Media’s Real Estate Reckoning Featured on Women's Wear Daily
As the coronavirus pummels ad revenues, real estate is the latest cost under review by media companies.
When Condé Nast moved into its former New York office in Times Square just before the turn of the century, no expense was spared. Famed architect Frank Gehry designed its $30 million cafeteria while some of the publishing company’s top editors were given their own pricey architects to remodel their floors and private offices as they desired, down to the furniture and art on the walls. After all, back then during the height of “The Devil Wears Prada” era in the magazine world, appearance was everything.
Two decades later, times have changed dramatically. Not only is the group now located at 1 World Trade Center — where it has been based since 2014 — it is attempting to significantly cut costs and is mulling breaking its lease that runs for almost two more decades if it can’t negotiate a better deal with its landlords, powerful real estate magnate Douglas Durst and The Port Authority.
“Advance Publications is in discussions about bringing the lease at 1 World Trade Center into line with current market conditions and its ongoing needs at this location. It is considering alternative solutions to address these requirements,” said owner Advance Publications, which has been reportedly touring cheaper office spaces.
The publisher of Vogue, The New Yorker, GQ, Vanity Fair and more is far from being alone in reconsidering its real estate needs as the coronavirus pummels the already fragile media industry, triggering an unprecedented advertising freefall. Following furloughs, pay reductions and layoffs, real estate has become the next logical step for executives when it comes to cost cutting.
Some media companies are even doing away with their newsrooms altogether for the time being, having largely operated without them since March. Last month, Tribune Publishing outlined plans to close the offices of five of its newspapers, including The New York Daily News’ Lower Manhattan newsroom at 4 New York Plaza. The iconic tabloid, alongside the Allentown Morning Call in Pennsylvania, Capital Gazette in Annapolis, Md., Orlando Sentinel and the Carroll County Times in Westminster, Md., will continue to publish newspapers with employees working from home. It’s also reportedly exploring options for the Chicago Tribune office overlooking Millennium Park, such as a buyout of its lease.
“With no clear path forward in terms of returning to work, and as the company evaluates its real estate needs in light of health and economic conditions brought about by the pandemic, we have made the difficult decision to permanently close the office,” a spokesman said of the Daily News’ newsroom closure. He did not respond to request for comment about the Chicago Tribune.
But even before this announcement, Tribune Publishing had been cutting real estate costs. It disclosed in a corporate filing that it has withheld rent since April at the majority of its facilities and requested rent relief in various forms, including lease restructuring, rent abatement, deferrals or lease terminations.
McClatchy-owned The Miami Herald has already moved out of its Doral, Fla., offices. Revealing the move in June, the publisher explained it was “investing in people over place to ensure our readers receive the level of coverage and accountability throughout South Florida they expect each day from our talented journalists.” A handful of other McClatchy papers have done the same, including The Tribune in San Luis Obispo, Calif., and The Charlotte Observer in Charlotte, N.C. The group, which has just been acquired by hedge fund Chatham Asset Management, was able to exit its leases after filing for Chapter 11 bankruptcy.
And in its latest earnings call, Gannett’s chief financial officer Douglas Edward Horne told analysts that the company is reducing its real estate footprint, although it’s taking longer than expected.
“Some planned real estate sales are taking a bit longer to complete than we had originally hoped, but we have over $15 million of property currently under contract and remain confident in our ability to sell $100 million to $125 million of property by the end of 2021,” Horne explained.
The door isn’t completely closed when it comes to these newsrooms, though. The Tribune noted that as it progresses through the pandemic and needs change, it will “reconsider” its need for physical offices. McClatchy, meanwhile, expects to move into new office space in these markets after the New Year, although it may not look like it used to. “When it is safe again to get back to working as a team in one physical location, we envision an office environment that is more flexible — where we can host visitors, gather and work together in a workspace that complements remote work,” a spokeswoman said.
Aileen Gallagher, associate professor of magazine, news and digital journalism at Syracuse University, told WWD that some local papers have already moved into smaller newsrooms suited to a flex-model of working.
“Some newspapers owned by Advance Media [parent of Condé Nast] are doing that. Specifically, I know the one in Syracuse did that a few years ago,” she said. “They got a new office so it’s not a permanent newsroom. It’s a lot of work stations and people going in and out so it’s a sort of halfway solution between a traditional newsroom and a total remote newsroom.”
Gallagher believes that this could also happen in the glossy magazine world. “I mean, everyone’s looking to cut costs, right? And it’s hard to make the argument [against it] because people are working and they are producing good work.”
While no major magazine company has publicly stated that staff will work from home permanently, Condé’s global chief of people Stan Duncan informed employees in a memo that remote working will be “a larger part of our future workforce strategy.”
For media companies that decide not to reopen their offices, Dan Kennedy, a journalism professor at Northeastern, thinks it would have a detrimental impact on young journalists, as well as making it difficult to bounce ideas off coworkers.
“There’s just a certain energy in the newsroom that you’re never going to get at home,” he said. “I don’t really see how you can learn as effectively when you’re not working with older and more experienced people and it seems like it would be very difficult to develop mentor relationships in that situation.”
As for the real estate consequences of all this, Nataly Goldstein, a New York-based real estate attorney at Pardalis & Nohavicka, cautioned that the price of breaking a lease is “very, very, very high.” Consequences include a company giving up its security deposit and paying rent until the landlord signs another tenant or even the landlord keeping the security deposit and then the tenant paying the rent up to end of the term review agreement, which could be many years.
She is seeing a number of large companies across all industries trying to terminate their leases as “many people have realized that their employees have been working proficiently outside of the office and it’s just not necessary to be taking up a space and paying the rent that they have been in the past, especially for office space.”
Landlords are being more open to negotiations, though, in order to try to keep their tenants, according to Goldstein.
“Given the current circumstances, I feel like landlords are being a little more open to different types of negotiations with their tenants, either from a sort of deferment plan where the tenant would still owe the rent, but it wouldn’t be for a period of six months, a year, whatever it is.”Nataly Goldstein
How open to negotiations the Durst Organization and The Port Authority are with Condé Nast remains to be seen.
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