White-shoe law firm Weil, Gotshal & Manges, which was founded in 1931 and announced its intent to wind down operations this week, currently occupies around 447,000 square feet over 11 floors at BXP’s General Motors Building at 767 Fifth Avenue.
BXP owns 60 percent of the 50-story building, which it purchased in 2008 in a joint venture with Goldman Sachs and Meraas Capital.
Weil Gotshal has called the building home since it opened in 1968, and last renewed its lease in 2014.
The firm — which employed around 2,000 people including approximately 1,200 lawyers worldwide — was a pioneer in the field of bankruptcy and restructuring, having worked with the likes of Enron, Drexel Burnham Lambert, General Motors and Lehman Brothers, and one of the country’s 30 largest law firms as of just last year, bringing in nearly $2.1 billion in revenue.
With the surprise announcement of the firm’s dissolution after a series of partner defections and the failure of a proposed merger with Willkie Farr & Gallagher, the future of its 447,000 square feet of Class A office space — for which the firm is committed until 2034 — is suddenly up in the air, leaving a potentially sizable hole in the otherwise booming and largely occupied Class A Manhattan office market.
(Bloomberg reported that Weil associates and staff were told they would be paid for 90 days, and that a more detailed plan for the wind-down would be voted on within days. Weil also announced that it will continue serving clients during the wind-down period.)
Manhattan’s office market has enjoyed a strong year, with Savills placing the borough’s leasing activity through the end of the third quarter at 33.5 million square feet, up 5.6 percent from the same time last year despite rapidly shrinking supply for Class A and trophy space.
The company noted that legal services was one of the industry sectors driving the strong demand. Prominent leases from law firms in 2026 have included Simpson Thacher & Bartlett taking 916,000 square feet at Extell Development’s in-the-works 570 Fifth Avenue; Proskauer Rose expanding to 478,000 square feet at 11 Times Square; Kirkland & Ellis expanding to 257,135 square feet at 900 Third Avenue; Morgan Lewis relocating to 205,000 square feet at 1251 Avenue of the Americas; and Loeb & Loeb expanding to 178,959 square feet at 345 Park Avenue.
Meanwhile, according to a third-quarter report from Colliers, Manhattan office supply is the lowest it’s been since August 2020, with office availability at 12.4 percent, its 10th consecutive quarter of tightening inventory.
Colliers also noted that sublet availability in Manhattan fell in August to 10.07 million square feet, the lowest figure since August 2019 and a contraction of 22.3 percent over the past year.
Given this vast imbalance between supply and demand for Class A and trophy office space in the borough, news of an eventual vacancy of this size and quality, if it had to occur, could not have come at a better time.
“The demand among so many different types of occupiers for this type of trophy space is just voracious. There’s not enough of it as it stands,” said Matthew Schreck, research director for the New York tri-state area at Savills. “There’s a world where this doesn’t even formally hit the market. It’s very likely that occupiers and their brokers will be engaging on this space proactively.”
At this time, especially given how quickly this all unfolded, neither BXP nor Weil have made any announcements about the future of the space, and neither company responded to requests for comment.
The Journal noted that Weil will “wind down its affairs without a bankruptcy filing,” and will exist “in some form” for an unknown period of time to settle accounts and “deal with leases around the world.”
But, given the current supply and demand dynamic, it would seem that BXP has several beneficial options, including possibly arranging to have the space subleased.
And given how rapidly market-rate rents are rising — the Savills report noted that Class A asking rents throughout Manhattan are up 9.9 percent since the same time last year — it seems possible that BXP could simply terminate the lease and try for a significantly higher rent than they would have received from the remainder of the current lease with Weil.
On an earnings call the morning of Oct. 28, just hours before Weil’s partners decided to dissolve the firm, Douglas Linde, president of BXP, said that the average office rent at the General Motors Building was “under $150 a square foot,” and that rents at the company’s currently-in-development 343 Madison Avenue have been ranging from around $190 a foot to over $300.
“There is a vast gap between where the in-place rent is at the General Motors Building and where we believe and perceive the market is,” Linde said on the call.
Given this, Schreck believes the space can rent for considerably more than it’s currently bringing in.
“Looking at our third-quarter numbers, Midtown trophy availability is under 2 percent, and average asking rents are approaching $200 per square foot,” said Schreck. “I could certainly see this rent for an amount between the upper $100s and the $200s.”
This view is echoing throughout the industry.
“There will be a lot of interest in this large block of space, especially given the quality of this asset and the lack of currently available trophy office space in Midtown,” Josh Kuriloff, an executive vice chairman at Cushman & Wakefield, said in a statement to Commercial Observer. “We expect to see a lot of competition for this.”
That said, there could be some short-term pain for BXP before the eventual long-term gain.
Without knowing more specifics of Weil’s yet-to-be-announced wind-down plan, Josh Winefsky, a partner at Herbert Smith Freehills Kramer, believes that no matter how this is handled, BXP will likely endure an immediate decline in revenue as they search for, and negotiate with, a new tenant.
“There’s going to be a meaningful amount of time where if BXP were to [release Weil from its lease], they’re going to be receiving zero revenue for this space, when they’re used to receiving [probably] over $4 million a month,” said Winefsky. “Because, no matter what, you have to locate the replacement tenant through a marketing process, negotiate a lease with that tenant, and then either build out the space or turn it over to them so they can build it out. With all that, there’s going to be a very long [rent-free] period, and a capital outlay for either a build-out or a tenant improvement allowance.
It’s also worth noting that the building’s joint venture ownership has a refinancing loan maturing in June 2027 — the venture refinanced a $2.3 billion principal at a fixed rate of 3.43 percent in June 2017 — which could heavily impact BXP’s next steps.
“A 400,000-square-foot void in this building will have a massive impact on the deal they’re going to get on their next loan, which is going to be an eight-figure loan,” said Winefsky. “They’ll need to strategically plan the best way to market for a multibillion-dollar loan, taking into account a potential 400,000-square-foot hole in their stack.”
As for the broader office market, while Weil’s rapid unraveling is proving to some that even the most prominent law firms might not be as secure as they seem — in large part due to greater competition for top talent and, therefore, less institutional loyalty overall — the facts on hand, including this year’s many notable legal industry leases, make it a stretch to perceive Weil’s collapse as the beginning of any trend.
“My impression of this is that it seems like a one-off event rather than something systemic to the legal industry,” said Schreck. “There are always consolidations and movement, and law firms have been very proactive.”
We should hear more about the firm’s plans in the coming days and weeks as Weil’s partners vote on the specifics of how the firm will unwind. Whatever happens, it’s likely that once BXP unleashes the space on the market, they will find no shortage of interest from companies more than willing to pay for high-quality Class A space.
“I can think of a lot of potential occupiers off the top of my head — from financial firms, other law firms or business consulting groups — that are actively out in the market looking for a large block of this type of space that could potentially be interested,” said Schreck. “I don’t necessarily want to call it a blessing in disguise for BXP, but there are worse times in the marketplace for this to be happening.”
Larry Getlen can be reached at lgetlen@commercialobserver.com.
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