JLL’s Rob Martin pulls off complex space swap to earn “Ingenious Deal” nomination

When a client hit the “reset” button on a sticky office relocation, one JLL broker took

Rob Martin with 31 West 52nd Street and 1633 Broadway

When a client hit the “reset” button on a sticky office relocation, one JLL broker took it as an opportunity to reboot the rules.

Not only did Robert Martin relocate Assured Guaranty from its oversized headquarters at one Paramount Group building to another in the landlord’s portfolio, he negotiated a complex profit-sharing structure that allowed both the insurance firm and the landlord to profit from Assured’s below-market lease.

For his efforts, Martin is now up for the Real Estate Board of New York’s “Most Ingenious Deal of the Year Award.”

His submission, titled “The Power of Out-Of-The-Box Thinking: Assured Guaranty’s Relocation,” is one of nine nominated in the “lease” category of this year’s awards.

REBNY will announce the winners April 12, and in the run-up to the event The Real Deal is reviewing a number of the submissions to provide inside perspectives on how some of the city’s most intricate deals get done.

The whole thing started back in 2013, when Martin did a deal with another tenant for space in Paramount’s 31 West 52nd Street. Assured, one of his former clients, had inherited its 110,000-square-foot lease at the property after it acquired insurer Financial Security Assurance in 2009 amid the subprime mortgage crisis.

The space, though, was less than ideal. Assured had invested very little capital into it, and the office suffered from oversized offices and high cubicles. Not to mention the fact that it was spread across five floors.

But Martin knew that the building regularly outperformed the market in terms of taking rents, and that Assured was sitting on a lease running through 2026 that was worth far more than what the company was paying.

“Unbeknownst to AG, by 2013 the insurance company was in fact occupying valuable space and paying a below-market rent,” Martin wrote in his submission. In his own words, “a light bulb went off.”

Martin knew if he could relocate Assured and sublease its space at market rate (north of $100 per square foot), he had a potential blockbuster deal on his hands. So he reached out to Assured’s CEO Dominic Frederico later that year and by 2014 he got the firm’s approval — but with some strict conditions.

First, the company would only relocate if it could find a single-floor space of roughly 80,000 square feet. Second, the new location had to be within a two-block radius of the existing office. Third, AG would only sublease to a single tenant. And finally, the new location would have to yield reduced carrying costs. In Martin’s words, a “daunting” situation.

His first move was to get Paramount to waive its option to recapture Assured’s space, which he did by offering a profit-sharing agreement on any sublease deal.

Next, Martin started searching within the two-block radius for a relocation space while scouring the market for a sublease tenant. But after 10 months, he was unable to find a corporate tenant who would pay more than $100 a foot for such a large space, let alone one in a building with 25,000-square-foot floor plates.

And to compound the challenge, the deal almost came to a screeching halt after 18 months of work when AG’s COO stepped down without fully briefing his replacement on the relocation plans.

The turn of events “effectively creat[ed] the need to start the entire deal from square one,” Martin wrote.

Unable to find a full floor within two blocks for Assured, he started searching for a relocation space outside of the insurer’s initial criteria. He knew there was another Paramount building just outside the two-block radius, at 1633 Broadway north of Times Square. There, the tenant could occupy about 88,000 square feet on one full floor and a portion of another.

He knew that relocating a tenant from one fully-leased building to one with a high vacancy would be appealing to Paramount, and brought the landlord the idea of buying Assured out of its lease.

And he knew the proposal would be better received by Assured if it came from Paramount, so he set up a meeting between the two parties to tour the Broadway space.

“This tactic proved to be instrumental in advancing the deal forward, because Martin knew that PGI [Paramount] had to convince AG that this move made economic sense for both parties,” he wrote.

After negotiating back and forth, Martin convinced Paramount to pay Assured to cancel its lease with a rent credit and a percentage of profits from the re-lease. The landlord also gave Assured an above-market concession package at 1633 Broadway and two parking spots.

The complexity of the deal, the broker wrote, shows what separates a good deal and an award-worthy one.

“In commercial real estate, where the stakes are high, competition is fierce and a relationship can make or break a deal, ingenuity is what separates a good brokerage team from the best,” he concluded.

Source: The Real Deal