Forward-thinking landlords invest in tenants and properties

Although the upward trend of office vacancy is beginning to slow, many landlords are still feeling the pressure to take the first deal that comes along to avoid the overhead of empty space. While financial realities may dictate a landlord's plan for a building, it is in the best interest of the landlord to have patience and plan for the long run. Keeping space open is not necessarily a maneuver to wait for the market to go back up, but rather to ensure that each tenant is an investment for the long-term future of the building. How does the landlord determine the best tenant for a building and how can a landlord put equity into a building through a new tenant acquisition? It is first important to look at how the tenant/landlord dynamic has changed. In an up-market, landlords have a larger pool of tenants from which to choose. In a down-market with office availability at 14 percent, there is a role reversal in that tenants have more options. Companies have a greater pressure to keep costs down and need a good landlord that will adjust to the market. However, it is not in anyone's best interest to make a quick-fix deal with a short-term reward. Long-term strategy for a property is important for tenants and landlords across the board. One thing you will see in this market is landlords offering more tenant improvements. When a landlord finds a tenant that is a good fit for a particular building, they have the chance to use those tenant improvement dollars to make a long-term investment not just for the tenant but for the building. One of the best strategies in this market is to invest in the properties you own. This can first happen in the deal closing process. In the past landlords would offer free rent or cash incentives for tenants to build out their own spaces; however, landlords are now constructing their own build-outs. While this can be considered a headache, for many buildings it creates real value for the landlord because they are able to retain and attract clients through their ability to customize space to suit unique tenant uses. Build-outs are an opportunity to showcase a landlord's commitment to tenant success as well as an investment in maintaining a modern, renovated property. With construction costs low, build-outs can also help landlords distinguish and differentiate their properties in the marketplace Specialty buildings are a great example of how a landlord can differentiate themselves and attract new tenants. Specialty buildings require long-term planning because a landlord has to commit to only allowing a certain type of business as a tenant, which creates a destination building that has industry recognition. From a tenant's perspective, specialty buildings offer the most value because they are a destination for buyers, and from a landlord's perspective, the property is in demand. Coupling this idea with the customization of space, a landlord's commitment to the overall character of a building can directly affect the bottom line of tenants. However, whether a building is specialty or not, it is about reaching a mutually favorable deal, where both tenant and landlord are equally satisfied. It is not about the landlord getting the highest dollar or the tenant getting the cheapest rent. Real estate is still about relationships and starting a relationship on poor terms is never a good idea. Although this has been a difficult year for the Manhattan office market, it is important for landlords to remember that New York City always bounces back. While it is not always feasible to pass up a deal and every property has different financials, smart landlords will have patience. Your property is your primary asset and what you do with it determines the overall success of your company and your tenants. Those of us who have been around for up and down cycles know that the companies that plan for good and bad times always emerge stronger. Jeffrey Schwartz is senior managing director for Adams & Co. Real Estate, LLC, New York, N.Y.