State tenants will restart paying their rent for the commercial office space they occupy in Manhattan, officials from these agencies say, after some fell as far as three months into arrears due to the budget delays in Albany.
On Monday, lawmakers passed a final set of appropriations, completing the state’s budget nearly three months after it was due. With a spending plan in place, officials say that funds that had been withheld from agencies in a succession of temporary budget extender bills - which had been used since April to pay for the state’s operations during the impasse - would be restored and tenants would be able to pay their rent for the rest of the fiscal year and settle what payments they’ve missed.
“Agencies now should be able to cover three months rent with the passage of the appropriation bill Monday and will be able to meet obligations going forward through the remainder of the fiscal year as bills become due,” said Erik Kriss, a spokesman for the New York State Division of the Budget, which is the office that oversees and provides necessary approvals for the allocation of state funds.
A number of notable state agencies stopped paying rent in Manhattan during the budget problems, in which Gov. David Paterson and the State Assembly and Senate struggled for months to agree on spending cuts and a way to balance the state’s daunting $9 billion deficit.
Nathan Wasserman, an executive at the family owned real estate firm AM Properties, said that a collection of state agencies in two office towers that his family owns in lower Manhattan, 123 William Street and 80 Maiden Lane, had stopped payments. The tenants include the Office of Court Administration, the Office of Child and Family Services and the State of New York Financial Control Board, each of which occupies roughly 20,000 square feet Wasserman said.
“We were late paying our rent in May but it has been paid in the last few days,” said Pat Cantiello in an email, a spokeswoman with the Office of Child and Family Services. “We expect that June’s and July’s will be paid shortly.”
An executive at the real estate firm ACTA Realty Corp., owner of the downtown office towers One State Street Plaza and 25 Broadway, also told Real Estate Weekly that his company had government tenants in its portfolio that were behind on rent. One of them, the City University of New York, which could technically be counted as a city tenant but receives funding from the state, had stopped paying for one of the two floors it occupies in 25 Broadway, a space over 30,000 square feet in size.
At 217 Broadway, a roughly 200,000 square foot building near City Hall, the New York State Office of the Medicaid Inspector General had halted rent for its roughly 20,000 square feet and also put a planned expansion of about 5,000 square feet on hold.
The Medicaid Inspector General also has space at 90 Church Street, a building owned by the large New York City landlord Boston Properties, where both it and another state tenant, the Public Service Commission, didn’t pay their rent due in May or June according to a knowledgeable source.
Those situations too appear to be getting resolved.
“All back payments will be paid,” said Wanda Fisher in an email, a public information officer at the Medicaid Inspector General’s office. “I cannot say when those checks will be sent out. The state will then pay rent as usual during the remainder of the fiscal year going forward as the bills become due.”
The budget problems didn’t impact all state tenants. At 633 Third Avenue, a number of key state offices haven’t stopped paying rent, including the governor and comptroller’s Manhattan offices and the office for the Empire State Development Corporation.
Executives at Cogswell Realty, a real estate company that manages 60 Broad Street, said that large state tenants in the 1.1 million square foot downtown building have also been current. The building is nearly fully occupied by government tenants including the state agencies the Department of Insurance, Department of Housing and Community Renewal and the Office of Court Administration.
Through the state’s hiatus in making rent, most landlords expected the agencies to begin paying and to make up the shortfalls that were owed. Still, the incident is a blemish for New York government tenants, which have enjoyed a reputation with landlords for being among the most secure groups and one that many owners are willing to accommodate by agreeing to more flexible terms such as shorter leasing periods and other concessions that they wouldn’t as readily extend to the private sector.
With the state’s rental pause fresh in their minds, some of the landlords interviewed for this article said that they would be less eager to rent space to state offices.
Nathan Wasserman said another issue that has irked landlords in recent months is a request by the state that landlords pay workers such as maintenance staff and janitors a higher wage in buildings where the state does a deal to lease space. Wasserman said that the compensation requirements would significantly raise costs for landlords at a time when rental rates have fallen amid the economic downturn.
“I think there’s the sense that landlords can just take less profits,” Wasserman said. “But the living wage issue doesn’t factor that many owners have a very slim margin of profit during the downturn and a lot of costs. I think that this will make it difficult for an owner to do a deal with the state. You can lease one floor to a state tenant and you have to pay the entire building staff this very high wage that they require.”
Whether or not the state will continue to be a preferred tenant will become clearer in the coming weeks. According to owners, the state’s Office of General Services, the agency that handles leasing for state tenants, has recently put out requests for proposals for a number of office needs, including a 35,000 square foot space in the city.
Michael Rudder, an executive at the real estate firm Time Equities, which owns the state’s office space at 633 Third Avenue, said that state tenants remained attractive and that his firm was competing for the tenant.
“The state is known for being difficult, they’ll want a one year term and although it’s understood that they’re probably going to renew it’s still scary entering into those terms because they often need you to do a heavy build out,” Rudder said. “Still you put up with the challenges because you’re getting this big credit worthy tenant. The fact is, we’re answering the 35,000 square foot RFP and we would be delighted to have the tenant.”