Building and Courthouse into the nation’s first net-zero energy usage building on the National Register of Historic Places.

If the redevelopment meets its goals, the building will in the course of a year produce as much energy as it consumes. The project is also aiming for LEED Platinum certification. GSA will install a geothermal heating/cooling system that uses the warmth or cold of the ground to help control temperature. A solar panel array is projected to generate enough energy to balance out the building’s electrical demand.

After the project is completed in January 2013, nine federal agencies will take space in the Aspinall Building.

A vastly bigger GSA historic-redevelopment project is getting under way in D.C.’s southeast quadrant, where a former mental hospital overlooks the Potomac and Anacostia rivers.

The creation of the Department of Homeland Security was the largest restructuring of the federal government since the creation of the Defense Department. Similarly, the $3.4 billion St. Elizabeths project, which will be DHS’ new home, is the largest federal construction project in metro Washington since the Pentagon was built during World War II. St. Elizabeths was established by Congress in 1855 as a government hospital. Currently, the 118-acre east campus is owned by the D.C. government, and the 182-acre west campus is owned by the federal government.

Ground was broken in September 2009 on the new 1.2 million-square-foot headquarters of the U.S. Coast Guard, which is scheduled for completion in 2013. The $450 million building is being funded under the American Recovery and Reinvestment Act of 2009.

Most of the St. Elizabeths project, however, will involve adaptive reuse. GSA will preserve 51 of the 62 buildings on the west campus, while incorporating many sustainable elements. For example, about 80 percent of the roof area on the new buildings will be green. GSA’s goal is to achieve LEED Gold certification.

A few sizable recent deals involving federal, state and county government agencies as office tenants has been trending of late, and Commercial Property Executive wanted to know more. With the severe budget cuts, and in many cases outright downsizing, hitting all levels of government, are government tenants as desirable to office building managers and owners as they were pre–Great Recession?

Conversations with brokers who specialize in such tenants indicate that although government agencies are not loved less these days, office landlords will continue to see less of them to love. Reductions in the sizes of government agencies, compounded by a push to use less space per worker, mean that, although these agencies remain credit tenants, their space requirements will in many cases shrink significantly.

Ripples into Waterfalls

“I’ve never seen the federal government under so much pressure from so many angles,” says Chris Roth, managing director and national project manager for Jones Lang LaSalle’s National Broker Contract, where he works primarily with the General Services Administration and other federal agencies. This pressure is coming both from Congress and from within individual agencies, he says.

“There is this move toward rationalization of costs” at various levels of government, and real estate is part of that, agrees Vineet Sahgal, executive vice president of Tenant Advisory Services for Transwestern.

For example, he says, pressure is being exerted on government to get its office use metrics in line with private-sector standards. One upshot is what Sahgal describes as “a more fluid situation” for governmental office tenants than in past years.

The prolonged recession isn’t causing a ripple effect, “it is a waterfall effect” on governments, says Kurt Little, a managing director at Jones Lang LaSalle, Chicago, who works exclusively with state, county and local governments nationwide.

Saving money is more of a priority now than ever for public entities, he says, and states are looking to cut costs by reviewing their entire real estate portfolios and downsizing as advisable. By and large, states “took longer to make tough decisions” about real estate than the private sector did, Little says, and are now trying to catch up.

Roth adds that the states often lag the federal government in having the data to identify all the space in their portfolios, but that once that has been pulled together, the effects will be seen in lease negotiations and transactions.

Substantial Cuts

So that’s the “why,” now for a look at the “how” and “how much.”

Little says that a 10 percent saving in space from restacking is “nearly a slam-dunk,” with up to a 30 percent reduction possible in some cases. These space savings come from such changes as decreasing the numbers of private offices, conference rooms, and copiers and printers a government tenant has.

“It’s a methodical process,” Little says, and typically takes 12 to 36 months.

Because government agencies are looking at tactics like new layouts, more efficient furniture and hoteling, says Roth, landlords these days are concerned that a government tenant will come back with proposal for 10 percent to 30 percent less space.

“If anything makes them less desirable” as tenants, Roth says, “it’s that.”

He adds, however, that in some cases, if their headcount projections are uncertain, agencies are looking for the flexibility to grow during the lease term. For this and other reasons, Roth says he wouldn’t be surprised to see shorter lease terms for governmental tenants, with fewer 15s and more fives, sevens and 10s.

On an even more strategic level, Little says, governments are carrying out occupancy assessments, evaluating issues such as leasing versus owning. He notes that although governments can be tempted to focus on selling surplus real estate, there’s usually greater long-term value from optimizing day-to-day operating costs like utilities and janitorial services.

Many county and state agencies, Little says, are spending twice as much per square foot on office space as a typical private-sector tenant.

Still Looking Good, Regardless

Because of regulatory changes and/or shifts in government’s role, Sahgal says, government demand for space fluctuates in ways that aren’t necessarily in synch with the rest of the economy. He cites as an example the establishment and growth of the Department of Homeland Security.

Some investors, he says, therefore see government-leased space as a business cycle–neutral play, although this can depend on the specific agency. The IRS, for one example, Sahgal guesses, is unlikely to be shrinking.

And if governments these days are more interested in sale-leasebacks, he says, there’s “a whole swath of investors” looking for such fully leased buildings. Even if a government entity were to vacate such a building, Sahgal says, a CBD location would still be a viable investment.

(Sahgal does mention one unique aspect to government office tenants. Some private-sector tenants dislike co-locating with certain governmental offices, such as the IRS, state or federal law enforcement agencies, or state unemployment agencies, because of the potential for business disruption from the occasional bomb threat to the building. It happens.)

Federal agencies are still credit or better-than-credit tenants, concludes Roth, and they still have plenty of negotiating leverage just because of their sheer size.

And that’s also true at the state level. One state client of Little’s will be vacating about 30 percent of a building they currently lease all of, and he’s confident that their new lease will nonetheless be for a lower rate.

“The federal government negotiates very aggressively,” says Roth. “They benchmark commercial rates,” which creates “marks on the wall” for companies like JLL.

“They’re pretty cutting-edge on that stuff,” he adds. “As a taxpayer, that’s good to hear.”

J.P. Morgan Asset Management has turned over to CBRE Group Inc. the property management and leasing of five buildings totaling 4.2 MSF in the Houston Center complex on the east side of downtown Houston, CBRE announced yesterday. J.P. Morgan acted on behalf of institutional investors it advises. The five buildings are Class A office buildings 1 Houston Center, 2 Houston Center, Fulbright Tower and 4 Houston Center, as well as retail-based The Shops at Houston Center.

Built between 1974 and 1984, Houston Center helped revitalize the east side downtown area, eventually encouraging the development of other large-scale buildings such as Minute Maid Park, Toyota Center, Discovery Park, Hilton Americas Hotel and Hess Tower.

CBRE provided Commercial Property Executive with additional particulars on the individual buildings. One Houston Center/LyondellBasell Tower, located at 1221 McKinney St., spans 1.1 million square feet across 46 stories. It was built in 1978 and is 93.9 percent leased. The building was renamed LyondellBasell Tower late last month after a lease extension by the Dutch-headquartered multinational chemical company.

Two Houston Center, located at 909 Fannin St., spans just more than 1 million square feet across 40 stories. It was built in 1974 and is 91.7 percent leased. Fulbright Tower — formerly Three Houston Center — is located at 1301 McKinney St. and spans 1.25 million square feet across 51 stories. It was built in 1982 and is 86.8 percent leased. The named tenant is Fulbright & Jaworski L.L.P., one of the 50 largest law firms in the country. The final office building, Four Houston Center, is located at 1221 Lamar Ave. and spans 674,000 square feet across 16 stories. It was built in 1983 and is 91.5 percent leased.

The retail component, The Shops at Houston Center — formerly known as Park Shops — is located at 1200 McKinney St. It spans 200,000 square feet. The Shops was built in 1982 and heavily renovated in 2003; it now stands at 80.4 percent leased. As is typical of downtown, service-center retail, it has no large anchors, instead mostly convenience and lunch-oriented tenants.

According to just-released figures from the Greater Houston Partnership, the city led Texas in job growth last year, accounting for one of every three jobs created in the state. The 10-county Houston area added 75,800 jobs, a 3.0 percent increase in metro-area employment over the previous year.

Fountain Place in Dallas

Building on its “longstanding relationship with J.P. Morgan,” services firm Cassidy Turley has just landed a contract to lease and manage 2.5 million square feet of office space owned by the banking firm’s institutional investors. The assignment will span two properties: Dallas’ 1.2 million-square-foot, 60-story Fountain Place and Houston’s three-building, 1.3 million-square-foot Post Oak Central. J.P. Morgan Asset Management awarded the contract to Cassidy after a bidding process that was opened up to a number of firms, but signed the final arrangement within 60 days, Commercial Property Executive has learned.

“As a firm, we work with J.P. Morgan on multiple accounts,” Bret Bunnett, regional managing principal with Cassidy, told CPE. “And we are expanding our relationship with J.P. Morgan in a significant way with these two assignments.”

Fountain Place, at 720 feet, is the fifth-tallest building in Dallas. Its current tenant roll includes Hunton & Williams, L.L.P., Wells Fargo Bank, and Tenet Healthcare Corp. According to Bunnett, the property is 90 percent leased. Post Oak Central, which is 94 percent leased, houses Apache Corporation – which signed a nearly 600,000-square-foot lease renewal and extension earlier this week – Suez Energy North America Inc., Stewart Title and and Cox Radio.

Texas, as a whole, has fared well during the economic downturn of the last few years. According to a fourth-quarter report by services firm Marcus & Millichap Real Estate Services Inc., Houston will lead the nation in job growth in 2012, with employers adding 87,000 jobs for a 3.4 percent increase in employment levels. “Houston [led] the nation in hiring through the first three quarters [of 2011],” the report noted, “followed by nearby Dallas/Fort Worth.”

“We expect these buildings will continue their history of success,” Bunnett said. “We’re poised to take Fountain Place to at lease 96 percent [occupancy] and Post Oak all the way to 100.”

This contract brings Cassidy Turley’s Texas office management holdings to approximately 22 million square feet in Dallas and Houston alone.

Artist's rendering of ground-level retail at 530 Fifth Ave. after renovations.

While there have been some predictions for the cooling of the New York City office market, and even some talk of Downtown becoming the new hotspot of development, don’t ever count out Midtown. Near the close of yesterday’s markets, Jamestown Properties and Rockwood Capital announced the $390 million acquisition of 530 Fifth Ave. – also known as the Bank of New York Building – which is soon to undergo a $20 million renovation to bring the property to Class A standards. The purchase’s partnership also included Crown Acquisition and Murray Hill Properties.

“530 Fifth Ave. is considered an iconic building on Fifth Avenue and we look forward to restoring the property to prominence,” Michael Phillips, COO of Jamestown, said. “In addition, Fifth Avenue south of 48th Street has become a hot-bed of retail activity in the last year, and following the renovations at 530 Fifth Avenue, the building will be a stand-out option for retailers.”

A report in the third quarter of 2011 by Jones Lang LaSalle Inc. found that Fifth Avenue was the second-most-expensive street, on average, for domestic asking office rents at $97 per square foot. Similarly, Cushman & Wakefield Inc.’s data showed that the Midtown market, which ended 2010 with a 10.6 percent vacancy rate, saw that number fall to 9.6 percent by the end of 2011. Class A asking rents in the same time period increased from $67.27 to $71.22 per square foot.

The building’s office-leasing efforts will be led by Newmark Knight Frank’s president, David Falk. “When the building is re-introduced with the proposed renovations underway, I believe there will be tremendous interest from tenants that want the Grand Central location but are looking for a building that matches a company’s high-profile brand and image.”

Retail development and leasing will be handled by Jamestown and Crown, which will likely prove to be a fruitful initiative. According to Cushman, Upper Fifth Avenue saw a fourth-quarter 2011 average ground-floor asking rent of $2,338 per square foot, a 12 percent increase from the previous quarter. Lower Fifth Avenue, where the acquisition is located, increased 50 percent in the same timeframe to a record $865 per square foot.