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No one planned it this way. Less than two years ago, Silicon Valley firms and many others couldn’t expand fast enough in Northern Virginia. They hardly expected the downturn in the tech market that forced some firms to shed associates and reduced many associates’ billables to barely 100 hours a month. During the tumultuous year of 2001, nearly 2 million square feet of office space went on the sublease market in Reston and Herndon alone, according to real estate brokerage Insignia/ESG. Overall office vacancy rates in Tysons Corner rocketed from 1.3 percent in 2000 to 15.6 percent at the end of 2001. And, as one managing partner points out, “When vacancy is up, rents are down.” Most of the firms that recently harbored grand plans for expansion in Northern Virginia have moved on to Plan B. With schemes for future growth delayed but not scuttled, they say they intend to ride out the real estate roller coaster, even if it means subleasing excess space for less than they’re paying, waiting to build out a floor, or paying rent for empty space. ON THE CORNER In Tysons Corner, where firms could plant a flag in Northern Virginia and yet have quick access to the District and the Beltway, the key to signing a good deal was getting in early. Terrence Leonard of real estate brokerage Cushman & Wakefield says rents in Tysons Corner, which crested just under $40 per square foot in 2000, are in the $28 to $32 per square foot range now. But, he adds, “It’s very difficult to tell where the market is because of the lack of activity right now in the prime market.” Shaw Pittman moved into space at 1650 Tysons Blvd. back in mid-2000. The firm was coming off a year of technology deals worth more than $110 billion, and transactional work was still going strong. The firm’s Northern Virginia practice had outgrown the 40-lawyer capacity of its space on International Drive. What Shaw Pittman did was take three floors in the old MCI Building at about $32 per square foot and build out all but a half a floor. The firm easily filled the space, grabbing whole practice groups from other firms and shifting patent and litigation attorneys from the D.C. office. Steven Meltzer, head of the approximately 90-attorney McLean office, says the remaining space is being built out now in anticipation of more growth. Meltzer says that, unlike firms that opened their outposts at the height of the technology boom, Shaw Pittman was already established in Northern Virginia. “When we went in [to the new space], we had been out here for a while,” says Meltzer, referring to the firm’s presence in McLean since 1984. “It wasn’t a new endeavor. It was just a change in where [we] sat. The theory was and is that there is a very vibrant business community out here.” Also early to the market was Nixon Peabody, whose office in Northern Virginia handles only intellectual property matters. Having been in Tysons for 15 years, the firm took its current space on Greensboro Drive in 1998 and got a “really good deal,” according to office managing partner Donald Studebaker. In 2000, the office set up an incubator for six to eight emerging companies. The startups received free rent and support services, while Nixon Peabody crafted a reputation as a tech-friendly firm and hoped to get business from the ventures it housed. But the falloff in venture capital investment and the rocky ride of technology startups has deferred that dream. “The incubator was a little more occupied when it first started,” says Studebaker. Of the 22,000 square feet in Nixon Peabody’s office, 4,000 are set aside for the incubator, of which 2,200 are occupied. “We’ve had to take back some space for our own purposes,” he says. The firm also grabbed adjacent space that became available last year and has recently started subletting it, but for a little less than what the firm is paying on it. The new tenant, a small law practice, has a short-term sublease that allows Nixon Peabody to take back the space with three months’ notice after a guaranteed year and a half expires. Other firms are taking the good with the bad in Tysons Corner, but feel that overall they are ahead of the game. San Francisco-based Morrison & Foerster leased space at 1750 Tysons Blvd. in 2000 and quickly outgrew it. Though its lease is not yet up, MoFo recently moved a short way down the road, to 1650 Tysons Blvd., into space almost twice as large. MoFo brought on four laterals in November 2001 and has long planned to move its D.C. patent group to Northern Virginia, so the 17-lawyer office will soon number 30. The office has space for 36 or 38. “We’re coming in fairly full into the new space,” says G. Brian Busey, managing partner of the D.C. and McLean offices. “And we’re actively looking at possibly adding other folks.” Busey acknowledges that rents have softened since it signed the deal, but shrugs it off because the firm simply needed to move. “We weren’t lunging for a lower rate. We had more lawyers than we could accommodate in our space.” Having deliberately taken a short-term lease at the first location, the firm signed a longer-term lease for its new space and remains committed to McLean. “We didn’t consider moving out to where the rents have really come down, out toward Reston and Herndon,” says Busey. “We felt we made the right decision to be in Tysons.” Another San Francisco firm, Pillsbury Winthrop, also staked its claim in Tysons rather than the tech-heavy Dulles Corridor. After announcing its merger with Winthrop, Stimson, Putnam & Roberts in July 2000, Pillsbury, Madison & Sutro planned to move nearly all of its 70-attorney intellectual property practice from the D.C. office to a new Tysons Corner office. That office building went up next to the Ritz-Carlton in McLean, and Pillsbury took four floors totaling 80,000 square feet in July 2001, of which about 10 percent is not built out. The office’s patent paperwork is housed in the basement, at a lower rate. Though office managing partner William Atkins says the office is “insanely busy,” the firm has been trying to sublease the unused space on a short-term basis. “We’ve had that on the market since we moved in,” he says. “But [the terms are] probably not as attractive as you could find right now.” For instance, the firm would like to have a take-back clause, allowing it to reclaim that space if necessary. The Tysons office currently has about 60 attorneys, while the D.C. office has fewer than 30. Atkins is pleased with that balance. “From the IP standpoint,” he says, “if you’re in D.C., where are your clients?” UP AND DOWN IN RESTON At the height of the tech boom, Reston became a mecca for firms lusting after emerging companies’ business, and the undisputed hot spot was Reston Town Center. Rent in the Town Center was often a third higher than space at other Reston locations, but law firms were undeterred. In August 2000, when rents there were approaching downtown D.C. prices, about $40 per square foot, vying for space were Latham & Watkins; Akin, Gump, Strauss, Hauer & Feld; Wilson Sonsini Goodrich & Rosati; and Finnegan, Henderson, Farabow, Garrett & Dunner. Because of a snafu with two developers over two of the office towers, none of the four firms got any of the coveted space. Akin Gump currently holds space in McLean, while Finnegan will move into space in Reston later this year. However, Latham & Watkins and Wilson Sonsini are both locked in for space in a new building going up in the Town Center, expected to be completed later this year. “About six or eight months ago, and with a full understanding of what had happened with the market, we had an opportunity to go forward with the lease or reject it,” says Latham’s D.C. managing partner, Eric Bernthal. “We concluded that we absolutely wanted to go into it.” Latham will have 27,000 square feet in the new space, and currently has fewer than 10 lawyers in Northern Virginia. But Bernthal expects the office to grow in the next couple of years. “We may sublease at the beginning,” says Bernthal. “But we certainly didn’t lease the space in order to enter the sublease market.” Bernthal says that Latham’s rent in the new building, when the lease was signed, was slightly below market value. “If you look at the snapshot of today, I’m not sure whether we’re above, below, or at the market price. We’re probably pretty near the market,” he says. Palo Alto, Calif.-based Wilson Sonsini has “several floors” in the new building, according to co-managing partner Trevor Chaplick. With 26 attorneys in Northern Virginia, the firm will occupy only the top two floors of its new space. Wilson Sonsini completed negotiations in 2000 and secured a rent Chaplick confirms was “less than $45″ per square foot, a figure that represents the high-water mark before prices fell. Chaplick says the firm’s plan was “to control the space we need in the long term and sublease in the meantime.” Meanwhile, Palo Alto-based Cooley Godward — a longtime Town Center tenant — has expanded its Freedom Square space, taking on 22,000 additional square feet last month to boost its total to 80,000. The firm, which has 72 lawyers in Northern Virginia, plans to occupy only half of the new space by the end of 2003. Not all the newcomers sought Town Center digs; the ones that didn’t are finding it easier on the bottom line. When Town Center rents topped $40 per square foot, nearby Reston office space often was going for less than $30. “When we were looking to move out to Virginia, the landlords in the Town Center were looking for large commitments of space and had very high rates,” says Reston partner Kevin Lavin of Brobeck, Phleger & Harrison. “We chose not to go that route and took less space just outside the Town Center, so we have relatively inexpensive space and not too much of it.” Though Brobeck’s 10,000-square-foot office has only five lawyers currently, the rent is so low relative to California rates that “we’re not at all worried about the real estate,” says Lavin. Piper Marbury Rudnick & Wolfe took advantage of that disparity, securing 75,000 square feet in June 2000 at about $30 per, says partner in charge Nancy Spangler. “We knew then that we wouldn’t occupy all of that space until sometime much later,” says Spangler. One whole floor, 25,000 square feet, is not built out and is currently subleased. Parts of another floor are also subleased. That still leaves over 25,000 square feet for just 18 lawyers. Spangler says that when the firm was looking for permanent space, the Town Center was $45 per square foot. Though she says the firm will “weather the storm just fine,” Spangler acknowledges, “We wish we had more people out here.”

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