Office Space: Short Term Leases in NY
Submitted by
CalculatedRisk on Tue, 03/10/2009 - 2:13pm (51 comments)
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This comment thread has been HALO-IZED by CRbot.
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blah blah chinese proverb about "interesting times" blah blah
It is a great time to rent!
Yes we can!
“This is the first time that I can remember when both landlords and tenants want to do short-term leases,”
So whos on the losing side of the trade? Seems to me like the tenant has to much faith in himself. IE he thinks he might be able to stay around and not go BK but everyone else will around him... Then again the landlord things things are going to turn around...
Both seem a little disconnected from reality if you ask me...
Tenant is thinking rents are headed south, so why get tied to a long term lease when your competitors could undercut you if rents fall? Landlords think the bottom is in, why get tied to a long term lease and miss out on the potential income.
One good thing that might come out of this is that tenants wont be able to put below market rental rates as an asset on their balance sheet...
--
"Both seem a little disconnected from reality if you ask me..."
"disconnected from reality" is a good definition of a dope "if you ask me."
Jas
This only furthers my belief in the "I'm different" theory.
First it was the US is different (or entry country name). Then it was my industry is insulated and different. Then it was my company is still competitive and we're going to be just fine. Then it comes to I'm a better work than Joe next to me. I'm different.
But when you finally get in the bread line you'll realize that everyone puts their pants on one leg at a time...
..................
A couple of years back, the seminole chief was tslking about buying back Manhattan "one burger at a time". Wonder if he still wants it.
Tenants should negotiate short term leases with several optional additional years on the contract. It isn't like the landlords have much choice right now if they like money.
Greater uncertainty = Bias to short term
Both sides are acting logically
The problem is if all these leases clump together and roll over while the downturn is ongoing. Will cause rapid acceleration of price fall. Well not so much a problem, but increased sensitivity to spot rates I should say
Greater uncertainty = Bias to short term ~EHP
Only if the path is equally distributed to the upside and the downside. I'm thinking 75% downside and 25% upside probability... (At best)
People weigh losses 2x the weight of gains.
So the landlord would rather have a short term lease and lower the probability of missing out on booming prices 5 years from now.
The tenant would rather have a short term lease and lower the probability they get stuck in an overpriced lease
The odds of the opposite happening in either case, to encourage a long term lease, would have to be twice as great to break even.
It may not be right, but it's predictable.
Musing: Over investment in a sector is just as harmful as under investment
EHP Interesting idea on weights for losses vs gains. Seems reasonable to me...
I would want a shorter lease than three years.
Rents may go lower.
Deteriorating economic conditions? Didn't these people notice the great rally today? Happy days are here again...
Colbert Report
Colbert mocks 'crazy eyes' Beck with 'Doom Bunker' segment
Dude! Infowars? You could not find a clip posted from a site that has less tinfoilhattery?
ades:
"But when you finally get in the bread line you'll realize that everyone puts their pants on one leg at a time"
What kind of bread line is that? People standing around without pants? I don't want that bread!
DONT_KNOW
Do they rent by the hour?
I have a lease in New York. I resigned in August. I tried to renegotiate. I was told to f off.
Is anyone else waiting for a near term liquidation event?
Libor's been rising, losses in the real economy are percolating through to the financials,
I'm wondering if the hedge funds that have not already liquidated are the ones that managed to get the gates up in time. Which financials have not already been hammered by expected losses? Here and in Europe, the big banks seem to have either gotten propped up or nationalized.
I have heard that Russia is liquidating their glod reserves to prop up their currency.
sm_landlord
Canadian banks haven't reported a single loss yet. No matter how prudently you ran your bank in the boom times, I expect losses just based on the swift shift in the real economy. We did just leave a time in history that had mind boggling low risk premiums across the board
EHP - indeed, real economy stress is flowing back into financials. Check out Bloomie's chart of the day. CDS spreads on bank senior debt now actually higher than Bear/LEH crashes.
Bank Debt Stressed at Bear Stearns, Lehman Peaks: Chart of Day - Bloomberg.com
I don't think bodes well. Equities can do lagging whipsaws day by day and week by week all they like, but credit side is telling a different forward story.
C
Nikkei down so far this PM. Is the bounce done ?
Nikkei down so far this PM. Is the bounce done ?
Don't you know? They have de-coupled!
They are experiencing decremental appreciation.
Today's News Tonight:
Down Goes Madoff!
This trend is not limited to NYC; it is occurring in DC and several other major cities (Chicago, San Fran); but as CR noted, it is a tenant market, so a long term deal, if a Tenant wants, is not out of the question by any means and could be a smart move if rents rise in the near term. Whether or not a Landlord has money to provide any kind of allowance for a long term deal is another question..
The LL could simply not do any improvements, let the tenant have the place triple net. That would cover an allowance on a reasonably short term lease.
addendum to post replying to sm_landlord
I meant to add, I highly doubt this will be over without one of the big 5 Canadian banks reporting a loss. It's like an anecdotal indicator to keep in mind
Asun says:Today, 오전 8:09:06“Nikkei down so far this PM. Is the bounce done ?
Don't you know? They have de-coupled!
..........................................................
...........hahahaha......Asun .....so funny.............
"But when you finally get in the bread line you'll realize that everyone puts their pants on one leg at a time..."
Or you could hang 'em on a hook and jump in.
I go to work for one day and you guys and gals let the market go up over 300 points...So crisis is over, right?
"What kind of bread line is that? People standing around without pants?"
When herring and pickles came in barrels they could wear the barrels. See what progress gets you? Try wearing one of those little plastic bottles.
sm_landlord says: Which financials have not already been hammered by expected losses? Here and in Europe, the big banks seem to have either gotten propped up or nationalized.
Timmeh:"You'll see (Obama) lead an ambitious agenda to try to get the world moving with us so the global economy is firing on all cylinders," Geithner said.
He said this commitment was understood by the international investment community, helping explain the strong demand being shown for U.S. government debt despite the country's economic woes.
UPDATE 2-U.S. in a deep mess but we will fix it -Geithner
| Reuters
I think today was the beginning of at least a two week rally that is gonna rip the shorts. Watch for a chorus of disparate voices making Stimulus like statements.
The Latest from Denninger:
Oh Dear Ben
Before I do my usual post for this I would like to say that fellow CR poster OtisHertz wrote a great rant on the same site I am going to mention. Also Comrade Janosilk posted a smaller rant. I got to say OtisHertz really hit a nerve with me.
Yes, I added more to the CR inspired story of life in the break down lane.
Excerpt:
I settled into the seat. I had the left side, right behind the driver. We pulled away from the house, the whine of the electric engine and crickets the only sound to be heard. If it was going to happen, it would be in one of the support buildings near the ski lift, away from prying eyes and night vision scopes. I wasn’t sure why they decided to kill me. I guess that Persian rug was worth more than I thought. The man didn’t know how to do a sound bite or get a rug cleaned. Pretty piss poor for someone who had made it to Colonel I thought.
site: 401 Authorization Required
That Colbert clip was pretty good. I just don't hope people get the impression that the doom is only to be poked fun at. Once that meme takes over there are going to be a lot of blithely ignorant people wandering around giggling whenever Cassandra opens her mouth.
C
This is too perfect on Jessie's Cafe Americain...
http://3.bp.blogspot.com/_H2DePAZe2gA/Sba7P7wLeII/AAAAAAAAImA/BqYsfYOiZX0/s1600-h/zombie5.png
UPDATE 1-Singapore's GIC sees more distress in markets
| Reuters
Yeoh, who said he was speaking in his personal capacity, showed a slide prepared by GIC that indicated global writedowns in the financial sector could reach $3.8 trillion by 2013 and that only about 30 percent of the losses had been booked so far.
Yeoh suggested investors hold gold, sovereign bonds and currencies such as the Japanese yen, Chinese yuan and Canadian dollar.
He said he liked gold because governments were under pressure to cheapen their currencies to compensate for falling demand, and that some countries such as the United States and Britain would eventually be forced to monetise their debt by printing money.
"I would avoid these currencies like the plague," he said in reference to the dollar and sterling.
I think we remain off base thinking return on capital is the moneymaker, and not the preservation of capital
UK finds US Treasury difficult to deal with:
‘Difficult’ Americans hamper G20 efforts to secure a global deal - Times Online
I wonder if the U.K. is still smarting from the Obama administration telling them: You're just the same as the other 190 countries in the world.
Boo hoo! We should give them the same treatment they gave Iceland. Seriously...
Methinks futures will become acquainted with Elmo by the morning.
Here we see yet another instance and warning about everything going short. Nobody is willing to invest in anything. The best we can get is risk lovers trading for short term advantage. The dangers and volatility of unladdering and going ever shorter with commitments are just not being appreciated at the policy level.
As earlier commenters have noted, but the Times article does not, it is just as plausible that tenants are seeking shorter leases because of deflationary expectations as because of uncertainty over their future demand. But the entrenchment of deflationary expectations could become a self-fulfilling prophecy that would damage the commercial real estate market for many years to come.
With office rental increasing, it doesn't make much sense to have a physical office. I believe the future of most businesses will be virtual and leveraging off using a virtual office space.