Port Authority

Real Estate Alert: Commercial Leasing in Transit Hubs

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By John McDonough, partner at Murphy Partners LLP

Economic indicators, as reported by Cushman & Wakefield’s MarketBeat Quarterly Report, paint what should be a rosy picture for Manhattan retail: The City achieved record-breaking employment in the second quarter of 2018 and tourism is booming.  And yet, according to the same report, “luxury brand corridors, such as Madison Avenue and Upper-Fifth Avenue, are recording limited retail leasing activity.”  Increasingly, brick-and-mortar stores are having trouble generating foot traffic as they compete with the convenience of e-commerce.   However, transit hub markets, like the Port Authority Bus Terminal, Penn Station and Grand Central, offer a captive, twice-per-day answer to that retail market-share attrition. 

For potential tenants, leasing space in a transit hub means leasing from a governmental entity.  Here are a few lease terms that potential tenants should be aware of when negotiating with a governmental entity for space in a transit hub:

  • Tenant Improvement Allowance.  For the most part, unlike private-sector landlords, governmental entities will not directly subsidize a tenant’s initial buildout.  Rather, tenants will need to negotiate for rent credits, in the form of free-rent periods.  On Port Authority retail leases, for example, rent typically commences upon the earlier of a set number of months from the date possession is tendered or the date tenant opens for business.  This structure is designed to give the tenant an opportunity to complete its buildout before having to pay rent, but savvier tenants can use the free rent period as an indirect way to offset their upfront capital expenses. This can be achieved by negotiating for free-rent period longer than needed to complete the build-out, striking the ‘earlier of’ language, and getting architectural plans approved before taking possession of the premises. 

  • Termination Without Cause.  Governmental leases in transportation facilities will frequently allow the landlord to terminate the lease without cause upon 30-days’ notice to the tenant.  To soften the severity of this provision, the lease will typically require reimbursement of the tenant’s unamortized capital expenses.  Additionally, tenants should ensure that their lease requires reimbursement of all capital expense, not just initial build-out, and should negotiate for an initial lock-out period during which the landlord would not be able to exercise termination without cause.

Transit hub retail is no longer limited to coffee carts and newsstands.  In the metro-New York City market, transit hubs have transformed into vibrant and dynamic shopping centers and destinations rather than merely waiting areas.  Retailers looking to harness this vital foot traffic should watch for some of the key differences in a retail lease from a governmental landlord. 

For more information on this topic, please feel free to contact John McDonough at (973) 877-6984 or jmcdonough@murphyllp.com.

MURPHY PARTNERS LLP

Murphy Partners LLP is a boutique law firm specializing in real estate, development, and economic incentive advisory. With offices in Newark, New Jersey and New York City, the firm was founded to provide effective, efficient, and creative legal services to meet the distinctive needs of our clients. Through the development of comprehensive legal strategies, our team works tirelessly to create a blueprint for success and advance our clients’ interests in every matter.

Murphy Partners LLP Continues to Expand with Addition of New Partner

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Murphy Partners LLP is pleased to announce that John P. McDonough will be joining the firm as a partner in the firm’s Commercial Real Estate Group.

John is an experienced transactional real estate attorney. As a partner in the firm, John’s practice will focus on all aspects of commercial real estate transactions, including office and retail leasing, acquisitions, dispositions, and real estate finance, including restructuring and workouts. He will also advise clients in connection with business transactions, construction law, and other commercial matters.

Prior to joining the firm, John spent nearly a decade as an attorney at the Port Authority of New York and New Jersey, where he represented the bi-state agency in a diverse array of real estate, construction, and development matters. He also served as bond counsel for the agency and worked extensively on the development of the World Trade Center and Transit Hub.

Following his time at the Port Authority of New York and New Jersey, John served as Assistant Corporation Counsel for the City of Jersey City, where he regularly advised the City on commercial real estate and development matters.

“We are incredibly excited to have John join our growing team. He is a seasoned attorney, with experience handling complex commercial real estate transactions in both New Jersey and New York. His experience will be instrumental in our continued commitment to providing clients with effective legal solutions,” says Kellen F. Murphy, the firm’s managing partner.

“I’m thrilled to be joining the dynamic team at Murphy Partners and look forward to contributing to the firm’s future growth and success as a leader in the New Jersey and New York real estate legal market,” says John P. McDonough.

Murphy Partners LLP is a boutique law firm specializing in real estate, development, and economic incentive advisory. With offices in Newark, New Jersey and New York City, the firm was founded to provide effective, efficient, and creative legal services to meet the distinctive needs of our clients. Through the development of comprehensive legal strategies, our team works tirelessly to create a blueprint for success and advance our clients’ interests in every matter.