Why Are Most Hedge Funds in the Same Office Buildings and Geographic Areas of Manhattan?

May 25, 2012

Lance Leighton

Co-Founder – HedgeFundSpaces.com
Senior Managing Director, Savills
New York State Licensed Real Estate Salesperson

Call 212-326-8668

Below are the top 5 reasons why hedge funds choose to be in specific buildings and neighborhoods:

1)  Floorplate Size- The typical hedge fund requires a small amount of office space (3,000-5,000 square feet on average).  As a result, certain buildings are more appropriate than others.  To create a strong presence within a building, its commonly preferred to be directly off of the elevator.  Large corporate buildings with HUGE floorplates and long common corridors are highly inappropriate for small hedge funds looking for a boutique environment.

2) Infrastructure- Not all buildings have the same data and power capabilities.  It is essential for a fund to be in an office space that can support their business. (i.e. data speed, power redundancy, back-up generators,etc.)

3) Proximity to other hedge funds-  Most New York City based hedge funds lease space in the submarket called The Plaza District –  the geographic area surrounding The Plaza Hotel.  The Plaza District is comprised of all the office buildings from 42nd to 62nd Streets, between 3rd and 7th Avenues.  When an investor comes to visit a prospective fund, I have heard that it is crucial to not be “out of the way”.  Being too far downtown, or away from other funds can potentially lead to the loss of an investor meeting.

4) Building Stock- The Plaza District tends to have a better selection of office buildings than Downtown and Midtown South.  The majority of these assets are full-service, which  means that a fund will not have to worry about rubbish removal, bathroom cleaning, fuel surcharges, etc.  Most of these aforementioned buildings offer 24/7 access and security, an on-site super, multiple elevators and superior HVAC systems.

5) Columns-  Columns are a hedge fund’s worst enemy. Most older buildings have a tremendous amount of support beams and columns.  This can lead to an absurd amount of wasted space.  Hedge Funds typically require that the majority of their office space be open area for trading.  Unlike other firms that can hide columns within office walls- hedge funds require an open trading environment.  In order to have the least amount of obstruction, funds typically look for spaces with minimal columns.  Much of the newer building stock in The Plaza District has minimal or no columns.

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