The sustained outpouring of partners at Brobeck Phleger & Harrison has left the US firm saddled with hundreds of thousands of square feet of empty office space, creating a potential stumbling block for any future merger
It is understood that the majority of excess capacity, around 200,000sq ft, is at the firm's two Palo Alto offices, including its relatively new space at the recently redeveloped University Circle project in East Palo Alto. A Brobeck spokesperson told The Lawyer: "We have some space in an office in Palo Alto but are in the process of subletting it." The potential liability has emerged as, over the past two weeks, speculation heightened of a merger with Washington DC firm Hogan & Hartson. The two firms have held talks in the past. In 1990, when Brobeck formed an alliance with Hale & Dorr, Hogan was also involved in discussions to become a third member of the venture, but opted out after potential conflicts emerged. According to a number of sources, Brobeck is currently paying between $45-$50 (£29-£32) per sq ft annually for its office at Geng Road, although there is only one year left to run on the lease. However, the firm's office at University Circle, which Brobeck moved into earlier this year, currently costs $70 (£45) per sq ft, although rent could be as high as $100 (£64) after taking into account build-out costs. Sources indicated that Brobeck still had at least 10 years to run on the lease, which could present difficulties if the firm attempts to pass over the contract to another tenant given the current state of the commercial real estate market in Silicon Valley. Just three years ago, as the dotcom boom gathered speed, Silicon Valley had a vacancy rate of 1.8 per cent. However, over 25 per cent of commercial real estate in the area is now vacant. Last week The Lawyer revealed that Brobeck was sitting on $10m (£6.4m) in capital contributions to its former partners. A source close to the firm said: "The costs would clearly be very difficult for any potential merger partner to swallow."