As the saying goes, location is everything in real estate. And for Washington law firms, prime real estate comes with a big price tag.
But since the recession took hold in 2008, many local firms have adopted new business practices in an attempt to limit real estate-related costs. Given that firms occupy space that can cost anywhere from $50 to $85 a square foot, wasted space can total hundreds of thousands of dollars.
Putting this new space-maximization model into practice has meant making better use of existing space and becoming more value-conscious when considering a move to new office digs. It’s also meant some big-firm D.C. attorneys are having to make some somewhat shocking sacrifices. These have included doing away with swank reception areas, and in some cases it even means high-profile partners are making do with offices the exact same size as their fresh-out-of-law-school, associate colleagues.
“Real estate is the second-highest cost for law firms after personnel, and always has been,” said Jay Epstien, the D.C.-based chair of DLA Piper’s U.S. real estate practice. “In the past two to three years much more attention has been paid to making space more efficient and, ultimately, cost-effective. They have paid more attention to it, not only because it reflects more advanced law firm management, but like most every U.S. company, law firms have been under more pressure in terms of profit due to the downturn in the economy.”
Like most businesses, “law firms, which are taking large chunks of space, want to make it as efficient as possible,” said Michael Charness, the D.C. managing partner of Vinson & Elkins. “I would say most if not all firms have used consultants to help design their areas.”
Charness said that in years past, the use of consultants wasn’t as prevalent. But now, dour economic times have driven firms to the belt-tightening.
One such consultant is Roomtag, which helps law firms and other businesses better manage the space they occupy. Consultants like Roomtag charge about 25 cents per square foot. Roomtag founder Marcia Hart said that firms are often unaware of exactly how much space is going to waste and that when confronted with the facts, clients have feelings that can range from disgust to relief.
“They can’t have their head in the sand,” Hart said. “Law firms need to be actively managing their real estate.”
In her 37 years with Hunton & Williams, Director of Administration Bonnie Montgomery has overseen four office moves in Washington, including the firm’s latest relocation to a shiny, glass-exterior 10-story building at 2200 Pennsylvania Ave. N.W. The new space, which the firm moved into in July, occupies 190,000 square feet in the building, including the top two stories. The firm occupied 160,000 square feet at a previous location at 1900 K St. N.W., where it had been from 1996 until their recent move.
The firm took a number of different approaches to save dollars. Rather than putting an independent staircase between floors, the firm opted instead to use the building’s internal staircase. The move saved the firm about $200,000, said Montgomery.
The firm also upgraded to a high-density file cabinet system and put the file cabinets on a set of rolling tracks, giving it almost two times the storage capacity.
Andrea Field, managing partner of Hunton & Williams’ Washington office, said that while the firm upgraded to a new building with more space, the cost was comparable to the previous lease. “That was being in the market at exactly the right time,” Field said. The firm signed the lease for the new space in December 2008 and worked alongside the developer as it designed the new office from scratch. Field declined to say how much the firm is paying for the new space. But full-service buildings in downtown Washington can run about $75 a square foot, some real estate attorneys estimate, for amenities like 24-hour security, parking and building maintenance.
Building a brand-new space “is always an opportunity to design for your current and future needs,” Montgomery said. Toward that end, the firm took a number of steps to save space, like clustering support staff to a central location. When Hunton & Williams moved to 1900 K St. N.W. in 1996, the firm had 66 lawyers. Today there are 156 attorneys in the Washington office.
And unlike previous moves, this time the firm took all its old furniture with it. That includes 90 associate desk setups and all the conference room tables, except for one that was deemed too small. “We were trying to recycle and reuse everything we could,” said Field.
Other D.C. law offices have taken to subleasing as part of their plans to cut costs. Take the Washington office of Thompson Hine. The firm is slated to move into its new, 32,000-square-foot office at 1919 M St. N.W. in January. That’s a 4,000-square-foot increase from their current location at 1920 N St. N.W.
Yet David Wilson, the managing partner of Thompson Hine’s Washington office, said that while the new office would cost a little bit more than the existing lease, subleasing the new office space from the firm Bingham McCutchen cost Thompson Hine significantly less than entering into a primary lease with the building’s landlord.
And firm partners, he said, are fitting into associate-sized offices.
“There is definitely much more of an emphasis on staying within a budget and creating a space that is much more efficient,” Wilson said. “A lot of us are going to squeeze into offices that are not traditionally partner-size offices. In order to make this deal workable for us financially, some people are going to have to recognize that we’re not going to get palatial offices anymore.”
When Womble Carlyle Sandridge & Rice was considering its recent move in Washington, to a fifth-floor office at 1200 19th St. N.W., the firm took a different tack. According to Pamela Rothenberg, managing partner of Womble’s D.C. office, the firm created a committee populated with lawyers of all ranks — everyone from first-year associates to senior statesmen. Their mission: Design a space to meet the firm’s future needs.
The firm moved to its new digs in late August. While they downsized their space from 55,000 square feet to 31,000 square feet, firm leaders contend they’ve been able to do more with less.
The firm created versatile conference rooms with collapsible walls and did away with a formal reception area. Most notably, partners and associates now have the same size offices, eliminating the need to relocate associates once they become partner. “Efficiency goes to the business of the law firm,” Rothenberg said. “The more efficient we can be and the more purposeful we can make our space, the more cost effective we can operate. The more that we can be cognizant of keeping costs down — particularly large line items like occupancy costs — the more effective we can be as a business.”
Rothenberg declined to give an exact cost-savings estimate. But she predicted the savings would be in the millions of dollars over the life of Womble’s 10-year D.C. lease.
For Arent Fox, the move to a new building has been a long time coming. The firm has occupied its current space at 1050 Connecticut Ave. N.W. for more than 30 years.
Currently, construction is underway on a new building at the corner of Connecticut Avenue and K Street N.W. The firm will take up residence there in 2013.
Arent Fox executive director Kurt Salisbury said that when designing the building, the firm worked closely with a group called Studios Architecture to maximize efficiency. “We took cues from them on how to increase efficiency not only from a law firm resource, but also a corporate side,” Salisbury said, “the end result being smaller offices and larger open areas with somewhat flexible seating. The openness of the space will feel more like a community.”
Salisbury described the firm’s current location as cavernous with a lot of rigid internal space, a stark contrast to the firm’s planned location. In the new building, Arent Fox will occupy 236,000 square feet, similar to what it occupies currently — but with the capacity for 15% more attorneys.
Arent Fox partner Craig Engle said that the practice of law has changed significantly since Arent Fox took up its current residence. In the past, there was a greater ratio of secretaries to attorneys and firms had expansive law libraries. Engle said the ratio shifted because nowadays attorneys are more self-sufficient and libraries become more obsolete as the availability of digital resources expands. “Your workspace has to modernize with your work,” Engle said. “I think the offices are aligned in such a way to increase the collaboration among attorneys and also to give a better aesthetic and environment to everyone.”
According to Engle, the contractor for the new building built a to-scale mock office in one of the law libraries at the current location, to give attorneys an idea of the size of their new offices. Engle noted that while not all of the lawyers’ offices will be smaller in the new building, his likely will be. But he’s OK with that. “In my opinion,” Engle said, “the office is quite nice. I will certainly be able to be very comfortable in [it].”
The National Law Journal previously reported that the firm will be paying an annual rent of $16.9 million for the new building, about $75 a square foot. Salisbury said that the cost of the new lease was similar to the current one. The firm’s plans include a 150-seat, two-story auditorium in its new location. The firm will be shrinking office space in favor of more community space. In addition, the firm sought as much concourse space — meaning office space for nonlawyers — as possible.
“The more you can drive the ‘back office’ to the lower rent space at the concourse level, the better,” Salisbury said.
As the economy remains stagnant, Washington law firms are increasingly recognizing that making money isn’t just about growth. It’s also about a concept many forgot until the recession reminded them: thrift. “What law firms used to focus on and what most commercial enterprises focus on is revenue,” said Hart of the consulting group Roomtag. “It was more about productivity than efficiency. With the economy the way it is now, it has put a lot more attention on expenses.”
Matthew Huisman can be reached at firstname.lastname@example.org.