Article by Marc Rothman
In 1994, Greenberg Glusker Fields Claman & Machtinger was determined to leave its Century City building because of the hard stance the landlord had taken on a lease renewal.
Greenberg Glusker's real estate broker, Gary Weiss of Credit Suisse First Boston Realty Corp., had found several potential new spaces for the firm.
But the landlord wasn't content to let the firm leave that easily.
At a Greenberg Glusker executive committee meeting, the building's leasing director, accompanied by a belly dancer, burst into the private meeting with a message, Weiss says.
The message was Jim Reeves' song, "Have I Told You Lately That I Love You?"
The leasing director had heard about the firm's intention to move and was obviously desperate to keep the firm as a tenant.
The landlord, however, wasn't done with Greenberg Glusker.
Several days later, the landlord found out where the individual executive committee members and their real estate brokers were eating lunch, Weiss recalls. At 50 different dining spots, the desperate landlord placed fortune cookies with the same message: Don't leave our building!
The firm did stay, Weiss says, but only after negotiating the lease renewal on its terms.
Today, many California law firms are finding themselves in the driver's seat, just like Greenberg Glusker was seven years ago.
The softening commercial real estate market has created bargains for firms looking for new homes.
"Now is prime time to lease, especially if you're a full-floor user looking to lease long term. You're going to be able to drive the market. That means both economically in rent and tenant improvements," Hans Hansson, president of Starboard Real Estate in San Francisco, says.
Stan Ross, chairman of USC's Lusk Center for Real Estate, agrees.
Ross says the dot-com bust and the economic recession have flooded the market with leasable space, especially in the Bay Area and portions of Los Angeles and Orange counties.
In San Francisco's central business district, for example, vacancy rates were 17.7 percent at the end of the second quarter, according to Bethesda, Md.-based CoStar Realty Group. At its peak in mid-2000, the vacancy rate in San Francisco was a mere 3.4 percent.
Just south in Silicon Valley, the vacancy rate is at its highest level in five years, according to a report by Colliers International, a San Jose-based real estate consulting company. Since last year, the vacancy rate has increased sixfold, to 13.8 percent.
As for Los Angeles, New York-based realty giant Grubb & Ellis recently released a midyear report stating that the area also has experienced a rise in vacancy rates, to 13.7 percent today from a low of 12.2 percent last year.
Responding to economic realities, landlords have begun to offer several incitements to lure new tenants.
One of the most significant changes is the landlords' willingness to negotiate.
"The landlord doesn't know where the market is going, and as a result, they're playing this game of 'Let's make a deal,'" Hansson says.
During the economic explosion in the latter half of the 1990s, owners didn't have to worry about filling space or attracting potential tenants.
But the power has begun to shift away from the owners, according to Bob Kuhl, president of TRI Commercial Realty in Sacramento. This is good news for firms looking for space.
Weiss, who has represented dozens of California law firms, including Gibson Dunn & Crutcher and Christensen Miller Fink Jacobs Glaser Weil & Shapiro, also has noticed the trend.
"Last year in San Francisco, a landlord told the opposing lawyer to pick the 10 best comments on the lease, and he may pick five," Weiss laughs. "Now, in San Francisco, give a landlord 200 comments, and he'd probably agree to 190 of them."
Many of the potential comments on a lease involve tenant improvements, or the money the landlord will spend to upgrade a space or fix existing problems.
In just the last year, Weiss has seen Los Angeles landlords significantly increase their tenant-improvement dollars. He even has seen a return of the cancellation clause, which allows a firm to break a lease without serious penalty.
While landlords have had to adapt to the changing marketplace, law firm tenants have had to adapt, as well. In these leaner times, cost-conscious firms want simple and efficient spaces.
Ornate, showy offices are out.
"The idea of having a bar in your office is gone," Weiss says.
Other amenities, like expensive artwork or marble inlay, also have been largely eliminated.
"Especially since the recession started, law firms have become much more vanilla in nature," Hansson says.
Besides fewer accouterments, the simplicity push means more glass walls and lighter colors. Glass is not only cheaper than dark-stained woods but also promotes openness among lawyers, Weiss explains.
"The days of the dark, stuffy law office are probably gone," he says.
In addition, offices have gone from a three- or four-tier system of sizes to a one-size-fits-all system, Kuhl says. Enormous partner offices are fading away as uniform office size becomes more and more common.
Ross believes the most vital cost-cutting measure can be relocation.
Nontraditional business districts with lower square-footage costs than downtown areas have attracted law firms for years. Areas like Westlake Village, Folsom, Granite Bay and nearly the entire expanse between San Diego and Los Angeles have emerged as viable submarkets, Ross says.
For example, CoStar Realty quotes the average square foot in downtown Sacramento at $22.57. Compare that with $16.53 per square foot in suburban Sacramento, and the practicality of a submarket becomes obvious.
"Firms no longer need to be downtown," he says. "And if all your lawyers live on the Westside [of Los Angeles], then why drive downtown everyday?"
Adding to this flight away from downtown are improvements in technology, including videoconferencing and e-mail, Weiss says.
"Lawyers want to be able to leave the office, watch their kid play ball, then go back to the office," Kuhl says, "all without getting on the freeway."
There is one aspect, however, that hasn't changed when law firms look to lease: building a consensus. That is the most arduous and rewarding aspect of his law-firm dealings, Weiss says.
He jokes, "There's always a guy in the back row of a partners' meeting who says, 'Have you looked in Woodland Hills?' Meanwhile, it's a Century City firm, and that guy lives in Encino."
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