Measuring Property

A global standard for measuring property? NYC’s not buying in

City’s real estate industry dismisses universal system for assessing office building size

July 09, 2014 09:00AM
By Hiten Samtani

KennethCreightonPeterBoritzMarisaManley

UPDATED, 12:29 p.m., July 10: In commercial real estate, size does matter. But a global effort to more clearly define office building size is being seen by New York real estate players as a non-starter.

The International Property Measurement Standards Coalition, a nonprofit group of 45 national and international real estate organizations, is looking to implement a single measurement system for the global office market. The hope is that a common set of standards will function as a sort of lingua franca across different office markets — which often have drastically different measurement methods — and allow investors, landlords and tenants to more accurately compare spaces and buildings.

The coalition first published a draft set of standards in January. It will put out a second draft next week, with a final version slated for release in November.

“The key point is that with all of these differences in local markets, we’re giving people the option to have comparability,” said Kenneth Creighton, the president of the coalition, which was formed during a meeting at the World Bank last year.

Those backing the standards tout the potential for increased transparency. “The many different ways of measuring space in markets may result in the distortion of true values,” John Saunders, head of Asian real estate at asset management giant BlackRock, said in a statement on the coalition’s website. Executives from international offices of brokerages such as JLL and CBRE also expressed support for the standards, as did Steve Williams, an executive managing director at New York-based Real Capital Analytics. The government of Dubai has also embraced the coalition’s standards, and in October the emirate announced that it would officially adopt them.

In New York, however, the reception to the initiative has been far frostier. Those doing the measuring for some of the city’s biggest landlords dismissed the need for new standards. The idea that such standards would increase the transparency in the New York market “has no basis,” said Peter Boritz, CEO of Real Data Management.

Nationally, most buildings are measured according to guidelines set by the Building Owners and Managers Association (BOMA), which is a member of the IPMS coalition and ostensibly has influence over the standards the coalition will release. In New York, however, most buildings are measured according to REBNY guidelines, which allow for much more aggressive building measurements, as TRD reported.

The Durst Organization’s One World Trade Center, for example, was initially pegged at 2.6 million square feet, but later shot up to 3 million square feet following a remeasurement based on REBNY guidelines and a conversion of some interior space.

A spokesperson for Durst said that “while there was a small increase in rentable area due to correctly measuring 1 WTC, most of the increase came from converting unnecessary shaft space outside the core into usable area.”

Tishman Speyer’s MetLife Building at 200 Park Avenue is now put at 3.1 million square feet, a 275,000-square-foot increase from a decade ago. The growth in rentable area resulted in a $24.3 million increase in annual rental income, according to data from tenant advisory firm Commercial Tenant Real Estate Representation.

Representatives for REBNY didn’t respond to requests for comment.

If the coalition’s standards were applied in New York, they would likely result in a drastic reduction of buildings’ rentable areas and thus reduce the value of the assets, according to Boritz. “It could change the investment sales markets,” he said. “Certainly, landlords could increase rents substantially to offset this, but that would create an entirely new set of issues.”

Creighton said that such statements illustrated a lack of understanding of the coalition’s intentions. “We’re not talking about value, we’re talking about measurement,” he said. “The value is set by the market.” Having global standards, he said, would simply make it easier for tenants to compare spaces in a more consistent manner.

But some of the city’s tenant representatives said that the initiative was a distraction and could further complicate landlord-tenant discussions. “This is absolutely not good for tenants,” said Marisa Manley, the president of Commercial Tenant Real Estate Representation. “It creates a distraction and a potential source of friction,” she added. “It’s kind of like hamsters running on a wheel — there’s a certain amount of energy being expended here.”

Instead of advocating for new standards, Manley suggested that tenant brokers should focus on building better relationships with landlords, so that they can get meaningful concessions such as tenant improvements and extended HVAC hours.

Another issue with universal standards, said Keith Keppler of tenant representation firm Cresa New York, is that space usage can vary drastically from building to building. “Measurement is irrelevant,” Keppler said. “You can put 100 people into 15,000 square feet in one building. In another it could take 20,000 [square feet].”

New York landlords are highly unlikely to embrace the initiative, said David Hoffman, a veteran leasing broker at Cassidy Turley. “If you were a major institutional investor that paid a premium to buy a trophy asset, and you bought it based on a certain price per square foot and that’s how you underwrote it, you’d have a tough time going to your boss with a smaller square footage,” he said.

Hoffman finds it interesting that the coalition was taking the time to study global measurement standards and create some uniformity, but said he didn’t see the benefit to tenants. Though tenants might be ignorant of New York’s high loss factor when they start their space quest, “they’re brought up the learning curve” by their brokers, Hoffman said.

Boritz questioned the coalition’s motivations. “The forces driving this initiative are primarily large corporate tenants that don’t have any real authority and are not any different than a special interest lobbying group,” he said.

But Creighton said that New York had to recognize that it was part of the global office marketplace. “If they [New York] think they can be an island and still be a leader in the property market, it’s not right,” he said. “Instead of fearing the standards, they should be embracing them.”

Innovative Office Space Article

More New York Companies Experiment With Innovative Office Space

The following article/story appeared in the Wall Street Journal by Kevin Hagen on July 7, 2014 and was written/reported by Keiko Morris:

Rachana Gheewala works from an easy chair in the new activity-based office of Gerson Lehrman Group.
Alexander Saint-Amand admits he used his old desk to store his stuff: extra neckties, books and water bottles.
As of last week, that became impossible because Mr. Saint-Amand no longer has a permanent desk at Gerson Lehrman Group Inc., the company he leads as chief executive.
Like everyone else in the 250-person office, Mr. Saint-Amand is now assigned only a laptop, a headset and a locker.
GLG’s new office design offers an array of workspaces—from comfortable couches to high stools at a barista-staffed coffee bar to single-occupancy glass booths.
“Something funny about having a lot of stuff is it makes you feel like you’re doing something,” said Mr. Saint-Amand, whose company helps other firms learn about business issues by matching them with experts. “But when you don’t have all that stuff, it frees you up to actually concentrate and work.”
GLG workers will have so-called neighborhoods, areas where their teams are based. But they are free to find a spot to work anywhere on the company’s two floors at One Grand Central Place. In the world of office design, the new layout at GLG is known as activity-based working.
A barista makes drinks at Gerson Lehrman Group, which has adopted a work-space model without permanent seat assignments.
Doing away with seating assignments for an office as large as GLG’s in New York is rare but increasing, said John Arenas, chief executive officer of Serendipity Labs Inc., a company that provides temporary work and meeting spaces for mobile workers.
Companies such as Microsoft Corp. MSFT -0.50% , PricewaterhouseCoopers LLP and Accenture have been experimenting with variations on unassigned seating since the 1990s and early 2000s. The Macquarie Group MQG.AU -0.94% drew much attention in 2009 when it instituted an activity-based working concept at one of its offices, for 3,000 workers, in Sydney, Australia.
Last year, real estate services company CBRE Group Inc. CBG +0.16% brought its version of the office design to its Los Angeles operation. CBRE said it planned to have the system in 21 of its offices by year’s end.
“When we actually looked at what they needed, they needed much more choice, the ability to make good decisions about getting their work done,” said Lenny Beaudoin, CBRE senior managing director of workplace strategy.
Offices designed around activity-based working save space, so they appeal to companies determined to shave real estate costs. CBRE’s new Los Angeles office will be able to accommodate 250 people in 48,000 square feet, compared with 210 people in the 72,000 square feet the company would have needed in the old office format. Companies also see the layouts as recruitment tools to attract younger workers who are accustomed to mobile technology.
“Office workers are really only at their desks 40% of the time,” said Bernice Boucher, a managing director at Jones Lang LaSalle Inc., JLL +0.09% a real estate services firm. “We have known this for decades, which is why everyone talks about desk sharing…free-seating and telecommuting.”
The wide options under activity-based working also give some employees private space they didn’t have.
“Quiet people are reminding people that it’s not just about collaboration, but concentration,” said Elizabeth Burow, director of discovery for design firm HLW International LLP.
But eliminating the private office or the private desk isn’t for everyone, said Richard Sennett, a sociology professor at New York University and the London School of Economics.
“Sometimes having a space you control, which is yours, gives people the feeling of empowerment and it can be good,” he said. “But it varies.”
GLG’s new office is 65,000 square feet, almost double its old quarters on Third Avenue. It is now in a building owned by Empire Realty Trust Inc. across the street from Grand Central Terminal.
Mr. Saint-Amand said the bigger space would allow GLG to host thousands of meetings between its network of prominent industry experts and business professionals—instead of convening them off-site as they did previously.
Natural light spills from a new skylight over a white staircase that descends into a cluster of red couches and white tables. It is a work area that resembles a sleek living room. Elsewhere are open bench tables with monitors and glass-walled meeting rooms named after influential thinkers, including Indira Gandhi, Thomas Hobbes, Winston Churchill and Thomas Jefferson.
“We want you to feel like you own the whole office not just your desk,” said Clive Wilkinson, whose firm, Clive Wilkinson Architects, designed GLG’s space. He was also the architect of the Macquarie Group’s activity-based office in Australia.”That’s a landmark change because employees typically are kept in their place and told, if you’re incredibly lucky you might get an office some day.”
GLG’s workers seemed to be adapting. Workers already had collectively dubbed the small private spaces with tall cylindrical walls as the “submarine.” And the small glass booths had come in handy for sales pitches.
Jim Sharpe, head of GLG’s North American financial services group, said he had already used eight work spaces at the new office by the second day.
He ate breakfast at the coffee bar and had meetings with co-workers in one of the diner-like booths—as well as in the Keynes room.