Is Your Business Paying Too Much For Electricity?

Is Your Business Paying Too Much For Electricity?

One of the best-kept secrets in the commercial real estate business, or at least one of the most lucrative secrets, is the degree to which landlords exploit the electricity clauses in their leases. Virtually every tenant over-pays for electricity. It’s an enormous profit center for building owners and landlords go out of their way to make electric clauses confusing. They do this because it makes them money. Even sophisticated tenants with smart attorneys routinely sign terrible electric clauses – in large part because they don’t fully understand what they are signing.

In NYC, electricity is either billed by a meter to the public utility (like you’d have in your home) or by something called “rent inclusion”. If you are a small tenant you typically cannot get your space metered. Electric meters are expensive to install and as such landlords do not generally install them to measure the electric output of smaller partial floor tenants. Since the majority of tenants in the commercial real estate market in New York City are small tenants (77.1% of all Manhattan tenants are 10,000 square feet or less according to the Co-Star Group, an independent tracking agency), rent inclusion is prevalent as a method of billing tenants for use of electricity.

Here’s how it works: landlords typically advertise rent inclusion electric at $3.25 or $3.50 per rentable s.f. The question most tenants don’t ask is, “how much electric do I actually use?” If you’re an average office tenant with computers, phones, and basic business equipment, you use about $2.00/s.f. per year. So right off the bat, landlords are making an extra dollar or two per foot per year on every deal without anyone being the wiser.

To make matters worse, tenants assume that when they sign up for $3.50 per s.f., this is what they will be billed and they don’t pay adequate attention to what the lease actually says. If you think about it, it makes no sense that all tenants would pay the same $3.50/s.f. for electric. Ultimately there must be some correlation between what you use and what you pay. Landlords handle this by giving themselves the right to “survey” your consumption of electricity.

The electric clauses in leases are generally about ten pages long, and they’re as complicated as the philosophy you tried so hard to understand in college. Of course, the landlord makes them complicated on purpose – so that the tenant and often times the tenants’ attorneys don’t understand all the implications of the clause. I mention this because as educated as attorneys are they are typically not versed on how electricity is measured and surveyed and will often be unable to articulate how the clause should be rewritten or will be unable to take out some of its more draconian language.

Once a lease is signed, and in many cases before even a year of term goes by, the landlord will send an electric consultant to the tenant’s office to conduct an “electrical survey” of the premises. This consultant will produce a report that the landlord will send to you which will likely indicate that you are consuming more electricity than was expected and that as per your lease you will have to pay more for your use.

Landlords routinely make reference to something in their electric clauses called “connected load”. This means that when it comes time to survey (and raise your bill), the surveyor is allowed to presume that every electrical device you have is turned on and being used at full capacity 24 hours a day, 7 days a week. This is not fair or accurate, but tenants and lawyers miss this distinction all the time. What is fair and accurate is a tenant being billed on their “demand load” – or what they actually consume.

This practice of surveying you and incrementally increasing your electric bills can go on for years and in some cases can become so egregious that a tenant will end up paying tens of thousands of dollars a year in additional electricity.

Unfortunately, from a legal standpoint, the landlord is doing nothing wrong. If the tenant signs off on this, shame on them. In fact, there’s a major landlord in NYC that has in the first draft of all its leases, the right to survey and increase the tenant’s cost for electricity if the price of electricity has gone up since July 1st 1970. And this is not a typo – 1970! You literally can’t make this stuff up. Believe it or not, many smart business owners and their attorneys miss this and other like-minded electrical clauses – and then they end up paying the price. This is a common problem and a time tested profit center for landlords – so make sure you have a knowledgeable tenant representative real estate broker and real estate attorney that look carefully at the these onerous electrical clauses so they can be negotiated out or mitigated.

Depending on the credit worthiness of a tenant, the state of the market, and the needs of the landlord, these clauses can be altered to reasonability and accurately portray what you actually consume in electricity. Just make sure you don’t simply sign your name without being crystal clear what you are getting into.

Blend and Extend

Blend and Extend

So you signed your office lease at the top of the market — you’re paying a small fortune in rent, but your space is only worth a fraction of what you’re paying.  What can you do to lessen your financial burden? Blend and extend. And here’s how it works:

Let’s say you’re paying $70/s.f. and you have two years left on your lease. But in today’s market your space is worth $50/s.f. You’re $20/s.f over market.  You want some relief and you want it now.

Here’s an approach that works for many tenants:

You have two years left on your lease commitment.  You are paying $20/s.f. above the market for each of these years.  That’s $40/s.f. in total over market (20 times 2).

Now, if you extend your lease out an extra ten years and do it now, you tell the landlord you want to create a blended rate of old and new.  The way this works is you divide the $40/s.f. that you are over market into the new ten year term.  Or in other words divide 40 by 10 and you get 4.

If you did not have the old $70/s.f. commitment you could make a deal at $50/s.f.  But since the landlord is not going to just forgive that high rent, you will agree to blend in the overage and instead of paying $50/s.f. you will pay $54, but it will start immediately.

This is a win-win for both tenant and landlord.  For the tenant it’s a win because it lowers your immediate costs. That $16/s.f. savings can go into your business or into your pocket.

For the landlord, it’s a win for two reasons.  One, they have not forfeited any money – they’ve just re-structured when they’ll get it.  And two, they have secured a long-term lease with an existing tenant.

This is extremely valuable to a landlord because banks and other lending institutions value buildings based on net operating income over time. If a building has leases expiring in less than 5 years, banks are likely to discount that portion of the operating income.  However, if a building has a tenant in place for ten years or more, lenders feel secure and buildings are valued at higher numbers.

Many landlords make a lot of their money not through collecting rent or selling their buildings, but rather by re-financing the asset or modifying the loan agreements.  The key for landlords in doing this successfully is to have fully occupied buildings with long terms leases.

Will landlords always work with tenants in this way?  Of course not.  But it is worth a shot because MANY will. Keep in mind this only works if there’s a significant delta between what you are paying and what the market will bear.  According to Co-Star Group (a national independent tracking agency) office rents in NYC have dropped 42% from the highs in 2007.  However, in the past few quarters, rents have started to inch back up.

From a tenant perspective, this signals a time sensitive opportunity to lock in a great rate before the market fully recovers.

The Eight Mistakes Tenants Make When Leasing Office Space

The Eight Mistakes Tenants Make When Leasing Office Space

Hey, we all make mistakes – but when it comes to leasing office space for your business, mistakes equal dollars – sometimes big dollars. Here are the eight most common mistakes tenants make when renting office space, as well as an insider’s take on how to avoid making them.

1. Lack of Planning

Believe it or not, many tenants aren’t clear on what exactly they need. If you’re out looking for ten thousand feet but you actually need twelve thousand, you’ll have problems. Have an architect do a space program and figure out what size you need. A lot of architects will do this for free as a favor to your tenant rep broker. Between a good architect and a good broker you can get clear on things you might not be thinking about, like floor load capacity: Do you have a safe or a lot of equipment? Then you need re-enforced floors. Or do you need extra electric to your space? Have special telecom needs? Knowing these details up front will save you time, money and aggravation down the road.

2. Lack of Tenant Representation

We could write an entire article on the benefits of using a tenant representative (oh wait, we already did!), but suffice it to say there’s really nothing better than hiring one to be on your side. Brokers understand the ins and outs of the market; they can negotiate for you, and best of all, can narrow down the buildings that would be best for your particular business. Their know-how and advice are indispensible, and they can prevent you from leasing a space that you’ll just end up leaving a few months down the road. Such is also the case with an attorney. Many tenants hire lawyers that don’t specialize in commercial real estate – this is a mistake. Like your tenant representative, you need an attorney that understands the monster that is commercial real estate.

3. Lack of of Document Inspection

Leasing an office space means a whole lot of paperwork. One of the most common mistakes tenants make is that they’re not careful enough with what they sign. Landlords think long and hard about how to make as much money as legally possible on their buildings. The long lease they give you is not designed to be fair. It is explicitly constructed to make them money. Further, the ownership documents need to be vetted too. Make sure your space is legally zoned for commercial purposes and for your use in particular, and that it conforms to various safety codes and is built in accordance with the prevailing rules and regulations. Have the HVAC (air and heat) unit in your space inspected before you sign the lease. Landlords will routinely say in the lease that the unit is in good working order. But they often presume this to be true but don’t actually check. If you take possession and the HVAC unit needs to be replaced, it will cost you a big chunk of change.

4. Rent and Security Deposit

Before agreeing to the monthly rental, many people do not benchmark similar properties, and end up paying rent through their nose. It is important to compare similar office properties and find out the going market rent in that area before entering into negotiations with the owner. This is Real Estate 101 for tenant rep brokers. Hire them – they know what they’re doing. The security deposit must also be based on demand, supply and the regular market norms. However, if the owner of the office space seems to be in a tearing hurry to rent out his place, you can always negotiate with him and save yourself some money. Again, this is where a tenant representative comes in handy; he/she will do all of this dirty work for you!

Landlords typically want the security deposit as a letter of credit (“LC”) from a bank as opposed to cash or a check. The reason for this, at least in NYC, is that if a tenant goes bankrupt, the court takes control of cash and it goes to all sorts of creditors before the landlord gets paid. An LC, on the other hand, remains with the landlord through bankruptcy proceedings. Note: it takes a long time to get an LC. Don’t think it will happen over night. 2-3 weeks is common.

5. Not Checking Lease Terms

A tenant must read and understand the lease terms carefully. Are you comfortable with the notice period? Let’s say the landlord has the right to relocate you to another floor or space in the building (something that is common for smaller deals.) How much notice do they need to give you? What if the lease says 30 days? Can you really pack up and execute a move of both your physical stuff and your technology in 30 days? Probably not. Do you have a sublet and assignment provision? Is it fair?

6. Underestimation of Negotiating Leverage

Tenants have a tendency to think that the landlord is all-powerful, but that’s not the case. Ultimately, a landlord is in a service business, and his business is to keep his building full. If this means he has to negotiate with his tenants to fill his spaces, he will. This is especially true for small tenants – even if you’re a five person firm in a million square foot building – you have more value than you think. 90% of the tenants in New York are small tenants. There are only so many big corporations out there

7. Working With a Biased Broker

Tenants sometimes feel that if they’re hiring a big real estate company, they’ll be better represented. The big firms that represent both tenants and landlords will argue that they know all the angles. While this is true, the reality is that their loyalties always lie with the landlords. When it comes down to it, a big firm will side with the landlord over the tenant.

8. Too Little Time

Tenants drastically underestimate how long it takes to either renew a lease or to move. Depending on how much space you have and how complex your technology is, it could easily take 6-12 months to negotiate your deal – double or triple that if you’re really big.

What is an SNDA and Do I Need One?

What is an SNDA and Do I Need One?

A Subordination and Non-Disturbance Agreement (SNDA) commonly called a “non-disturb” is an agreement that your landlord asks its lender to provide. The agreement basically says that if the building goes bankrupt and the lender takes control of the building from the landlord, the lender will honor your lease.

But I have a lease. I’m protected… right?

Actually, without an SNDA, you’re not protected. Your lease is an agreement with a landlord that allows you to use and occupy space based on certain conditions for a specified period of time. If your landlord sells the building, your lease will still be in full force and effect with the new owner of the building. But if the building owner defaults and a lender takes over the building, you have no privity with the lender. In other words, a landlord’s act of default eradicates your rights to use and enjoy space in the building. Your lease may be deemed null and void should it be in the best interest of the lender. Technically speaking you’re screwed.

But technically speaking and practically speaking are two very different things.

Let’s consider a typical Manhattan office building. Take for example The Met Life Building above Grand Central Station. There may be a hundred tenants in the building. They’ve signed leases at various times. Some are above market, some below. In the unlikely event that Tishman Speyer, who owns the building, defaults on its loan and a lender takes over, it would be a monumental task to empty the building of current tenants or even under-market tenants. There would be devastating delays, legal costs, brokerage fees and construction fees just to name a few that would make it very unappealing for most lenders to be willing to terminate leases and stop existing cash flow. We mention this because the path of highest utility and of least resistance will almost always be to keep collecting rent from current tenants. In other words, the chances of actually getting kicked out your building, in the event of a landlord default are small.

There’s a building on 8th Avenue called Worldwide Plaza. This building was one of the first commercial buildings in NYC to fall victim to the economic melt down of 2008. In 2007, at the top of the market, the building sold for $1.7 billion; two years later, the landlord gave it back to Deustche Bank, the lender, who then had to resell it for just $485 million – effectively getting just ¼ of the price that the building had originally been bought for. Was the building emptied of all rent paying tenants? No, they were just fine.

The practical reality is that tenants are only kicked out when the current owner of the building can make more money by repositioning the building.

What might this mean?

Let’s say you’ve just signed a 10-year lease in a small building on Broome Street. Right now, it’s an office or a loft building full of commercial tenants. Two years down the road, your landlord defaults on his payments, and the lender steps in. The bank now controls the real estate. If Donald Trump comes in and buys the note and decides that the highest and best use of the building is luxury residential, he is fully in his rights to evict all tenants and do as he pleases with the asset.

So what’s the lesson? Common sense. If you’re talking about a large office building, it is almost unheard of that tenants without non-disturbs in place get evicted. However, if you’re talking about a smaller building where there may be a better use of the real estate, you want to be careful and go in eyes open, protecting yourself.

How hard is it to get an SNDA?

The short answer is “very.” Landlords don’t like to give these agreements primarily because doing so requires them to contact their lender and say, “listen, if I go under and you take over, will you do me a favor and honor a particular lease or leases in the building?” Lenders don’t often say yes to this and hence, landlords hate to ask. But they will if the tenant has enough leverage, the landlord wants the deal badly enough, or if the landlord knows the lender will sign off.

How important is an SNDA?

We all know the reality of today’s economic environment. Since the downturn in 2008, a lot of landlords have had trouble paying their bills. Many landlords bought their buildings at the height of the market at unrealistically high prices when banks were lending a staggering 100% on big ticket buildings ranging from $500-700 million and more. But even with these perfect storm conditions, the vast majority of tenants are fine.

So how do you get an SNDA?

That’s something your broker can help you navigate – but it’s important to know that for the most part, landlords do not want to give SNDAs and that they’re only likely to get them if the tenant is really big. You’re not likely to get one for a 5,000 s.f. tenant, but for a 50,000 s.f. tenant, it’s much more possible. We’ve seen tenants give up great deals because they’re worried about the lack of SNDA. The key is to talk through the issue with your broker and lawyer. Know that it’s expensive for lenders and banks to uproot everyone and start from scratch. It’s a lengthy and expensive process, and there has to be a lot of potential money on the table to make any sort of conversion worth it. Understand your risk and let common sense rule the day.

Do Small Tenants Matter to Landlords?

Do Small Tenants Matter to Landlords?

In a word, yes.

Why?

Because small tenants are the lifeblood of Manhattan’s commercial real estate market.

Really?

Look at the graph below. 36% of commercial tenants rent less than 2,500 square feet of office space. In the world of big time Manhattan commercial real estate, do you know what 2,500 square feet is?

Tenant by Size Range

An after-thought for most brokers and Landlords Right?

Funny. Look at the next bar on the graph. 22% of the market is between 2,500 and 4,999 square feet. Do you know what 5,000 square feet is?

A slightly bigger blip on the radar screen right? Not Goldman Sachs or worthy of a Crain’s article — but maybe 5,000 square feet starts to mean something to someone right?

Actually, there’s someone to whom this size tenant means a lot. Landlords. Those guys who own buildings and pay mortgages. They live and die on the income generated by these “small” tenants. While many brokers may not be interested in these deals, do not be mistaken — they matter. We’re talking about 58% of the market, which by no one’s standards is an insignificant piece of the pie.

58% of the NYC Office Leasing market is comprised of Tenants doing these small deals?

Yes. It’s worth saying again. 58% of the tenants that do an office leasing deal in Manhattan in a given year are groups that occupy less than 5,000 square feet. So even if you make up that your landlord and or his broker doesn’t want to deal with you…you Mr. Little Tenant are massively important to the market, to the owners of the these buildings, to the New York City economy and to the basic health of the Manhattan commercial real estate market.

Okay…I get it…I matter. What can I expect?

As a small tenant you can expect to be taken seriously by your landlord. You do matter. You as an asset class are a significant portion of a landlord’s revenue. And therefore, it is important for you to understand your own worth to a given landlord. At the end of the day, the greatest thing anyone can do to increase leverage in a negotiating scenario is to know your own value.

Further, something that often gets overlooked is the reality that small tenants rarely occupy space in buildings alongside large corporate tenants. A 50,000 s.f. floor is not going to have a 49,000 s.f. tenant sharing a floor with a 1,000 s.f. tenant. Floors don’t get divided in this way.

What happens is that large corporate tenants often require their buildings to have large floor plates that are not conducive to a smaller tenant. Big corporations tend to take up multiple floors, if not whole buildings. Small tenants, on the other hand, tend to be grouped together. There are many buildings that are conducive for smaller tenants. In fact, if you were to take a survey of New York City’s commercial buildings, you’d find that there are far more buildings that cater to smaller tenants than larger tenants. And in these buildings, smaller tenants certainly do matter. Landlords in these buildings spend most of their time dealing with small tenants. So don’t be afraid to do your research and ask for what is fair. Your landlord can’t stand to lose you.

The Big Apple: Understanding Office Options

The Big Apple: Understanding Office Options

If you ever walk in New York City, you’ll quickly realize the stores have a different vibe, the architecture suddenly changes, and people have a different aura. This is the beauty of Manhattan. Go ten blocks, and all of a sudden it’s a new experience.

The same is true with office space. When you decide to open an office in NYC, the first thing you need to do is understand that your NYC might not have anything to do with someone else’s NYC. If you’re a top hedge fund in London and you want to dip a toe into the Manhattan water, you’ll probably end up in the Plaza District paying somewhere between $80 — $200/s.f. On the other hand, if you’re a hot tech company coming out of Palo Alto and want to be part of the up-and-coming tech scene in NYC, you probably should avoid the Plaza District and those steep rents and go directly to Union Square.

So when tasked with opening an office in Manhattan, the thing to realize is that the Big Apple is really many apples, and the most important apple is clearly the one that makes sense for you. So we’ll give an overview of the key sections of Manhattan from an office perspective and offer insights for each:

Plaza District:

This is the area directly south of Central Park, from 3rd to 7th Avenue. The crown jewels of the Plaza District are 9 West 57th Street and the General Motors building. These are usually the two most expensive buildings in New York. The views of Central Park are spectacular. The firms that occupy them trend toward financial services, hedge funds, and large corporate headquarters, and rents are not for the faint of heart. Park Avenue between 45th and 57th is known as Hedge Fund Alley, with iconic structures like the Seagram’s Building, Lever House, and 450 Park among the places you’re likely to bump into this year’s Masters of the Universe.

Wall Street:

The lower end of Manhattan is the polar opposite of the Plaza District. Believe it or not, if you’re looking for the lowest rents in Manhattan, you’ll find them Downtown. Wall Street, often defined as south of Fulton Street, runs river-to-river and is home to many law firms, trading companies, and non-profits. This is where you can find suitable space, often with good views for $25 — $50/s.f. or about half the cost of comparable space in Midtown Manhattan. A big plus for Downtown, in addition to price, is transportation. Nearly every subway line runs through Downtown, proximity to Brooklyn is fantastic, commuter busses from outer boroughs stop there, and the new transit hub to the Freedom Tower will be iconic when it comes on-line.

Union Square:

When General Assembly opened its doors at 902 Broadway, it was like sticking a flag in earth and declaring Union Square as the tech epicenter of New York City. Tech companies large and small flock to Union Square. Firms here are young, hip, and smart. Union Square also boasts the lowest vacancy rate in Manhattan. Rents can be south of $30/s.f. in older and smaller side street buildings. But, if you’re in better buildings on Broadway or Park Avenue South, expect to pay closer to $40-$50/s.f. or more. The space you’ll find there will be converted lofts and old manufacturing facilities. Restaurants here rock, with “beautiful” people everywhere.

Grand Central:

If you live in Westchester County or Connecticut, you travel by Metro North and land in Grand Central Station. Wouldn’t it be nice if your office were a short walk from the train? This is why so many firms have set up shop between 40th and 45th Streets, 3rd Avenue to Fifth Avenue.

The buildings in and around Grand Central range from trophy buildings to side street hovels and everything in between. There are a handful of buildings that have direct access by tunnel to Grand Central. This means you don’t get wet or cold going from desk to train, and commuters enjoy the Lincoln Building, The Chain Building, 317 Madison, 230 Park, and the Graybar. These are solid A– buildings chock full of smaller companies. The Chrysler Building and 450 Lexington are among the nicer and more expensive buildings in area. The higher you go at 200 Park, right above Grand Central, you can see the rivers, the Statue of Liberty, and Central Park.

Penn Plaza/Times Square:

If you live in New Jersey or Long Island and come into Penn Station or Port Authority, there are a handful of Class A buildings near both transportation hubs. 1 Penn Plaza on 34th Street is the best near Penn Station and the new New York Times building in Times Square is equally good if not better. Rents will range from $50-$100/s.f. But the life blood of Penn Plaza and Times Square is lower end. This area was the original “Garment Center” in NYC, and other than a handful of Class A buildings, these areas are now home to many fashion companies, manufacturing firms, non-profits, and low-end retailers.

Hudson Square:

This area, on the West Side of Manhattan above TriBeCa, has emerged an extremely hip area. Running from Canal up to Houston is an area that once was home to printers who needed big, cheap industrial spaces. But with the gentrification of New York, printers are nearly extinct in this area and have been replaced by media companies and high fashion. Building stock is characterized by high ceilings, large windows and a cool industrial feel. Typical prices are $35-$45/s.f. On the street, you’ll find some of hippest clubs and restaurants in the city.

New York City provides an exhilarating business environment not found elsewhere in America and offers an amazing range of office space choices. Therefore, it is critical to be informed so you take the right bite of the Big Apple.

Top 4 Things to Know in Office Leasing

Top 4 Things to Know in Office Leasing

1. You matter to landlords 78% of office leases in NYC are under 10,000 square feet, and 56% are under 5,000 square feet. You don’t have to be a large space footprint to matter to a landlord; smaller space footprints are the lifeblood of the NYC real estate market. Landlords look at more than just size when considering a tenant; are you good for the community? How financially sound is your firm? Is there growth potential here?  Who are you serving? In a slightly softening real estate market, a landlord would rather keep you than negotiate a new deal with a new tenant, so you have leverage.

2. Know the market (here’s how): like with any decision, you need to stay informed. Identify 3 spaces that work for your real estate requirements and get detailed pricing and amenities information on them. By comparing similar spaces, you’ll quickly understand value and have a first-hand benchmark to pricing and concessions. Having options that all work also gives you more negotiations leverage on any of the given spaces. Even if you are planning to renew your current lease, showing your current landlord that you have options gives you the same leverage to negotiate a better deal on your renewal.

3. Lease basics

  (a) you’ll have 4 basic costs: 1) base rent: $x / sf per year; 2) electric: typically $3.00-3.50/s.f. per year; 3) escalations: typically 2-3% of base rent per year, increasing annually & cumulatively; 4) proportionate share of real estate tax increases above a base year: everything except the increases should be on the landlord.

  (b) concessions you should ask for: at minimum, you should get a few months of free rent at the start of term, and money to build out the space to your specifications, or a tenant improvement allowance. Beyond this, you may be able to negotiate expansion options, termination rights, a burn-down on the security deposit, and other give-backs.

  (c) most landlords will ask tenants to sign a good guy guarantee: This means that they are legally allowed to hold you   personally liable for costs incurred if you stop paying rent and refuse to vacate the space. This does not mean you are personally liable if your business declares bankruptcy or can no longer pay rent; if these happen, you’re safe so long as you vacate the space accordingly.

4. Representation will get you a better deal, at no cost to you showing up to a deal negotiation without a broker is similar to showing up to a courtroom without a lawyer; the other side has one, and chances are they know what they’re doing more than you do. When a landlord is approached by a broker, they know that you’re out in the market and have options; in other words, they need to make a market deal with you or you’ll go elsewhere.

On your end, working with a broker saves you the time and money of having to deeply understand and negotiate steps 2 & 3; that’s our job. Working with an experienced, trustworthy tenant side only broker will not only save you time and money, but also will save you from falling victim to conflict of interest. Because NYC is a “landlord pay city”, your tenant rep is paid by the landlord because its representation you are entitled to; you do not pay for this service. 

3 Trends Shaping Law Firm Real Estate Decisions

3 Trends Shaping Law Firm Real Estate Decisions

Presented by Jonathan Twombly, Law Firm Team Director and former lawyer at Gibson Dunn & Crutcher and Stroock & Stroock & Lavan, we reveal the workplace trends in their industry, and tell you why it matters to you.

1. Image: The world is changing and so are law firms. Even the most conservative firms are looking at how space helps them retain and attract the best talent. Projecting the right image, whether it’s old-school or modern, can make the difference between getting or not getting a key employee, client or account. Your space is a reflection of your culture and driver of your day to day experience. If your office does not the image you want to project, it will cost you. Modernizing your workplace either by renovating existing space or relocating to newer, more image-appropriate space is a conversation your competitors are having.

2. Design: The common trend is to commit 10’ x 15’ on average for each attorney, regardless of title. This creates uniformity and eliminates the need for construction and shuffling as employees are promoted. To accommodate millennials who prefer to work outside the office, firms now provide gathering spots with natural light and connectivity. In terms of amenities, online access to information is resulting in law library elimination and upgraded conference rooms are congregated near the entrance for prestige, convenience, and to accommodate client confidentiality.

3. Technology & Efficiency: Law firms are reducing space by 15% on average due to efficiency created by design, workforce, and advanced technology trends; for example, Skype and conferencing allow employees to work and access information without physical office presence. Some firms are exploring the sharing of space, also known as hoteling, for attorneys spending more time outside the office.

 We would love to be a resource for you. For more information, please contact Andrew Stein at 212-880-3745 astein@vicuspartners.com or Bert Rosenblatt at 212-880-3746 brosenblatt@vicuspartners.com. 

3 Things Non-Profits Should Know When Negotiating a Lease

3 Things Non-Profits Should Know When Negotiating a Lease

1. Rent is a critical component of your overhead: Real estate decisions are critical to non-profits for many reasons, including because rent is often the 2nd largest expense. You want to find the right space that balances supporting your budget and your mission. 

2. You will almost always pay real estate taxes: in traditional NYC office buildings, non-profits are typically responsible for their portion of a building’s real estate tax increases because the owner still pays them; if you have 10% of the building, you’ll pay 10% of the increase above a base. Exceptions arise when the building owner is exempt, and does not need to impose these taxes on tenants.

3. Security deposit is standard: don’t be blindsided by a security deposit. Though negotiable, asking for several months in security deposit is standard in NYC. The good news is typically you can negotiate 1 month of security deposit returned back to you every 2-4 years of your lease.

The Rise of the Tech Firm in NYC: How to Win the Right Space

The Rise of the Tech Firm in NYC: How to Win the Right Space

Less than a decade ago, if you were a tech start-up, you it was all about Silicon Valley. Times have changed. Over the past few years, there’s been a tech explosion in New York City, making it one of the hottest destinations for tech firms, rivaling Boston and Silicon Valley as the place to be. Thousands of start-ups originate in New York City each year, hundreds of which are funded.

With this rapid flood of start-ups to New York City, many founders  quickly learn that New York real estate is a special kind of beast, with its own peculiar rules and habits.  Beyond the basics of budget and geography, the key to winning a great first space is selling your idea to the landlord. As a new business, typically you have little or no track record and you may not have a lot of cash. The smartest thing you can do is find a broker with a proven track record in finding space specifically for start-ups, aka someone who can guide your pitch to the landlord.

The right pitch will tell a compelling story about who you are as founders, and as a business – and you have to do this in a way that a landlord can understand. This is easier said than done, but can be accomplished with the right approach. Landlords tend to be old, straitlaced and corporate-minded. Tech firms are not. Though the landscape has shifted to a degree, generally speaking, landlords are not savvy about tech, and tend to be wary of young entrepreneurs with limited track records. With this said, they understand growth trajectory and what it could mean for their building—it’s all about the pitch.

After you successfully sell your idea, the next challenge to overcome is financials. This starts with the security deposit. Typically landlords want more security than cash-strapped start-ups are able to post, often a year or more. The last thing a start-up should do is tie up money in a security deposit. This is where smart strategy comes into play.

The last key obstacle to getting a lease signed is term. Most office space leases in New York City are between 5-10 years long; landlords make the bulk of their money by refinancing their buildings, and banks and lenders evaluate the worth of a building by evaluating rental commitments over time. To a lender, a building that’s full of tenants on 10 year leases is worth more than a building that’s full of 3 year leases. For start-ups, 5-10 years is an eternity. You may have 5 people today and 500 in a year. You don’t want to be held back by your real estate. Flexibility is essential. Navigating lease term is tricky, but again, the key is to be smart about it. We’d love to help you find the right space, with the right deal. Every landlord will have a broker helping him or her get the most favorable terms; you too are entitled to representation, which is why the landlord pays our fees.  

We would love to be a resource for you. For more information, please call Andrew Stein at 212-880-3745 or email at astein@vicuspartners.com, or Bert Rosenblatt at 212-880-3746 or email at brosenblatt@vicuspartners.com.

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