Ventures
Strasser
CASE STUDIES
Leasing Strategy Maximizing Long-Term Development Value
One of two principals of the sponsor of four-building, 500,000 square foot Class B and C office and retail complex occupying half of a city block. It was obvious that the
site – one block from Grand Central Station – possessed exceptional future development potential, even though it was uneconomic to construct a new building at that time.
In order to maximize the site’s future development value, we insisted on inserting demolition clauses in all office and retail leases, despite strong pushback from leasing brokers in that difficult leasing market. By inserting demolition clauses in all leases, we avoided the problem of a “holdout” tenant paralyzing a valuable development site.
Ten years later, in a better market, the complex was demolished, and a 38-story, 1.1 million square foot trophy office building was built on the site.
Leasing Strategy Driving Occupancy While Controlling Credit Risk
At one property, we saw substantial leasing demand from small employment agencies, due to the property’s excellent access to mass transit. However, these tenants generated a high level of traffic, which could adversely affect leasing to other tenants at the property.
Consequently, together with our lender, we developed a leasing strategy in which we concentrated employment agency tenants on the lower floors of the property, served by
a separate elevator bank, thereby isolating their high traffic.
In addition, to limit our financial exposure to these weak credit tenants, we encouraged them to lease prebuilt units, with generic layouts.
This leasing strategy was instrumental in helping us increase building occupancy from the low 70s to the low to mid 80s.
Tax-Driven Foreclosure Defense Strategy for Borrower
Principal of the owner of a Class A office building in midtown Manhattan, with approximately 150 limited partners. Limited partners were high net worth clients of a major brokerage firm. In the case of a foreclosure, each LP faced a tax bill of $100,000 to $400,000 (due to recapture/ relief of indebtedness income), without any cash payout to cover the taxes.
As borrower, we developed and implemented a coordinated negotiating, litigation and public relations strategy to delay foreclosure. We ultimately filed for Chapter 11 bankruptcy in the Southern District of New York. We were able to extend the bankruptcy proceedings for three years (and delay loss of the property), a period which was unheard of for a single-asset real estate bankruptcy case in Manhattan.
By delaying the loss of the property, we were able to allow our LPs to defer their tax hit, as well as giving them time to implement financial planning.