Leasing an office in Manhattan is overwhelming. So Redwood created the NYC Leasing Guide - your cheat sheet to get you through the ins and outs of leasing in the city.Get started
To help familiarize our clients with commercial leasing in New York, we’ve compiled explanations for common terminology as a reference. You can navigate through terms on the sidebar or download a pdf.
A “prebuild” or prebuilt space is a space that a landlord has renovated and built out in order to make it more appealing and readily available to a prospective tenant.
Typically vacant spaces will remain in the condition the previous tenant leaves them. Once ownership receives an offer, the tenant will either request work to be done to the space, ask for free rent or a cash allowance (or “TI”) to do their own work, or move into the space as-is.
The advantages of the traditional approach is that ownership can build the space exactly how the tenant wants it and ownership doesn’t spend any money in the meantime. The advantage to the tenant is they can get the space exactly how they want it.
There are a couple reasons an owner would prebuild a space:
Reasons not to prebuild a space:
Landlords need to see financial information from prospective tenants to determine if they want them in their buildings. The stronger a tenant is financially, the more attractive they are to the landlord. Typically, if all other aspects are equal, landlords will choose the tenant that is stronger financially. If a potential tenant doesn’t have financials that are appropriate for the price space they want, a landlord will either: reject the tenant or ask for a personal guarantee.
Landlords also use a tenant’s financials to determine the security deposit they will require for the lease.
The standard documentation requested is the first 3 pages of the last 2 years of the company’s tax returns. If the company is a start-up or the tax returns are not a good indicator of the company’s standing, a prospective tenant should include other information such as bank statements and statements certified by their accountants such as profit/loss, summary of assets, etc. (basically anything that is evidence you are a strong company).
Buildings usually add charges to base rent. The primary additional charge is electricity.
This is billed in one of three ways:
1) Direct – You pay your own electric bill (this is usually the most desirable)
2) Submetered – there’s a meter in your space that belongs to the building (not the electric company) and they send you an electric bill along with your rent every month. They will often add a surcharge for this (for example: 5-10% on top of your usage)
3) Per square foot/per year: this is usually between $3 and $3.50 per square foot per year regardless of your usage. For example, in a 1000 sf space with the electric at $3.50 psf, the monthly electric charge would be:
$3,500 per year/12 (months) = $291
Other charges tenants are frequently held responsible for are water, sprinkler, sewer, doorman, security guard, and garbage removal. These are usually billed as flat monthly charges.
For example, a 2000 sf office could have a $40 water and a $40 sprinkler monthly charge and the tenant would have to pay the refuse removal company $30 per month for their services
New York City real estate taxes are assessed every July. Each building is assessed a different tax every year. Sometimes the tax on a building does not go up, but it usually does. Landlords can’t predict how much their real estate tax will increase so they pass along the charge to their tenants.
As an example, a tenant occupies 5000 sf in a 250,000 sf building. Their proportionate share of the real estate tax increase would be 2%. If the base tax year is 2008/2009 (July to July) and real estate taxes in the building increase $10,000 in July 2009, the tenant would pay/reimburse the landlord $200 (2% of $10,000). It is not uncommon for a landlord to spread out these payments and charge the tenant in monthly installments instead of one lump sum (especially if it’s a high increase).
It is important to keep in mind that tenants are responsible for the increases above their base year, not the previous year. Using our past example of the $200 tenant charge in July 2009, if in July 2010, the real estate tax on the building increases $20,000, the tenant would now owe $600 in 2010 ($200 + $400 because the real estate tax is $30,000 more than it was in the base year 2008/2009).
So if there is a high increase in the second year of a five year lease, the tenant will also be enduring the effects of that in every year following.
Landlords also sometimes hold tenants responsible for increases in fuel charge, which works the same way, but is typically a much less substantial amount.
Landlords usually will require tenants to accept the current tax year as the base until it is completely over. But if, for example, you are negotiating a lease that begins in June 2009, you should at least try to negotiate a base tax year of 2009/2010 (since the 2008/2009 tax year is almost over). This will not only help you avoid paying your share of the increase at the beginning of the lease, but the result of that increase every year afterwards.
Loss factors are calculated by subtracting the usable area from the gross/rentable area and dividing by the rentable area. (Rentable SF – Usable SF)/Rentable SF = Loss Factor.
Loss factors and usable sf are typically not disclosed by landlords.
The gross or rentable sf (before loss factor) is always the square footage advertised on a Manhattan office space.
The following gives a great background on loss factors.
Once upon a time, many years ago when twelve inch rulers were inflexible, a hypothetical New York City landlord stood in the vast 10,000 square foot hypothetical lobby of his eleven story hypothetical office building, watching his hypothetical tenants arrive for work in the morning.
The landlord had successfully leased the second through the eleventh floors to ten tenants, each occupying 10,000 square feet. As the landlord stood in his lobby that day, considering the rental revenue his building was generating, it occurred to him that even though each of his ten tenants was paying rent based on 10,000 square feet, no one was paying him rent for his beautiful lobby even though every tenant walked through it at least twice a day.
Nothing if not an opportunist, the landlord decided that when he built his next building, he would tell each incoming tenant that the rentable area on each office floor was 11,000 square feet, even though each floor would actually contain 10,000 square feet. If anyone challenged him on his measurement, he would explain that since each tenant uses his lobby, each tenant must pay for its proportionate share of that common area.
And that is how Loss Factors were made …
Well, maybe that’s not exactly how it happened, but it is true that at one time, there was a rational explanation for why New York City landlords insist tenants pay rent per square foot for space tenants don’t really occupy. (1)
Fast forward to today and Loss Factors have become a market driven business term, as relevant to tenants as rent, free rent and tenant improvement allowances.
Whenever a commercial landlord decides to sell an office building in the current climate (an extremely competitive, heavily picked-over sales market where $13.1 billion dollars worth of commercial property was sold in Manhattan in 2005 (2)), the first action taken by his sales agent is to increase the full floor Loss Factor to 25%.
Buyers of commercial property, particularly buyers of Manhattan trophy office buildings, generally don’t question 25% full floor Loss Factors notwithstanding the fact that Manhattan office buildings come in all shapes and sizes with vastly different floor plate configurations, load bearing column density, width of perimeter HVAC convectors convector: see heating.
….. Click the link for more information., etc. Imposing a 25% full floor Loss Factor on an inefficient floor plate translates into asking a tenant to pay rent for a lot of inefficient square feet.
So you may be thinking to yourself, okay, a 25% full floor Loss Factor means that tenants actually occupy 75% of the rentable area in a recently sold Manhattan office building, right? Well, no, that’s not really right. To understand how to measure and define office space in New York City one must first understand terminology.
“Rentable Area” represents the number of square feet based on which office tenants pay annual rent per square foot. Every landlord advertises vacant space based on Rentable Area but Rentable Area is only an approximation of the size of the premises.
The term “Usable Area”, as it’s commonly used in the NYC commercial real estate market, is essentially a misnomer. The Real Estate Board of New York (REBNY) guidelines for determining Usable Area were most recently updated in 1987 and recommend that landlords calculate Usable Area by measuring the entire floor to the outer facade of the building (often beyond the window line) and deducting only floor penetrations (e.g. elevator shafts, fire stairs, risers, etc.). According to REBNY guidelines, on a full floor basis, Usable Area includes electrical closets, fan rooms servicing the floor, janitorial rooms, bathrooms, load bearing columns and space occupied by perimeter convectors.
Two other synonymous terms commonly used are “Carpetable Area” and “Assignable Area”. These terms literally refer to the number of square feet on which a tenant can lay carpet.
On a divided floor landlords apportion common area hallways, bathrooms, electrical closets, slop sinks, fan rooms, etc. to the point where divided floor Loss Factors often rise well above 35% and Carpetable Area can be less than half of the Rentable Area.
So the market has all these terms for quantifying office space, some of which are more than a little misleading. What should tenants be aware of? Certainly, tenants should care a great deal about how much Carpetable Area exists in a certain premises since Carpetable Area correlates directly to how many bodies can fit into a certain space. Rentable Area is crucial too since the number of rentable square feet correlates directly to the annual (and monthly) rent.
Tenants should be aware of Loss Factors and floor plate efficiency. Tenants would be wise to confirm that a Loss Factor in a certain building is consistent with market Loss Factors. (This can be established by having the tenant’s architect compare CAD drawings from comparable buildings.) However, in the final analysis, tenants should concentrate mainly on how many people a certain space can accommodate and what the rent is going to be every month, Loss Factors notwithstanding. This is especially true since once it’s been established that a landlord is not pushing the Loss Factor envelope farther than his neighbors, challenging his methodology for measuring office space is like pushing a string. One silver lining is that landlords provide tenant improvement allowances based on Rentable Area while contractors tend to submit construction bids based on actual costs of construction, irrespective of Loss Factors. In terms of tenant improvement allowances, one could argue that tenants actually benefit from a high Loss Factor.
In defense of landlords, I recall one situation in the mid 1980’s when an owner refused to apply a Loss Factor to his vacant floors. Instead, he asked for a higher rent per square foot arguing that without a Loss Factor, his space was still less expensive than space being offered by competing landlords imposing high Loss Factors. Mathematically, he was correct. But tenants and many brokers didn’t appreciate his logic and his space remained vacant until he applied a Loss Factor and lowered his asking rent.
The New York City commercial real estate market, like all financial markets, is susceptible to herd mentalities. As long as most landlords uniformly apply high Loss Factors, tenants’ only option is to fight their way up the learning curve and understand NYC Loss Factors for what they are: a market driven phenomenon.
1) Some say the genesis of Loss Factors has more to do with the advent of central air conditioning and the transition from floor by floor air cooled air conditioning units to HVAC mechanical equipment on roofs or designated mechanical floors, causing landlords to apportion mechanical space to tenants’ Rentable Areas.
2) According to Real Capital
Wealth that can be represented in financial terms, such as savings account balances, financial securities, and real estate. Analytics, the following statistics apply to 2005 sales of Manhattan commercial properties worth a minimum of $5 million: $13.1 billion of total sales, 138 properties, 30.6 million square feet, $426 average price per square foot, 5.24% average cap rate.
3 (Rentable Area less Usable Area) divided by Rentable Area equals the Loss Factor.
By David L Hoffman, JR
Executive Managing Director, Colliers ABR, Inc
A good guy clause is a limited personal guarantee. The distinction between a good guy clause and a traditional/full personal guarantee is that in a good guy clause an individual’s personal liability ends when the space is vacated. Therefore, if a company dissolves and the space is vacated, the individual is absolved of any further responsibility.
Landlords were having problems with companies going bankrupt, defaulting on their rent payments, and not surrendering the spaces. The eviction process can be very extensive and typically takes about 6 months.
In order for a landlord to feel secure they had wanted either 6 months security deposit or a personal guarantee from the tenant.
A good guy clause basically states that if a company defaults (for bankruptcy or any other reason), the individual that signed the good guy clause is responsible for the rent in between the default date and the surrender date (when the space is vacated). This way, if the company goes bankrupt, the tenant still has an incentive to vacate the space, but is not responsible for the remainder of the lease if they cooperate and “be a good guy”.
For example, if Company X stops paying rent June 1 and Company X leaves June 1, the good guy is completely off the hook.
If Company X stops paying rent June 1 and Company X leaves July 1, the good guy owes the landlord rent for the month of June.
Sample Good Guy Clause –
The undersigned hereby covenants and agrees that if there shall occur any default by Tenant in the payment of fixed rent or additional rent or any other charges set forth in the Lease, or if Tenant shall default in the performance of any of the covenants, terms, conditions and agreements contained in the Lease then the undersigned shall in each and every instance up to and including the Release Date (as defined below) (i) pay such fixed rent, additional rent and any other charges due and payable by Tenant to Landlord (ii) faithfully perform and fulfill all of such covenants, terms, conditions and agreements to be performed by Tenant as set forth in the Lease, and (iii) pay to Landlord all consequential damages that may be incurred by Landlord as the result of any default by Tenant under the Lease including without limitation all attorneys’ fees and disbursements incurred by Landlord as a result of any such default and/or the enforcement of any of the provisions of the Good Guy Clause. The “Release Date” shall mean the upon which Tenant returns to the Landlord the keys to the Premises and surrenders possession of the Premises in the condition required by the Lease as of the expiration or termination thereof free of all tenancies or rights or claims of occupancy by Tenant or any party claiming through Tenant.
During my first few months as a broker, I remember negotiating on a space in Midtown West and discovered the landlord’s broker required a deposit (of about $2000) from the prospective tenant in order to draft a lease.
I was disappointed and immediately asked if we could waive or at least lower the deposit amount. We ended up not seeing eye to eye on all the terms of the deal and never getting to the point of requesting a lease, but I walked away cautioning myself to be careful of bringing other tenants to the building because of the lease deposit.
A few years later I have instituted a lease deposit policy on some of my own listings. The vast majority of commercial landlords do not require any kind of deposit in order to send a prospective tenant a lease. So wouldn’t I have a problem getting deposits from people?
Yes. Especially if they’re not committed to taking the space.
The reasons for the lease deposit are easy to understand:
So the owner is making some commitment to the tenant (and spending a little money) and without a lease deposit, the tenant is free to back out of the deal at any time for any reason. This would cost the owner legal fees and cause him to potentially miss out on other interested tenants.
By asking for a deposit that is refundable in the event the tenant finds the legal terms of the lease unacceptable, but not refundable in the event the tenant reconsiders, the landlord knows the tenant is serious before spending money on the attorney and turning away other prospective tenants. They also receive compensation in the event the tenant backs out.
There are a few reasons a tenant would be reluctant to provide a deposit:
The first three would all be good examples of how a landlord can use the deposit as a screening process. As far as the “Why should I have to give a deposit?” argument, a prospective tenant can usually appreciate the logic of why a landlord wants one.
They also gain some benefits. If a landlord has a deposit, the landlord is more confident about the deal, meaning they are less likely to show the space to others and are likely going to be more patient with the tenant. For example, if I didn’t hear from a tenant for 4 days after sending them a lease, I’d assume there was something up with the tenant and encourage a landlord to pursue other offers. However, if there was a deposit, I’d likely feel okay about it and let the tenant take their time since they’ve already committed.
They key is that a tenant should decide they want the space before they get a lease, not wait to decide until after they get the lease.
Here’s an example of a situation where I waived a deposit and lost a deal because of it. I had a small space at 36 West 44th street and two brokers submitted offers on the space with a couple days of each other.
Both tenants were willing to go very close to the asking price and in the range where the owner wanted to make a deal. The determining factor (as it usually is) was the track record of the companies and the amount of work each tenant was requesting.
We decided to go with the more established tenant that needed less work. We made the urgency of the situation clear to the broker and his tenant quickly signed the term sheet, but said he didn’t want to comply with the deposit because no one else needed him to.
We didn’t want it to be a dealbreaker so we moved on and I rushed our attorney to issue him a lease asap. After about a week of calling his broker and being told that the tenant will get back to us soon or that the broker is waiting to hear from him, the tenant finally admitted that was going to pass on the space and renew on his existing space unless we could drop the price from $40 psf to $25 psf.
Obviously, this was a ridiculous request and possibly an example of him planning to negotiate after he got the lease, rather than the surprise, last second development he made it out to be.
Obviously, my next call was to the other broker, but at that point, her (very serious) tenant had already locked up another space.
Had we stuck to our guns about the deposit, not sent the lease to the other tenant, and sent it to her (assuming her tenant would have complied with the deposit), we would have had the space rented (or at least had the first tenant’s deposit as a consolation).
I finished another deal in the same building last week. It was for a small space and with an international company so the lease negotiations took much longer than usual. I did receive a bunch of calls from other tenants that seemed like potentially great fits in the meantime. Had there been no deposit, I probably would have shown the space and presented any good offers to the ownership, tempting them to go with someone else or at least put more pressure on the other tenant to sign faster. Since we had their deposit, I just put them on a callback list and we ended up completing the deal without any unnecessary complications or added stress.
It’s important to understand that even though there may not be another interested party at the time you request the lease, there could easily be one the following day pressuring the owner for the space. The more certainty you give an owner, the less likely they are to show the space to other tenants and consider other offers.
To give another example of how a lease deposit simplifies the process of renting a space, a few years ago I was representing a landlord and we had three good offers on the same unit. The market was beginning to spiral downwards and we were worried about making sure we got the space rented asap.
The owner decided to send a lease to all three tenants and see who followed through (or who followed through first). In this instance, the strategy actually worked as two tenants were unresponsive and one signed the leases immediately.
However, I was put in a very stressful position and the other brokers and tenants certainly did not appreciate the approach (understandably). We also ran the risk of one of the less desirable tenants signing the lease before our top choice.
If we had prioritized which tenants we wanted most and offered them the lease exclusively provided they gave us a deposit, it would have gone smoother, we would have gotten our first choice and we would have avoided pissing off three brokers and tenants while accomplishing the same goal.
As a broker, now I am happy when I see that a landlord requires a deposit on a space my tenant wants. This way I know they are renting the space as soon as they get the lease, rather than worrying if they are just jerking me around for a few weeks and I can avoid the potential embarrassment of telling a landlord my tenant has backed out of the deal after we’ve already had the lease for a week. Or the irate phone calls from the landlord’s broker demanding that the tenant compensate them for their attorney’s fees or face a lawsuit.
Sometimes New York City landlords will consider giving a tenant a “cancellation clause” or “early termination option”.
A sublease is when a tenant (overtenant) rents their space, or part of their space, to another tenant (undertenant). Typically a sublease is for the entire period of time remaining in the overtenant’s lease, but can be shorter. Extensions can also be negotiated between the undertenant and landlord, especially if there is relatively short amount of time left on the sublease term.
Subleases must always be subject to the terms of the master lease between the overtenant and landlord. These terms cannot be changed, but the undertenant can, and should request a copy of the master lease to review as part of their due diligence.
Subleases are more common than assignments because in an assignment, the landlord absolves the overtenant of any responsibility. In a sublease, the landlord is still entitled to the rent from the overtenant even if the undertenant is not paying.
Here are some differences between leases and subleases:
and clarification on some common misconceptions about subleases:
A Holdover clause is common in a commercial lease. Basically it states that if the tenant does not vacate the space until after the termination date, they are responsible for a specific amount of additional rent. A holdover penalty is usually between 2 and 3 times the last (escalated) rent.
At first glance it seems like a high number, but keep in mind that it’s hard to predict the real estate market. If a tenant signs a 10 year lease starting at $10,000 per month with 3% escalations, they will be paying about $13,000 per month at the end of the lease. If the real estate market has gone up 60% over those ten years (certainly not unprecedented), the tenant could stay in the space on a month-to-month basis at a below market rent indefinitely.
It’s not unusual for a landlord and tenant to extend a lease for a few months after a lease for a rent that they both think is fair, but if the holdover penalty does not exist, the landlord is put in a bad position since the tenant has less of an incentive to be proactive or communicative about extensions.
The holdover penalty is also high primarily to discourage holding over and encourage tenants to be communicate if they need extra time, not to generate more profits for the landlord.
If one tenant’s lease ends on September 30, and there’s a prospective tenant that wants to sign a lease on the space for November 1, the landlord needs to be certain the outgoing tenant moves out on time or at minimum, tells him that they are not.
Holdover clauses can garner extra attention on below-market subleases.
Below is an example of a holdover clause:
In the event Tenant remains in possession of the Demised Premises after the termination of this Lease, Tenant, at the option of Owner, shall be deemed to be occupying the Demised Premises as a tenant from month-to-month, at a monthly rental equal to 200% of the sum of (a) the monthly installment of Fixed Rent payable during the last month of the term and (b) one-twelfth (1/12th) of the Additional Rent payable during the last year of the term, subject to all of the other terms of this Lease insofar as the same are applicable to a month-to-month tenancy.
If a tenant decides to rent a space, the first step forward is submitting a proposal or offer. The proposal should include:
Your broker can draft the offer and you can review it before they submit the offer to ownership. All offers should be non-binding . Unless time is of the essence or there is competition for the space, it is usually smart to send an initial offer that is a little too low to be accepted, but high enough to be seriously considered and garner a counterproposal.
There can be several rounds of counterproposals before an agreement is reached.
In New York City, landlords typically pay commercial brokerage commissions. If a tenant is ever looking to sublease their space, they should expect to pay a full brokerage commission unless they find someone to rent the space on their own.
It is expected that the outside/tenant’s broker receives one full commission (100%) and the landlord’s broker receives one half commission (50%). One full commission is typically calculated as follows:
Each brokerage firm can have a different schedule, but they are usually a variation of the above schedule. Commission is usually paid on base rent only, not annual escalations. So for example, the commission on a 5 year lease is equivalent to 19% of one year for the outside broker and 9.5% of one year to the representing broker.
There are some brokers that will offer commercial spaces on a reduced commission basis, but most tenant brokers, especially good ones, will not take their tenants to properties that don’t pay full commissions. Basically, if there are 5 properties that match their tenant’s criteria and 4 of them are paying twice as much commission as the “cobroke” listing, why would the tenant’s broker show the property that is only paying them half the amount?
If the landlord’s (or overtenant’s) broker finds a tenant without the assistance of the outside broker, then they receive one full commission.
Short for “New Building Installation”, this refers to when a landlord is providing a new build-out on a space for an incoming tenant.
Otherwise referred to as “free rent”, the rent concession is a period of rent abatement given to an incoming tenant. Rent concession are most often awarded to tenants when a space needs considerable work and the landlord is not renovating it, but providing a rent concession to help the tenant offset the construction costs.
However, it is not uncommon for landlords to offer a rent concession on built spaces as an incentive for tenants to rent space from them. Like rent prices, rent concessions given are heavily influenced by the state of real estate market.
On a given space, you can usually get more free rent on a longer lease. Short leases typically do not provide any free rent period unless there is considerable work that needs to be done to the space.
Once a landlord and a prospective tenant have agreed to terms, the landlord will draft a lease a send it to the tenant to review, make changes (to the legal terms, not business points), and execute. This process can be immediate or can take months depending on the simplicity of the deal and how quickly the landlord, tenant, and their attorneys act.
On a straightforward deal for a relatively small space, the landlord will expect the tenant to sign the leases within a week or two. The landlord will be more patient if the tenant is actively asking questions or making changes to the lease than if they are unresponsive for a week and a half.
Typically, when a landlord will only send one tenant a lease at a time and will not entertain other offers while they are waiting for the signature. However, if the tenant is unresponsive or attempting to renegotiate the business terms, the landlord may revert to back up offers or encourage other tenants to look at the space.
If you are looking for space and your desired space has a lease out for signature, you are basically on hold. Sometimes tenants or landlords have a change of heart and it doesn’t work out, but it’s hard to predict how long it will take to know. The tenant with the lease can walk away from the deal the next day or drag it out for another three weeks then sign.
The best way to approach the landlord if you want a space that has a lease out is to send a strong offer to the owner and tell ownership that you are ready to move forward asap if there is a snag in the negotiations with the tenant with the lease. I would also send them reminders that you are still interested about once a week. This serves a couple functions:
Escalations typically refer to annual increases the landlord charges to account for the rise in operating expenses, inflation, market increases, and profit.
A standard Manhattan escalation is 3% per year, but can sometimes be negotiated especially in a soft market. Certain landlords will ask for higher escalations (4-5%) and in certain instances we’ve seen a landlord charge a 4% increase, but not hold a tenant responsible for their proportionate share of real estate tax increases. So in that case, the tenant is probably better off.
On a longer lease, there is typically a bump, in addition to an escalation, around the 5-7th year.
Certain landlords won’t require a fixed increase, but will instead adjust the lease annually according to the consumer price index (inflation). This is less predictable and not necessarily worse (depending on how the economy is), but is more dangerous. For example, if inflation spikes tremendously (e.g. 8%) in the second year of a ten year lease, you are suffering the consequences for the rest of the lease.
If a landlord requires CPI instead of a fixed increase, we usually suggest having the CPI limited or capped to for example, 5% (but obviously, the lower the better).
Leasing an office in Manhattan can be overwhelming, but by working with an experienced, knowledgeable and reliable agent that prepares you for what to expect, it facilitates the process.
Once you receive a lease, you can review it yourself or hire an attorney to review it. If you have questions you can either ask the landlord’s representative, your attorney, or your broker. You can ask the landlord to make changes to some of the lease items, but they will not revisit any of the terms already discussed during negotiations. Typically landlords will give a tenant a few days to a week to review a lease before they expect the tenant’s first round of comments or a returned signed with the deposit and first month’s rent checks. Exchanging legal comments can take a couple days or up to a couple months depending on the complexity of the deal.
As commercial real estate brokers, our goal is to help find you the right office for the right price. We believe that the more straightforward you are with your clients, the better results you can achieve together. At living, we take pictures of almost any space we see so we can share them with our clients before showing the spaces. This allows us to narrow down which spaces you want to see more accurately and also saves a lot of time for our clients and ourselves. We are also committed to responding very quickly to our clients anytime day or night.
We have access to every commercial space in New York City and our information is updated daily so we always know everything that is available.
One of my most common challenges with first time nyc office tenants is conveying how rare it is to find a one year lease. Companies looking to rent their first office in Manhattan will often assume that a one-year term is easy to get or even standard.
While there are a couple landlords that specialize in renting small, cheap spaces routinely for one year. most landlords, especially in quality buildings require 3 or 5 year minimums.
You can stumble onto a sublet with approximately one year left, but I wouldn’t hold my breath waiting for one if it doesn’t pop up on your broker’s first run through CoStar. Trying to rent for a one year is like trying to lease a car for 9 months or renting an apartment for 4 months. It’s not impossible, but it is extremely difficult and your options are going to be severely restricted.
Why wouldn’t any landlord take a 1 year lease?
I met with a small landlord a few months ago that had an interesting approach to short leases. He offers 1-5 year terms on all his spaces. He does not spend a penny fixing up the spaces (no paint or refinishing the concrete or hardwood floors in the building).
If you take a one year lease, you have to pay his legal bill. If you take a two year lease, you have to pay 1/2 of his legal bill. A three year lease or longer, he pays his own legal bill.
I found this interesting especially since it means that a one-year tenant is not going to spend the landlord’s time and money making excessive lease comments on a one year term (since they’d be running up a bill on themselves). It was an interesting approach to accepting short term tenants.
As the tenant, if you had to spend $1,500 on your lawyer, $2,000 on the landlord’s lawyer, and $5,000 fixing up a small space that rents for $3,000 per month, wouldn’t you be more inclined to amortize those costs (especially if you could eliminate the legal fees).
Obviously, this doesn’t address all the typical objections, but certainly represents a compromise and creative thinking.
As an example:
On a 5 year lease:
On a 1 year lease:
To further exaggerate this, after 5 years (and 6 months)
Of course, one year tenants can renew, alleviating this issue (and possibly saving them on the commissions) and some landlords don’t spend much renovating their spaces (and some spend more).
Either way, it’s probably becoming clear why all these landlords are being so stubborn and inflexible about renting you their spaces for one year.
The most important part of any offer is the prospective tenant’s financials. If you are a new business and don’t have anything to show, the owner may reject you outright or require a higher security deposit (6-12 months).
First of all, does anyone really know how much space their company will need in a few years? This is normal.
Just like with anything else, it’s important to strike a balance between being too careful and being negligent. Not reviewing a lease carefully or not using the right attorney can leave you vulnerable over the course of your lease. Proposing too many changes to a lease can cause the lease process to drag out, run up your legal fees, and possibly jeopardize the landlord renting you the space.
When looking for office space you can search independently or use a real estate broker (or multiple brokers).
The benefits of using a broker include the following:
At Redwood Property Group, we make sure to understand our clients’ businesses and place a premium on efficiency.
From our perspective, it’s a lot more rewarding to do an excellent job for a select few clients than to do a mediocre job for a lot of clients. We have successfully represented all kinds of companies from start-ups to publicly traded companies and the basic formula is the same:
Of course, most vacancy information is readily available to any broker, but there is a lot of important information that isn’t provided that we are very familiar with. For example, landlords that:
We pride ourselves in always being accessible and promptly responding to our clients any time day or night. We understand that securing your office space is a top priority for your business and we treat it as such.There is no cost associated with our services. Our fee is always paid by the landlord that you end up leasing from.
Securing quality office space in New York City is often very competitive. Having as much preparation as possible can facilitate a fast negotiation and smoother, cheaper, transition. There’s a good chance you will be one of several prospects for a particular space so how efficiently you can complete the transaction can make the difference between getting your space or not.
Below is a checklist of contacts, resources, and decisions that are helpful to have squared away when you begin your search:
For the lease process:
If you’re drafting a baseball team, it makes the most sense to pick players that have played a lot of baseball rather than basketball players, even if it’s the best basketball players of all time (remember Michael Jordan?)
Decide who is signing the good guy guarantee. This is a standard part of most leases and unless you are a huge corporation or want to put up 3-4 months of extra security deposit, someone will need to sign, usually the president of the company. If you have several partners, this is a discussion that would be prudent to have ahead of time. As a compromise, multiple people can be liable- it doesn’t reduce anyone’s individual liability, but it does give the other guarantors more of a reason to comply with the stipulations of the guarantee.
Determine internet requirements: almost any building in Manhattan will have “high spend internet”- at minimum DSL, cable or T1 available which would satisfy most businesses. However, if you are in a business that has higher IT needs like film editing, media, etc; you might need something more robust. Determining your usage needs in terms of mbps is a smart thing to do. Ideally, you don’t have needs that would require anything more than a basic connection so your options aren’t limited. If you do have heavy IT needs, you’re better off weeding out the buildings that don’t have it available before even looking at them.
If you learn that your IT needs are more than a basic connection, I would contact the providers that service the building to confirm that they do, in fact, service the building and the speeds that are available. The landlord’s broker(s) often don’t know all of the providers that service the buildings and sometimes even (unintentionally most of the time) mistakenly tell you providers are available when they aren’t. If it’s vital to your business, you should confirm firsthand that it’s in the building before moving forward with the lease.