By: Richard Lee
Vacancy levels of Class A office buildings in much of Fairfield County remain at more than 20 percent, forcing corporate landlords to go to extra lengths to retain their tenants and lure others from their competition.
As companies see their leases approach expiration, many are investigating new addresses as a way to cut expenses. Building owners are more than willing to offer inducements like free or reduced rent for an initial period or free fit-outs to attract tenants.
Landlords like the Matrix Group, of Smithtown, N.Y., owner of the Matrix Center in Danbury, are willing to make deals to keep tenants.
"We're finding a lot of existing tenants (at office complexes in the region) are starting to shop around, " said Aaron Smiles, director of operations and development at Matrix Group. "We spend a lot of money on our existing tenants and improving our properties. We're continuously improving our properties and our mechanicals."
Energy-efficiency improvements, including the installation of solar panels, and well-maintained landscaping have been important tools in retaining tenants, Smiles said, as well as amenities like child-care service, a fitness center, a bank, banquet facilities, a hair stylist and a nail salon.
The goal is to show tenants that the landlord sees the importance of investing in its properties. To make his point, Smiles said his company is spending $2 million to install new heating, ventilating and air conditioning units at one of its properties in Suffolk County, N.Y.
At the Matrix Center, the company is completing a $2 million technology upgrade and installation of backup generators that allow tenants to avoid the cost of installing their own IT infrastructure.
"We work extremely hard to retain our tenants. The number one thing we offer is service," Smiles said. "We meet with every tenant in the building every 30 to 45 days."
Matrix Group scored a big win in February in signing Boehringer Ingelheim Pharmaceuticals to a 10-year lease renewal for 327,095 square feet at the 1.3-million-square-foot complex, which is 75 percent occupied.
"The lease transaction represents an aggregate value in excess of $90 million," Smiles said.
A spokesman for Germany-based Boehringer Ingelheim was unavailable for comment.
This has been a busy time for John Hannigan, a principal at Choyce Peterson, a Stamford-based commercial real estate firm that represents corporate tenants.
"Now, more than ever, landlords are trying to retain credit-worthy tenants. They're more flexible than ever," he said, "with shorter-term renewals, willingness to downsize tenant space and options to cancel agreements."
The situation is providing opportunities for tenants to save money or alter their space when it comes time to renew their leases, Hannigan said, adding that tenants who occupy in excess of 10,000 square feet have more bargaining power.
"This is a tremendous opportunity for tenants to analyze their layout of space. Typically with a five-to-10-year lease they can get tenant improvement dollars from the landlord to fund renovation costs," he said, adding that tenants normally improve their ability to negotiate when they hire a broker. "As a broker representing tenants for the last 25 years, a frustrating aspect of the business is that many tenants do not have a broker on their team. A majority who go it alone won't achieve those results."
A broker can more easily obtain competitive proposals from other corporate landlords, Hannigan said, and he estimated the trend will continue "well into 2014."
Earning the Building Operators Management Association's 2013 Office Building of the Year should go a long way in helping the six-building Merritt 7 complex in Norwalk, retain tenants. The six-building, 1.4-million-square-foot office complex is owned by Marcus Partners and Clarion Partners and managed by Marcus.
"Merritt 7 has a very high renewal rate. We can accommodate a growing company and move them to a different building," said property manager JoAnn McGrath, who worked with tenants Ipsos, an advertising resource specialist, and Mercer Human Resource Consulting, to find them more suitable space to fit their needs.
Mercer moved to a smaller space in the complex upon the expiration of its 10-year lease.
"They did their due diligence and moved from Building 601 to 501," said McGrath, who kept Ipsos at Merritt 7 by finding them larger, more efficient space.
Ipsos moved from two areas totaling 26,000 square feet in Building 301 to a single space encompassing an entire floor of 33,305 square feet in the same building. It also added staff from a closed office in Wilton.
The amenities and location heavily contributed to Ipsos deciding to remain at Merritt 7, said Gary Palomba, senior vice president and administrator.
"We looked down the road in Norwalk and Stamford. Some offered lower rents by a few dollars," said Palomba, adding that he saw remaining at Merritt 7 as a cost-savings measure with fewer logistical challenges, including employees' commutes. "They were difficult to say no' to. You have to weigh everything."
Amenities and management services were key factors in remaining at Merritt 7, he said.
"They (management) are constantly involved with the tenants. It's very important. If you have issues at a complex, you want to make sure they are addressed," Palomba said. "They listen to you and ask for input. They come by once a month."
Like other landlords, Robert Scinto, chairman and founder of R.D. Scinto in Shelton, said constant attention and response to tenants' questions is the best tool in retaining tenants.
"It's not a challenge if you're doing your job during the term of your lease. If you haven't been, you can't go in with new candy when the lease is ending. They won't be interested. I've re-signed all of my tenants, " said Scinto, whose company owns 35 office buildings in Shelton, Fairfield and Trumbull. "The secret is to sign tenants with two or three years left rather than 60 days."
One of them is Bill Gregory, sales leader at EverBank Business Property Lending in Shelton, who said he hired a broker to help him visit other properties in Fairfield, Norwalk and Trumbull, but he re-signed a five-year lease with R.D. Scinto in February.
"I signed my first lease with R.D. Scinto in 1991. It's about answering one question. Does the environment promote productivity? We always make sure we have a great location for our people," Gregory said, adding that amenities and communication with the landlord are crucial factors.
That interaction is crucial, said Jeremy Leventhal, co-founder of Faros Properties, owner of Holly Pond Plaza, an 80,000-square-foot office complex at 1281 E. Main St., in Stamford.
"Once you get tenants to your front door, don't let them go," Leventhal said, stressing the importance of attracting premium businesses to properties owned by Faros and keeping them happy. "It's also a positive impact for the community."
Leventhal's advice dovetails with major upgrades to the Holly Pond Plaza property.
"The significant upgrades at Holly Pond Plaza make this property highly attractive to both existing and new tenants," Leventhal said.