Thursday, February 3, 2011

Leases

One of the biggest liabilities that Howrey faces is its leases.  Having been inside several of the Howrey offices myself, it is staggering how much empty (or near empty) real estate is held by Howrey's partners.


Washington:  Howrey's home office is located in the Time Warner Building on Pennsylvania Avenue (through some creative street address numbering, but I'll set that aside).  This is massive, expensive space.  It was featured as the home of "The Evil Law Firm" in the Pelican Brief, with Julia Roberts walking through the creepy interior atrium.  Who knows how many Howrey attorneys remain in DC, but it seems that the Howrey DC space is fairly low density these days, and who knows what percent of the remainders will become Winston & Strawn attorneys.  This means that either (a) the former Howrey DC home office will become entirely too low density to make sense or (b) Winston DC office might have enough space for Howrey attorneys to move in.  Either way, the DC space isn't going to make much sense.  All 10+ floors of it.

Houston:  About five years ago, Howrey forced its Houston office to leave its long-time home in the Galleria area of suburban Houston to downtown Houston, partially as a way to accommodate the Houston office's "merger" with the law firm of Clements O'Neill (how poorly that worked out is a story for another time).  Howrey's Houston office had low density back when it first settled in downtown, and has lost almost 50% of its headcount since then.  Some attorneys will move to Winston, and others won't.  What will remain is an even more thinly populated Houston office, and it hardly makes sense for Winston to want that kind of losing proposition.  What will likely follow is a physical downsizing of the Houston office into yet another location.

Los Angeles:  The Hope Street office has a few floors, but those floors have been underpopulated for years.  It would just make sense for what remains to move to Winston's LA offices, which already accommodate 55 or so attorneys (provided, of course, that space is available).  But from what I have heard from colleagues, the Winston LA office might not need that much space for Howrey attorneys, anyway.  So there's another vacant office, with several floors tied to an expensive lease.

Chicago:  Place is a ghost town, and whoever is left can walk over to Winston's mothership in Chicago.  So there's a couple more floors with no one to occupy them.

Northern Virginia:  From the Howrey website -- "Our 75,000 square-foot, state-of-the art in-house trial and litigation support center serves the other 18 Howrey offices in the United States, Europe and Asia."  Something tells me Howrey and/or Winston won't be needing this so much any more.

Irvine:  Reports are that the lights are all but turned out.  Does it make sense to keep the real estate for just a couple of attorneys, anyway?  With an office just up the road in LA?  Probably not.

East Palo Alto & San Francisco:  Not many attorneys remain (or will remain) in either of these offices, and what remains could likely drift in to Winston's San Francisco office space.  So there's not one, but two leases with no billable justification.

How much all of this costs is not the question.  We know it's a heck of a lot.  The real question is:  who's going to be left holding the massive bag on these leases?  Howrey's partners will definitely be on the hook, but will they draw Winston's partners into the circle of lease liability through this oddly styled merger?




22 comments:

  1. howrey's been trying to get out of the so cal leases for the past year w/o any luck. dc's got way too much space for way too few esqs. cap analysis and all of the other useless high $ groups really killed dc (along w/ruyak's short-sightedness) imo. however, given all the employers in dc, perhaps someone else can use that space + howrey can get out of that lease.


    irvine really shot itself in the foot by moving from its main street address to the higher rent address up the street. so cal's legal community's still hurting and no other firm (or real estate co., so cal's other big industry) will assume all that space. irvine company is notorious for being hard to deal with when breaking leases. no sense to keep irvine open when there are maybe 5-6 staffers left and maybe 5 esqs (if that) left. i can't think of any company that could or would want to step into those massive offices (with umpteen useless/high $ tech toy filled conference rooms). the booming businesses in so cal- allergan and other bio/pharma cos.- can't really make that space work for them. same w/the la office. frankly, irvine + la should've just merged into the la office in 2008 or 2009. maybe that would've stopped this bloodbath.

    sf's going to be closing and the epa/sf offices could've and should've been merged like oc/la should've been merged. however, like dc, perhaps howrey can get out of this lease b/c of demand in the nor cal market.

    this is like the .com implosion. howrey's partners are going to be left holding the bag. winston's smart enough to avoid liability. this isn't really a merger...it's more like vultures circling a dead body that should've been eaten up long ago.

    sad to see, but yet another reminder of why lawyers should never try to be businessmen.

    ReplyDelete
  2. Any idea when a final announcement will be made on Howrey's DC office? Will they definitely be closing their doors?

    ReplyDelete
  3. I really question how well Winston is going to make out in all of this. Who is left for Winston to get?!?

    ReplyDelete
  4. That is the mystery. I wonder whether the Howrey partners are so desperate to flee to the Winston lifeboats that they aren't paying attention to potential problems at Winston.

    ReplyDelete
  5. I'm curious about the DC office too. I think that ship will keep sailing.

    ReplyDelete
  6. I tend to disagree. Howinston will not need Howrey's old DC space. It's just too much space for too few attorneys. Even if 75% of Howrey's DC attorneys make the move to Winston, even fewer will be around 3 years later because of dislike of the new firm. The need for so much space will decrease even more. The more I look at it, the more I think Howrey DC's space will become a white elephant in this deal.

    ReplyDelete
  7. If that's the case, what a shame. The Winston office on K Street is nothing in comparison to Howrey's Pennsylvania Avenue location.

    ReplyDelete
  8. plus half-empty monuments to high egos and low taste in London and Brussels...

    ReplyDelete
  9. In Northern California, Howrey still owns the lease on the old Day Casebeer offices. All the Day Casebeer people were moved to Howrey's EP office after the merger. The old Day Casebeer offices are empty but Howrey owns the lease for those offices.

    ReplyDelete
  10. Not really true about the NoVa location. Not a boomtown as in the old days, but still work going on out there. This is where they house all the temps they use on their cases requiring them. Whose knows about after all this is said and done, but that is probably the one space that is still remotely earning its keep.

    ReplyDelete
  11. Talking about London, it´s not only the space Howrey occupied. There was the former lease, and two subsequent leases for further, vast office space rented by the visionary CEO. Most of it sublet, but subsidized. Unless things have changed and they managed to get out.

    In Brussels, the IP practice has taken over the floor it occupied as part of Hoyng Monegier. Only the other 2 1/2 floors are left over.

    ReplyDelete
  12. I didn't know about the Day Casebeer space, but that makes perfect sense. It makes no sense for Howrey to hold three leases in the bay area.

    I tend to disagree on the NoVa space because if I have a case with five million documents that need to be reviewed, I can go to any number of companies who will run with it (loading documents into a review platform, hosting of the documents database, renting enough computer terminals for reviewers, hiring contract attorneys to slog through the database, etc.) at what I suspect would be a lower price than Howrey. Maybe Howrey is doing the work at a loss to cushion its loss on the NoVa space.

    Word is that Ruyak has spun the excess lease space as an opportunity for Howrey's partners (or Howinston partners) to make some great cash. The guy just can't stick to the practice of law and managing a law firm. He branched out into document review companies and becoming a real estate tycoon. That's the Advantage of Focus.

    ReplyDelete
  13. pretty accurate take on things: http://sharktanklegal.com/?p=68

    ReplyDelete
  14. (ignore the brutal green background -- bad joke about bob green, i guess)

    ReplyDelete
  15. What is this Shark Tank link? Is it really accurate?

    ReplyDelete
  16. This is in line with my experience at Howrey -- Howrey just couldn't keep the young talent. It's not only a matter of the DC office either. Thanks for the link to Sharktank, and I'm going to bump it up to a separate post.

    ReplyDelete
  17. Regarding the NoVa space: Howrey certainly runs some of the bigger projects at a loss from that location. Last year a huge document review with 200+ contract attorneys either barely broke even or ran in the red.

    ReplyDelete
  18. I wonder whether Howrey's Executive Committee had ever provided a full financial justification on opening the NoVa space to its partners. Or provided a crazy report like revenue minus expenses equals profit or loss in order to justify NoVa's continued existence?

    My guess is no, and I think the fact that few other firms have decided to branch out into this type of business says enough.

    ReplyDelete
  19. This comment has been removed by the author.

    ReplyDelete
  20. I had a typo in the comment above, so I deleted it.

    The Washington Post ran an article today that Howrey has 300,000 square feet in the DC mothership until 2018. Dealing with that is gonna be a mess.

    ReplyDelete
  21. Winston will take over the DC lease and several others, probably including Houston, Brussles and London. Not including New York and LA.

    ReplyDelete
  22. I also heard that Winston might absorb the Howrey DC lease, and move the Winston lawyers over there. But I don't understand why Winston would want to do that. If they move, Winston will need to sublet its own leased space (probably at a loss). Also, why would Winston want to take over the Howrey lease, rather than letting Howrey lapse into bankruptcy and violation of the lease, and then swooping in to renegotiate a new lease on the Howrey space at a lower rate. Vornado might argue that it was a de facto merger, and threaten to sue, but probably would just settle for a lower-cost lease.

    ReplyDelete