For City Landlords, 2008 Could Be Downtown’s Doomsday
Large blocks of space all coming due at same time means big changes likely
FEBRUARY 26, 2007
By MATHEW L. BROWN, Hartford Business Journal Writer
Lest the enthusiasm over the city’s strong 2006 office market reaches too high a pitch, brokers say there’s at least potential for 2008 to be a year the city wishes had never been.
Several major office leases expire in 2008. Failure to renew those leases this year could mean trouble for prominent office buildings like CityPlace and 280 Trumbull Street.
Each of those buildings already has some vacancy, and losing a key tenant could bring them to the brink of insolvency, according to city brokers.
At the very least, it’s likely that commercial tenants and landlords are going to play a game of musical chairs. And when it’s done, some of downtown’s weaker buildings may fail altogether.
According to brokers, building owners and major tenants are already talking about what it would take to get those leases renewed.
Larry Levere, office specialist with Sentry Commercial in Hartford, said 2008 “has the potential” to be a monster for building owners, but remained optimistic.
“If you believe the rumors,” MetLife is moving from its CityPlace offices to Bloomfield, Levere said.
That move would leave four floors, 300,000 square feet of Connecticut’s most prominent office tower, vacant.
“I think it’s all going to play out earlier than that,” he said. Already, law firm Day Pitney vacated three floors at CityPlace in the last half of 2006. The law firm moved nearby to 242 Trumbull St., owned by Northland Investment Corp.
“There are a number of moving pieces, but deals that are that big” tend to be done well before deadline.
For example, in late January, Lincoln Financial renewed its Metro Center lease, which would have expired in 2008. But in the process, Lincoln abandoned 50,000 square feet of space in the building, keeping just 190,000 square feet rather than the 240,000 square feet it currently occupies.
Elephant In The Room
Jay R. Wamester, a partner with Colliers Dow & Condon in Hartford, said the MetLife lease “is a huge concern.” But it’s not the only insurance company with a large lease set to expire, and the expirations could send city officials, building owners and brokers scrambling.
Just ask the folks at Calare Properties. At their dead vacant 140 Garden Street building last fall, they put on a lavish buffet lunch for the city’s most high profile commercial real estate brokers.
The former home of the Massachusetts Mutual Life Insurance Co. is 451,137 square feet, and is dragging down Hartford’s vacancy rate. Calare and Hackman Capital Partners are working on an ambitious renovation project there, but even they don’t know if that will be enough to actually fill the building with tenants.
“Pick any big insurance company in Hartford,” Wamester said. “They have a lot of space, and they have leases that roll over in the next couple of years.”
“Hartford is a market of large users,” Wamester said. “If we lose one, if Met Life moves out of 400,000 square feet, it’s big. It would be hard to replace a tenant of that size. The only likely candidates for space of that size are other large insurance companies. It’s hard to fill with organic growth, or with other tenants moving into Hartford, which we rarely see.”
One scenario that could play out is the taking of smaller portions of vacant Class A space by tenants currently in Class B or Class C space. Such a migration, though, would wreak havoc on the city’s Class B and C market vacancy rates, which are already high.
Still, Levere said things tend to fall into place, especially if tenants and building owners play their cards right.
Prudential’s lease of 232,000 square feet at 280 Trumbull expires later this year. According to Levere, Prudential has already signed a letter of intent to renew its lease.
Wamester, who represents 280 Trumbull owner Michael Grunberg, said things are going very well in negotiations.
During renewal negotiations, every tenant has different needs, wants and strategies for dealing with building owners.
“One tenant might say, ‘six months of free rent would really help,’” Levere said. “Or some might say, ‘looking at the five-to-seven year horizon, I could really use a discount’” on the monthly rate. Still others say they’ll pay market rent as long as the building owner fronts some money for office improvements or renovations, Levere said.
And these days, downtown building owners are inclined to cooperate with their tenants’ requests.
Big office tenants are constantly tempted by the nearly unlimited supply of free parking offered by relatively new, high tech office properties in the suburbs.
“No one is going to move downtown if they don’t live downtown,” Wamester said, because the parking bill for a company that employs 2,000 in Hartford can become astronomical.
Wamester said MetLife hasn’t heard so much as a “please stay” from Hartford Mayor Eddie Perez, who just a few weeks ago gushed over the renewal of Lincoln Financial’s lease.