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Not long ago prime office building owners would have blanched at the idea of leasing space to the Internal Revenue Service. They would have worried that the Fortune 500 image they cultivated would be shattered if their tenants had to share corridors and elevators with taxpayers seeking forms and advice.
But recessions have a way of changing perceptions. When the IRS advertised last year for a large block of midtown space, owners of many of the city's most modern and prestigious buildings replied. Suffering from a vacancy rate of 16% in midtown, building owners saw the IRS not as a source of troublesome traffic, but as a tenant with ironclad credit.
"This certainly was an opportune time for us to be in the market," says Joseph Siegel, contracting officer with the federal General Services Administration, which managed the IRS' space search.
In the end, the government signed a lease for about one-fourth of the space in the Durst Organization's 980,000-square-foot tower at 1133 Sixth Ave The deal has greatly eased what was shaping up to be a major headache for the Dursts. The tower lost its largest tenant this year, Bertelsmann AG, and most of its other leases expire in 1994.
At the same time, the fierce competition over the IRS provides a revealing glimpse into a real estate market reeling from a recession that shows no signs of abating.
The financial stability of candidates was a key factor in the government's decision. At least one property had to be disqualified because the building was in bankruptcy and it was unclear how interior work would be financed.
IRS' BARGAINING LEVERAGE
Meanwhile, the government enjoyed the same bargaining advantage that most tenants do in the space-glutted market. The rent the government...