Creative Landlords
Attract Tenants WIth Art

May 29, 2003 -- Struggling French conglomerate Vivendi Universal SA is trying to sell the extensive art collection it inherited from Seagram Co.; Enron Corp. last week began selling off pieces from its art collection to pay creditors; Playboy Enterprises Inc. has put some 300 of its works on the block.

The death of art in the office? Not yet.

While corporations, especially ones in financial straits, have been hitting the brakes on artwork during these tough economic times, office landlords increasingly are picking up the slack. Art consultants from New York to San Francisco report that business is brisk among office-building owners and property managers looking to acquire art to display in building lobbies and exteriors.

These property owners are driven by an increasingly competitive market for tenants. Nationwide, the office vacancy rate has hit 16.3%, the highest since the end of 1991, when it stood at 19.3%, according to Reis Inc., a New York real-estate research firm.

"Landlords are finding it important to distinguish their buildings one from another" to attract and keep tenants, says Barbara Koz Paley, chief executive of Art Assets LLC, a New York-based art-consulting firm. Many view public art as a big potential draw.

But instead of buying the art, a growing number of commercial landlords are leasing it, much as they might lease lobby furniture. Ms. Paley says she has seen a two-fold increase in art leasing by landlords since early 2001. Such leases, which typically run for three years, cost about 20% of the price of purchasing such works, she says. The cost of leasing art is not only tax deductible as a business expense, she adds, but can be passed along to tenants as part of the operating costs for the common areas of the building.

The companies that are leasing works won't say how much they are spending, but one art consultant said the amounts range from about $12,000 to $50,000, depending on the artist and how many pieces are involved.

Among prominent examples of office-building art, Equity Office Properties Trust Inc., the nation's largest publicly traded office landlord, and its development partner, Wilson Meany Sullivan LLC, commissioned sculptors to produce large outdoor works for the first two office buildings at the Foundry Square development in San Francisco. One is an untitled cast bronze sculpture by Joel Shapiro. The other, by Richard Deacon, is called "Not Out Of The Woods Yet" and is made of aluminum.

In Boston, Hines Interests LP just leased two large oil paintings by landscape artist Eric Aho for the lobby of its Two Twenty Two Berkeley office tower. One is titled "New Mexico Clouds," the other "Santa Fe Lights."

Earlier this month, Zeller Realty Corp. spent about $30,000 to install "Chief" and "Ice Blue," two steel sculptures, at the base of a 35-story office tower in Chicago. The works, loaned by artist John Henry, soar 44 feet and 32 feet, respectively, above the plaza.

Paul Zeller, president of Zeller Realty, hopes that Mr. Henry's work, which will be up through the first week in November, will help attract a tenant to take the 75,000 square feet available in the building. "Selfishly, we want to draw people here," says Mr. Zeller, whose firm purchased the property in 2001 from Equitable Life Assurance Society of the U.S. "Art raises awareness of our real estate, our location and the quality of building in the minds of people." Mr. Zeller plans to commission permanent sculptures to display in the outdoor plaza of Chicagoans that helped create the city and offer rotating art exhibits in the lobby.

Shorenstein Co. has hired the Oakland Museum of California to curate exhibits of local artists four times a year at its building in Oakland, Calif., which opened last year and has about 170,000 square feet of space available. By hosting a reception for each new exhibit and keeping the building open three hours later once a month, "I draw a crowd to the building that would otherwise not be there -- a high-end crowd capable of signing a lease," says Chris Curtis, a Shorenstein senior vice president.

Sometimes, tenants who are reluctant to buy art themselves but still want it in their building are putting pressure on landlords to integrate works into their properties. "I've negotiated several leases where as part of the lease, the landlord had to commit to installing artwork in the lobby," says Christopher Cooper of real-estate services firm Jones Lang LaSalle Inc., who represents tenants.

Some tenants even seek assurances that any art in the building will remain. Last fall, when General Electric Co. agreed to rent 30,000 square feet of space for a handful of its business units at Hall Office Park in Frisco, Texas, about 20 miles north of Dallas, it wanted the ability to terminate the lease if the owner removed or changed the artwork. But "that would be too much for us to give," says Mark Depker, executive vice president of Hall Financial Group, which owns the office park. Instead, he agreed to compensate GE if Hall removed a sculpture or art piece without replacing it with something equal in "relative quality and class," he says. "A reduction in rent would be a possible remedy."

Also contributing to the trend are policies for integrating public art into new office buildings established by governments from Arlington County, Va., to Los Angeles. The Public Art Network, a program of Americans for the Arts, a Washington, D.C.-based group, estimates that about 40 U.S. cities and counties have such programs.

Even the federal government has an art mandate. Ilan Scharfstein, a vice president at JBG Cos. of Washington, says the development firm is working on several building projects for the U.S. General Services Administration, which manages government facilities, that require about 1% of the budget be dedicated to art.

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