Vivendi, which occupied floors 2-13 at 800 Third Avenue, responded by partitioning its
sublease space in the building into much smaller parcels.
The ratings on the series A through series C EENs are primarily based on 1) the permitted investment scheduled payments; 2) the likelihood that these payments will be first directed to pay the American and United scheduled
sublease rentals as per an agreement with a subsidiary of Airbus; 3) liquidity facilities to support EEN interest payments; 4) the strength of the Airbus and related agreements; and 5) the integrity of the EENs legal structure.
Riguardi predicted the
sublease market would shrink to "the low 20s.
According to Krasnow, the most significant impact on vacancy rates throughout 2003--in addition to the surge in
subleases and renewals--was an influx of larger transactions.
Chief among the problems associated with the current real estate market downturn is the incredible influx of
sublease space.
While
sublease space decreased by 253,000 SF, direct space increased by 470,000 SF, resulting in negative net absorption of 217,000 SF.
In a prolonged downturn, landlords will have to deal with not just their current direct space, but also
sublease space that has reverted as a result of economic uncertainty.
Spatially, oversized or undersized offices and workstations may force a subtenant into taking substantially more or less space than required, thus minimizing the cost savings on the rental rate adjustments in the
sublease.
These underlying terms are critical, especially in light of the short-term nature of many
subleases.
For those working with
subleases, there are a host of considerations not just for the sublessee, but for the primary tenant, owner and broker as well.
According to Studley's Insights report, "
Subleases Popular Amid NYC Tech Boom," authored by its chief economist Heidi Learner and research colleague Chris Volney, the focus on
sublease space by technology firms is creating unexpected opportunities for tenants across all industries while impeding demand for the direct office space controlled by many of Manhattan's largest landlords.
Yet despite these positive signs for those seeking sub-tenants,
subleases are actually getting snapped up so quickly because of weaker price points compared to the direct-lease market.
