Savills Leverages Unmatched Real Estate Expertise to Renegotiate Rent for Industry Leader Ares Capital
Ares Capital Corporation (“Ares”), a leading specialty finance and business development company with over $6 billion of total assets, was three years into a 15-year lease on the top two floors at 245 Park Avenue. In the midst of robust growth, Ares needed to secure another floor in the building, but they were concerned their landlord would perceive them as a captive tenant and look for a rent premium. After a very preliminary meeting with the landlord, Ares’ concern was validated as they were informed that further expansion space would come with below market concessions (free rent and construction allowance) and would cost Ares well in excess of $100 per square foot. Having successfully advised Ares in various cities nationwide, Savills was tasked with devising a strategy to secure contiguous expansion space at below market economic terms.
Savills acknowledged that securing favorable economics entailed effectively increasing the landlord’s awareness of Ares being a disciplined acquirer of space. Prior to engaging the landlord in further substantive dialogue, Savills generated awareness in the marketplace and made it known that Ares was exploring several space options valued at a fraction of the going rate for direct space in 245 Park Avenue. After examining numerous relocation options, Savills presented Ares with two stalking horses; a long term sublet from a neighboring tenant in Ares’ building as well as direct space across the street at 250 Park Avenue, an older building leasing direct space for 50-60% of the cost at 245 Park Avenue. Savills brought Ares to the point of indifference. Ares was fully prepared to move forward on either of the two less expensive alternatives. Once the 245 Park Avenue landlord heard about the potential relocation out of the building, the landlord approached Savills and expressed an interest to keep Ares’ expansion within 245 Park Avenue. The stage was now set for an arm’s length negotiation.
After a series of meetings with the landlord, Savills successfully negotiated the expansion of Ares’ presence to nearly 100,000 square feet by acquiring the third of the top three floors at 245 Park Avenue. The negotiated rent was 15-20% less than what many of Ares’ peers paid for less premier space on Park Avenue. Furthermore, Savills negotiated a staggered possession of the floor to coincide with Ares’ rate of growth, in addition to securing a concession package equivalent to approximately 2 years of rent to defray the construction cost of the new offices for Ares. Savills deferred possession of half of the space for one year, thereby delaying Ares’ rent commencement on that portion of the space for an additional 12 months.