Friday, April 29, 2011

Law firm Conrad O’Brien jumping to Centre Square

by Natalie Kostelni

"After spending more than 20 years in the same offices at 1515 Market St. in Center City, law firm Conrad O’Brien will relocate to Centre Square.

The firm will move into its new 44,000-square-foot space this fall.

The deal is another hit for 1515 Market, a 20-story, 520,000-square-foot building that has experienced recent defections. And for Centre Square, the lease chips away at some 400,000 square feet of vacancy in the 1.8-million-square-foot building.

Conrad O’Brien signed a 12-year lease. It will occupy the 39th floor and a portion of the 40th, putting it at the top of the tower. Commonwealth REIT is the landlord. The 39th floor was left vacant by Lincoln National and the 40th floor became empty when Saul Ewing reshuffled its space in the building and renewed its lease there.

The firm looked along the West Market Street corridor and narrowed down to staying put, Three Logan and ultimately deciding on Centre Square.

“The views are terriffic and it’s a big upgrade for them,” Murray said. “They’ve been in their space for 21 years and were looking to start fresh and put a new stamp on their image.”

Patridge Architects is designing the space.

The firm expects to grow at Centre Square over the long term.

“We’ve enjoyed our time [at 1515 Market] but looking forward to the next decade and potentially up to the next 20 years at Centre Square,” said Nicholas Centrella, managing partner at the law firm. “Centre Square is a building that can accommodate our intended growth for the next 10 years, it is going to be fully renovated with major conference room ability. We think it’s a terrific opportunity at a great building with reliable ownership.”

For 1515 Market, the move puts another dent in the building’s occupancy, which has about 15 percent vacant. Zarwin Baum departed the building for 24,000 square feet at 1818 Market St.

“We’re sorry to see them go,” said Stockton Real Estate Advisors, which owns 1515, about Conrad O’Brien. “When Zarwin left, we made a conscious decision to be selective and focus on smaller tenants, which are better for a building like 1515. It creates diversity.”

The building is also facing another hurdle: A $70 million loan backed by 1515 was sent to a special servicer earlier this month. The loan matures in January and Stockton is current on its payments, according to Paterno and Trepp Ltd.

“It’s the only way to get a dialogue with a lender is to have a loan transferred to a special servicer,” Paterno said. “We anticipate we will restructure and extend the note.”

Stockton bought 1515 in 2007 for roughly $75 million. It’s not unusual for the loan, part of a tranche of commercial mortgage-backed securities, to be in special servicing. Lenders and borrowers continue to work out loan issues, negotiating new terms in some cases and in others, taking over the loan and property.

“The building was bought at the height of the market and landlords thought they could push rents up, tenants would continue to grow and the economy would continue to grow. When existing tenants grow, those are their most profitable deals and the tenants are captive. You know what? Tenants didn’t continue to expand, and when the market stalls, you’re also competing against sublease space in your building.”

The scenario is also “symptomatic of the balance of the market." An entrepreneurial landlord is competing with a deep-pocketed real estate investment trust who can spend lots of money on steep tenant improvement costs and other renovations, making it even more challenging for the little guy to compete.

“Well-capitalized landlords can successfully attract a law firm because it takes a lot of money to move a law firm.” “Any law firm that has been in its current space for more than 10 years has an obsolete design for the way you operate today. I think for a law firm that has been in their space for 20 years, there are different efficiencies gained in starting from new that help defray any costs of moving.”

The lease is a win for Centre Square, which continues to backfill about 400,000 square feet of space, most of which was vacated by Comcast Corp. when it moved to its new headquarters.

“This will take more than 10 percent of that vacancy,” said Dyer, about the law firm lease. “This deal comes on the heels of significant renewals in the building.”

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