Case Study

Sumitomo Corporation of America

Industrial

Savills Helps Sumitomo Corporation of America Secure a More Efficient Layout for its U.S. Headquarters

CHALLENGE

In early 2012, Savills was awarded by Sumitomo Corporation of America (SCOA), one of the largest and oldest conglomerates in Japan, its prestigious US headquarters real estate assignment. SCOA was located at 600 Third Avenue, a 560,000-square-foot building built in 1970, which the Japanese conglomerate previously owned from the late 1980’s through 2004, when it sold it to the current landlord BlackRock.

SCOA was a large tenant (70,000 SF) occupying multiple floors (floorplate 11,000 SF) in the tower portion of the building that would ordinarily cater to smaller tenants. Occupying six floors created redundancy of support areas such as pantries, copy rooms and conference facilities. Additionally, the office intensive layout on multiple floors contributed to the difficulty in its inter-departmental communications, and combined with SCOA’s plan to absorb its Long Island-based accounting department into its Manhattan operations, made a lease renewal at 600 Third Avenue undesirable. Given the circumstances and faced with an upcoming 2014 lease expiration, it became increasingly clear to the Savills team that relocating to a new facility might be the best possibility for SCOA.

SITUATION

Prior to selecting Savills as the company’s advisor, SCOA demanded that its future broker representative should uniquely align itself with SCOA’s interests only and should not serve the needs of their counterparty (landlord) in any brokerage capacity. In this regard, SCOA’s management understood the benefits of Savills basic tenet of operation: its platform based solely on “Tenant Advocacy” with no allegiances or biases to any landlord. SCOA’s management keenly realized that the upcoming real estate transaction would represent a major strategic move for its organization as a whole. It would define a significant part of its cost structure, the operational platform and the corporate culture, for years to come. They regarded the upcoming New York City assignment as unique opportunity to embark on publicly expressing its foresight and prestige among the largest Japanese conglomerates in America. SCOA saw in the Savills team the ability to craft a special “legacy” transaction to match SCOA’s specific needs today and to position it for the future. We were deemed best able to understand their organization, the real estate marketplace and to work effectively with SCOA’s internal project team to provide high value to the process.

Savills commenced the assignment with a detailed appraisal of the logistical realities of planning and implementing a relocation, which would be a long and complicated task. Any strategic transaction of this magnitude is never linear, and presents many inter-related issues spanning operational, financial, employee and other factors, and the SCOA assignment was no exception. During this planning stage, it became obvious SCOA needed approximately 100,000 -120,000 square feet of office space.

Savills blanketed all of Midtown Manhattan. Every developer, building owner and landlord agent was contacted, with over 50 buildings assessed throughout a two-year period. Shadow space was tracked with an acute eye toward tenant activity and the potential for any future availabilities. The space search came to focus on the base floors of buildings, which often have the largest floorplates, and SCOA’s objective was to consolidate its operation to the least number of floors possible. The base floors of buildings also represented the cost-effective space for SCOA. Following months of evaluation, the Savills team identified a short list of viable Midtown space options and presented an in-depth assessment of each to SCOA.

RESULTS

300 Madison Avenue, a 1.2 million-square-foot building located across from Grand Central Terminal, historically had very little availability. When Brookfield Properties had finished the building's construction in 2004 on behalf of CIBC (Canadian Imperial Bank of Commerce), the Canadian bank decided to get rid of the vast majority of the space it had signed on to take under a 30-year bonded lease, citing security concerns stemming from the terrorist attacks of September 11, 2001. In what was one of the largest leasing transactions in 2009, CIBC subleased almost 800,000 square feet to the accounting and tax advisory firm PricewaterhouseCoopers (PWC), but decided to keep the remaining space. It was this remaining CIBC space that the Savills team uncovered through its due diligence.

Among the two finalists on SCOA’s short list, a long-term sublease available from Societe Generale at 245 Park Avenue and another long-term CIBC sublease at 300 Madison Avenue, the latter option from CIBC proved to be the best option for SCOA. Operationally speaking, the space at 245 Park Avenue would have required SCOA to occupy more than three floors, totaling over 120,000 square feet with each floorplate measuring only 36,000 square feet. 300 Madison Avenue would have required less than 100,000 square feet, as each floor measures approximately 49,000 square feet.

Qualitatively speaking, 245 Park Avenue, built in 1967, had enjoyed a long-term reputation as a prestigious Park Avenue building with an impressive list of blue-chip companies among its tenant roster, but its antiquated infrastructure and floorplate design was not ideal for SCOA. 300 Madison Avenue boasted not only superb infrastructure but also efficient design, including a finished ceiling height of over 10 feet with a raised floor and a column-free floorplate configuration. Additionally, two of the floors at 300 Madison Avenue under consideration by SCOA were fully built, originally as CIBC’s executive floors, and were equipped with high-end features such as an elegant spiral internal staircase connecting both floors, a large executive board room and a reception area, which would have incurred exorbitant costs for SCOA to duplicate from scratch. Finally 300 Madison made the most financial sense: SCOA needed less space at 300 Madison Avenue at a comparable rental rate and it could also take advantage of the existing high-end executive installations, which lowered their construction cost estimate significantly.

With CIBC and SCOA on-board and committed to making a deal, and with the financial modeling validated, negotiations progressed smoothly with attorneys on both sides given clear direction to ensure the deal’s successful completion. Ultimately, SCOA executed a 12-year sublease covering 98,454 square feet at 300 Madison Avenue.