Borrower profile: Time Equities sees low leverage as key for strong office performance

The firm has an almost 95% occupancy rate in its office portfolio.

Time Equities, a New York-based investor and developer, has formulated a strategy which has allowed it to keep an almost 95 percent occupancy rate in the office component of its diversified portfolio: keeping leverage low while working with relationship lenders to help fund good news money to bolster leasing.

The firm owns and manages 43 million square feet of real estate across the US and internationally, with weightings in the office, retail, industrial and multifamily sectors.

“We have been closely following what is going on in the office sector. While activity is dependent on building and location, you must be competitive with great amenities to attract and retain tenants,” said Max Pastor, executive vice president. “You also have to be the option that makes the most economic sense and offers tenants the best incentives.”

Pastor noted that Time Equities has always been focused on unleveraged returns and, in general, tends not to over-leverage properties. This has allowed the firm to have sufficient cash flow to support new leasing and finance tenant improvements.

“Our lenders have been great partners over the past 12 or 13 months [for new and existing properties],” Pastor added. “We acquired properties in Albany and Cincinnati on an all-cash basis and, because we bought them all-cash, were able to approach our lenders and get financing for good news money. This allowed us to complete improvements and position our buildings to be the go-to properties in their market.”

Amenities 2.0

“The amenities tenants are seeking today have evolved from the pre-covid cycle and are a critical part of our business plan allowing our firm to remain competitive helping to retain and expand our tenant base,” said Brian Soto, director of acquisitions and asset management.

For its non-New York office properties, the firm has implemented an amenities space it has dubbed the Quad, offering swing space for office, golf simulators, conference rooms, meditation spaces, and artist studios for tenants interested in painting or pottery.

“These aren’t your typical amenity programs,” Soto said. “But many businesses are questioning the size of their space and what they need. Our goal was to retain our tenants and make the building attractive.”

These amenities – as well as strong capital partners and relationships – can make the difference for landlords, Pastor said.

“There are a lot of buildings in distress right now and there is concern over whether the landlord or owner deliver what it takes to attract a tenant in this market,” Pastor said. “Thankfully we are able to leverage our lending relationships to avoid those situations.”

Still, tenants have a real concern about the economic health of their landlords, Soto said.

“One of the question we are often asked during lease negotiations is if we are well capitalized and if we can deliver on what we are promising,” Soto said.

He continued: “Many potential tenants ask how we intend on funding these major capital investments in the property. We have heard time and again hesitancy from tenants to enter into a long-term commitment with a landlord who they are unsure as to whether they have financial resources either from their lender or internal capital resources to deliver the necessary tenant improvement. Tenants want certainty that their new space will be delivered as per the agreed-to plan, particularly given the current state of the financial markets.”

New York snapshot

Time Equities’ New York office portfolio has weathered the broader storm and the firm is expecting to see an opportunity to expand its tenant base – and its portfolio – in the coming years. The firm manages nearly 1.5 million square feet of office space in the city, with a roughly 94 percent occupancy rate.

“We had one large tenant vacate our property on Fifth Avenue, which was a significant blow to the building. Fortunately, within nine months we leased the full floor to a major furniture designer and fabricator,” Soto said. “Given the need to remain ahead of our competition, we have taken measures to upgrade our buildings by asking questions like, ‘Do we need to do common area renovation or bathroom upgrades? What exactly are tenants looking for, and does our building meet their expectations?’”

The firm is bullish on New York going forward, with Soto pointing to the impact of the upgrades the firm has made as well as the location of its properties. Its New York portfolio includes the Silks Building, a fully leased office development in Long Island City. The 113,000-square-foot Queens property is fully leased, with about 35 percent of current tenants on five-year leases. It also owns 125 Maiden Lane, which is 88 percent leases; 633 Third Avenue, which is fully leased; and 55 Fifth Avenue, which is 97 percent leased.

“We have been actively tracking trades in the market and keeping cognizant of the opportunities that will eventually arise. The basis at which we are able to acquire these new opportunities could be very attractive over the long-term if you believe in the future of office in New York City,” Soto said.