Witness testimony in a trial related to a Boulder real estate dispute involving X Corp. — the Elon Musk-owned parent company of the social media platform formerly known as Twitter — and the owner of the company’s former S’Park office space wrapped up Friday with appearances by a pair of local brokers.
NewMark Merrill Cos. Inc. commercial real estate brokers Don Misner and Joe Heath defended their office’s efforts to re-lease the 65,000-square-foot offices at 3401 Bluff St., which X Corp. was evicted from in 2023 after Musk bought the social media giant the year before.
Lot 2 SBO LLC, a holding company affiliated with S’Park co-owner The John Buck Co., claims X Corp. stopped paying rent, and the space has gone unoccupied since.
The landlord is attempting to recoup back rent and other related damages, while X Corp. claims that it was wrongfully denied $5.8 million in a tenant-improvement allowance. The social media company’s lawyers and expert witnesses, in a bench trial that began Monday in Boulder District Court, have also argued that the Lot 2’s brokers have failed to adequately market and position the space to attract new tenants.
The court case, in essence, boils down to whether X Corp. or Lot 2 was responsible for breaching the terms of the lease contract.
Lot 2 SBO, the landlord, “improperly obtained a writ of restitution and judgment for possession of the Premises and intends to carry through with the eviction on June 30, 2023, despite Twitter having warned Defendant, including via letter dated June 14, 2023, that Twitter was not in Default under the Lease, that eviction was improper, and that Twitter would pursue all legal recourse, including for damages, if Defendant carried out the eviction,” X Corp. claimed in a 2023 countersuit complaint made around the time that the company left the S’Park offices.
Twitter signed a 10-year lease for the space on Feb. 14, 2020, according to the lawsuit.
“After executing the Lease, Twitter paid for and constructed tens of millions of dollars’ worth of leasehold improvements to the Premises according to specifications to which Defendant agreed in advance,” X’s lawsuit said.
“Twitter completed its work and, after submitting the requisite documentation to Defendant, became entitled to the payment of approximately $5.8 million from Defendant under the terms of the Lease as a tenant improvement allowance …”
The landlord disputes that X Corp. is entitled to the tenant improvement allowance and claims that those improvements have proved to be an impediment to brokers’ attempts to attract new tenants to the building.
The millions of dollars in tenant improvements were “very specific to Twitter,” Misner said during his testimony Friday, and would be “very expensive to remove.” Those building modifications include a central staircase connecting the four floors of the office building, Twitter logos and branded images embossed on floors and walls throughout the space, an industrial kitchen, and a multitude of break rooms, collaboration spaces and amenities areas.
When recruiting a new tenant, “you’re trying to capture the largest audience,” Heath said, so marketing efforts must be fairly broad. The unique finishes at the Bluff Street offices, designed specifically for Twitter’s use, makes this strategy more challenging.
“Other companies don’t want to be in Twitter’s space,” Misner said, “they want to be in their space.”
Jonathan Hawk, a McDermott Will & Emery attorney representing X Corp., suggested, through his questioning of Misner, that the brokers’ marketing materials could have, but thus far have not, included hypothetical floor plans and renderings of generic interiors stripped of Twitter branding and unorthodox finishes.
X Corp. attorneys and witnesses have also raised the question of whether Lot 2 and its brokers might have been better served to subdivide the S’Park office building — dubbed the Railyards — and attempt to lease smaller spaces to multiple new tenants. Misner pushed back on the wisdom of this potential leasing strategy.
“It would be a mistake to commoditize the building today” by splitting it up, Misner said, as it would devalue the building, which is one of the few offices of its size and quality in Boulder that could accommodate a single tenant looking for a large facility.
The landlord’s brokers aren’t holding out for a potentially unlikely-to-materialize “unicorn” tenant; and the overall office market is just very slow at the moment, Misner said. He added that he is “expecting a big shift this year” in the volume of commercial real estate deals as companies — particularly the kinds of big technology companies that have historically leased large-footprint office spaces in Boulder — move away from allowing employees to work remotely and require them to return to the office.
After the testimony from Lot 2’s brokers, Boulder District Court judge Nancy Salomone began the post-lunchtime session of Friday’s hearing with a number of technical questions for the parties’ attorneys before requesting that the lawyers take the next two weeks to prepare briefs addressing outstanding matters. Salomone did not issue a ruling in the case prior to adjourning on Friday afternoon.
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