Background

 

Having worked for SIG for thirteen years on all of their New York and Philadelphia area real estate requirements, we were their advisors on the purchase of 401 City Avenue in October, 2001. The search for a new corporate headquarters started in 1997.

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We had negotiated a long term lease for SIG at 401 City Avenue. However, SIG’s continued expansion needs surpassed all expectations and projections. After maximizing expansion opportunities at 401 City Avenue, Huff Equities started to address the base building expansion possibilities. We met with the 401 City Avenue representatives to pursue a program that would allow for SIG’s ordered growth.

 

The Stay Put Option

 

The Landlord and its representatives hoped that an additional 200,000 square foot building could be built on the site to accommodate SIG. We worked with the Landlord representatives to pursue growth within 401 City Avenue as part of an expansion. Our review of the building’s expansion possibility, however, did not allow for 200,000 square feet. It became clear that a variance would be needed and the Landlord indicated willingness to pursue a variance. However, when SIG’s expansion projections became higher than 200,000 square feet and the Landlord refused to consider attaching the expansion to the existing building, our efforts focused solely on whether the Landlord could provide adequate space within 401 City Avenue.

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Shortly it became evident that the trading floor expansion would be curtailed at 401 City Avenue and that we were going to need to identify alternatives for SIG. SIG had an early termination provision in its lease that allowed it to leave in 2003 which was sufficient time for new development.

 

The Search for a New Corporate Headquarters

 

The search for a new corporate headquarters had narrowed locational parameters due to operating and personnel reasons. The initial search was for raw land on which to develop a new building. The search disclosed no suitable raw land and only one industrial building conversion that was pursued but rejected.

 

The Alternatives

 

Huff Equities met with three developers with properties in locations acceptable to SIG. We developed fully each alternative for SIG to review. Architectural and space planning analyses, technical considerations and economic studies were performed for each alternative. Each development project held substantially different opportunities and drawbacks for SIG.

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Huff Equities presented to the SIG partnership full evaluations and projections of each alternative. SIG made a decision to pursue two of the three and to negotiate a lease for each. In doing a lease, we had to let each group know that the other was also competing for this tenancy.

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Unfortunately, in both situations there were site issues that needed resolution prior to SIG’s selection. Both developments were taking longer to finalize and one actually was coming close to missing SIG’s timing parameters.

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As advisors we knew 401 City Avenue might be offered for sale and continued to pursue this option. Indeed, it was offered as part of a billion dollar portfolio by Equitable. The portfolio offering did not produce the desired results for the owner so they decided to break the portfolio up, allowing our firm the opportunity to pursue just 401 City Avenue.

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We were responsible for establishing the purchase price, negotiating a pre-empt and doing or coordinating all of the due-diligence, reviewing and making our recommendations to the client. We, as a firm, were specifically responsible for the following:

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1. Negotiation of the Letter of Intent and Sale Agreement;
2. Review of the leases in the multi-tenant building;
3. Investment aspects;
4. Initiating the environmental review;
5. Initiating the structural and building system review and projected capital needs;
6. Initiating the survey;
7. Obtaining the appraisal and providing the appraiser with the information they needed;
8. Review and mark-up of the lease abstracts
9. Evaluate the property management and integrate a new property management agreement;
10. Comparison of the purchase alternative to the development alternative;
11. Review of all vendor and operating agreements; 
12. Review of all estoppels, security deposits and letters of credit;
13. Review of property management software system;
14. Establishment of new helicopter license agreement; and
15. Review and mark-up of all closing documents.