GETTING
TO LEASE
HOW TO LEASE SPACE
FOR YOUR BUSINESS
IN NEW YORK CITY
AND GET WHAT YOU WANT
M IC H A E L P I N N E Y
Copyright© 2013 Michael Pinney
All rights reserved
PUBLISHER
GETTING TO LEASE, LLC
EDITOR RANDY LADENHEIM-GIL
STRATEGIST
ALEXANDRE NGUYEN
BOOK DESIGN
HUY ANH LE
SA NGUYEN
PHOTOGRAPHY
JAN COBB
PAPER BOOK
978-0-9910529-0-5
EPUB
978-0-9910529-1-2
PDF
978-0-9910529-2-9
WWW.GETTINGTOLEASE.COM
While the author has used his best efforts
in the preparation of this book, no representation
or warranty is made as to the completeness or
accuracy of the information contained herein.
The advice and strategies outlined may not be
suitable for your situation. You should consult
with a professional where appropriate.
01
02
03
04
05
PLANNING THE HUNT
15
HOMING IN ON THE TARGET
51
ACQUIRING THE SPACE
71
NEGOTIATING THE TERMS OF THE LEASE
141
GLOSSARY
161
06
INDEX
181
PAGE NO. 6
GETTING TO LEASE
INTRODUCTION
PAGE NO. 7
If you are reading this book, then you are
probably thinking about looking for a new office,
store, factory, showroom, studio, or (fill in the
blank) in New York City. Maybe you’ve thought
about what your dream office would look like.
Maybe you’ve checked out a few classified ads,
done a little research on the internet, looked up
at buildings on your way to your current office
and wondered what they’re like. You may have
thought about the time, careful planning, and
commitment of resources it will take to find the
right place.
As someone who was once a newcomer, who has
searched for space and negotiated and executed
leases as a tenant, I understand the hopes and
uncertainties that surround the process. This
book is intended to help you to see space beyond
the façade. It is a dictionary of experience that
will guide you through the process and get you
to the point where you can sign a lease that
lets you get on with your business which is the
whole point.
PAGE NO. 8
GETTING TO LEASE
INTRODUCTION
Because finding the right space is only the first
step. In order to gain control of it, you’re going to
have to negotiate with the person who controls
it now, collects rent on it, probably earns a living
from it, and has a point of view about it as unique
as your own. To help you better understand what
motivates the owners of office space, throughout
Getting to Lease I have attempted to illuminate
the landlord’s mind-set and to give a historical
perspective which might help make it more
understandable and less provocative (though
maybe no less maddening). I will help you to
manage the search effectively, to understand
the negotiating positions and the posturing, and
to wind up with the space you want and need
without losing your mind.
If you’ve never gone through the process
before, you’re probably not sure how to start.
The book will be a road map that will help you
to see what you need and to plan where you’re
going. While it is not a substitute for going
out and looking at space, it’s a good way to
jump-start your experience so you’ll have a
better idea of what you’re looking at and how
to make sense of it.
PAGE NO. 9
In Getting to Lease I won’t be saying much
about what makes a good office space; while
there may be universally appealing qualities of
light and space, none apply universally. Plus,
there are as many ways to use space as there
are spaces, and what makes one good and
one bad is entirely up to you. What I will be
offering are a lot of ideas about how to find
and acquire the right space, how to think like
a landlord, and some advice that will help you
avoid specific pitfalls.
WHO AM I AND WHY SHOULD
YOU LISTEN TO ME?
My experiences in commercial leasing began
in earnest in 1997, when I was hired by a
company as the project manager for the
construction of a 10,000-foot office space in
midtown Manhattan. I had a background in
construction, as well as diverse experience in
computer technology, finance, sales, human
resources, and running my own small business.
All of that experience stood me in good stead
when navigating the vagaries of the real estate
business and the sometimes outrageous
characters I came into contact with in the
industry in New York City.
PAGE NO. 10
GETTING TO LEASE
INTRODUCTION
Besides dealing with belligerent contractors, as
a construction project manager, I also had to
manage the relationship between the decision
makers of the company, the architect, and the
building manager; negotiating the intersection
of expectations on such issues as cost,
scheduling, and aesthetics was a challenge, as
you can imagine.
Dealing with contractors was easy, though, in
comparison with the landlords, brokers, and
managers I dealt with in my next job as the
facilities director of an Internet company during
the first dot-com boom. While I worked for that
company we acquired new space in New York,
London, and Los Angeles at a time when
commercial real estate rents were skyrocketing.
My job was to find space, build offices, and then
try to keep the whole house of cards under some
kind of fiscal control.
The customs and language of real estate in
each of those cities are quite different from
one another, but after some time, I learned to
navigate them while learning a lot of useful
lessons along the way.
After a couple of years, the Internet company
imploded and soon after that I realized that
PAGE NO. 11
the sum of my experiences and my insight into
the many different forces that impact a
company’s physical needs could be put to
good use as a broker. By bringing my unique,
empathetic understanding of the various and
sometimes competing needs of the interested
parties and an experienced understanding of
each discipline, I could be effective in bringing
about a meeting of the minds. So that’s what I did.
I have taken it as my mission to give people a
better experience when acquiring space. Over
the past sixteen years I have helped hundreds
of companies in many different industries find
space for their businesses. A good portion of
my time is spent educating people who are
looking for space, guiding them past their fears
and preconceived notions, and generally helping
them to better understand the relationship
between the space, the landlord, and the tenant.
It’s a lot like being a guide for people who
have come to a vaguely familiar but ultimately
foreign country.
After all, how many commercial leases are you
going to sign in your lifetime? If you’re an average
small business owner, such as the founder of a
technology company, a fashion importer, or a
law or PR firm, maybe you’ll search for new
PAGE NO. 12
GETTING TO LEASE
INTRODUCTION
space three to five times. If you are a serial
entrepreneur, the sky’s the limit; you could sign
a new lease every two years for your entire
career. Or you may be an operations or office
manager or even an executive assistant with
no experience in commercial real estate at all
whose boss came to you last Friday and said,
“WE NEED TO FIND A NEW OFFICE. GO LOOK AT SOME SPACES,
NARROW DOWN THE CHOICES TO THE BEST THREE OR FOUR,
AND I’LL MAKE A DECISION AT THAT POINT.”
WHERE DO
YOU BEGIN?
This book will be your guide. If you’ve never
done it, walking into a raw space and envisioning
your future there is a unique experience for
which no discussion can completely prepare you.
Once you’ve seen several spaces, you’ll start
to hear the same subjects repeated again and
again, and you’ll begin to be able to trust your
own impressions. Once you’ve signed several
leases, you’ll have a general map of the terrain
in your head.
For the moment, don’t worry about the lease
or the worrisome terms in it. I’ll go over the
main points in detail later. And although I
have a lot of experience in this area, I strongly
recommend having a lawyer with experience
in commercial leases review it and refine the
PAGE NO. 13
language so that it isn’t weighted too much
in favor of the landlord (which it will be in the
beginning). If you want, you can read one of the
many fine books written by real estate lawyers
that will help interpret the language of commercial
leases. But even that is not a substitute for expert
legal advice.
Whether you’ve done this before or this is your
first time, Getting to Lease will get you to the point
where you can be confident that you can sign
the lease you have in hand because you know
the space is workable and is the one you want.
Finally, throughout the book, I’ve included
references to the website. In the "Resources"
section you will find an appendix that elaborates
on some concepts that are related to the themes
mentioned here, but are not necessarily
concerned directly with a search for space.
There is also a glossary in the back of the book
and on the website with a list of relevant real
estate terms that you may need to know. I tried
to define the most important ones in context,
but if there are any you still don’t understand, look
them up.
PAGE NO. 14
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
PAGE NO. 15
1.0 THE SEARCH 2.0 WHAT TO LOOK FOR?
3.0 TIMING
_PLANNING BACKWARDS
_STARTING BEFORE YOU'RE PLANNING TO MOVE
_STARTING TOO LATE
_THE RULES
4.0 WHERE TO LOOK?
_MICRO NEIGHBORHOOD GUIDE
5.0 BEGINNING THE SEARCH 6.0 YOUR ATTENTION
0 NO MATTER WHAT
_USING THE BROKER
7.0 SETTING YOUR
0 EXPECTATIONS
_THE CEO
_THE SCOUT _THE COMMITTEE
PAGE NO. 16
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
PAGE NO. 17
1. THE SEARCH
There are a lot of ways to go about finding
space. The best, most reliable way is to hire a
broker. I’m a broker, but even if I weren’t, I would
believe that using a trustworthy broker will
yield the best results 98 percent of the time.
About 2 percent of potential tenants will find
the space they’re looking for because their
friend’s girlfriend’s roommate’s business is
moving to Boulder and nobody else knows yet
that they’ll be subletting their space in a few
months. For those lucky few, there is nothing to
do except sign the sublease and get to work. That
does happen, but so do rainbows, and they’re not
something you can build a business on.
We’ll get to the actual looking in a little while,
but let’s take first things first. Before you start
looking for your space, it helps to know a few
other things.
PAGE NO. 18
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
PAGE NO. 19
2. WHAT TO LOOK FOR?
The first step is to identify your actual needs.
Those needs might be obvious because
somebody else has told you what to look for and
you have been given the job of identifying good
prospects. Or it may be that you have outgrown
your current space and need more of the same
type, or you may be shrinking and need less, or
the space you have now may be perfect but the
rent is going up or the building is going to be torn
down, or it could be that you want an office just
like that of a company you admire.
Whatever the reason for wanting to look, the
first question is: How much space do you need?
The best rule of thumb is to count the number
of employees now and in the foreseeable future
and multiply by 150 to 200 square feet.1 That’s
a good ballpark figure. Like any guideline, this
number is extremely fungible. I have worked with
companies that allotted less than 100 square feet
per person, and there are law firms that wouldn’t
consider having less than 400 square feet per
person. Not that every person in the company
needs so much personal space. All offices also
have public spaces that have to be taken into
account, like the reception area, conference
rooms, the kitchen, storage space, and hallways.
The different types, uses, and amounts of space
within a given office is called programming, and
1
THROUGHOUT GETTING TO LEASE, WHEN I REFER TO SQUARE FEET, IN ALMOST ALL CASES I MEAN
RENTABLE SQUARE FEET. THERE IS A DIFFERENCE BETWEEN RENTABLE AND USABLE SQUARE FEET
WHICH IS DISCUSSED IN DETAIL LATER.
we’ll get into that in more detail in a later chapter
(see page 68), but determining these different
needs is essential in setting a target.
FACTORS THAT AFFECT THE SIZE OF
YOUR REQUIREMENT:
»»A certain number of offices for executives with workstations
for assistants
»»A conference room that will fit a certain number of people
»»Training rooms
»»A shipping and receiving area
»»A recreation space
»»A place where everybody in the company can gather all at once
»»A library
»»Extra server equipment
»»Extra meeting rooms and informal meeting areas
»»A file room
The possibilities are endless. I once worked with
a psychiatrist who ran what were essentially
hotels that rented space to other psychiatrists.
He knew exactly how much revenue each office
could generate and cared only about the ratio of
windowed offices to circulation space. The total
size of the place didn’t matter to him at all.
If your company is in a growth phase, no one can
provide you with a crystal ball to let you know how
much space to allow for that growth. Even though
you may have a detailed business plan that lays
PAGE NO. 20
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
out a clear trajectory for your company, or have
ambitions tucked away in the back of your mind,
you know you can never be sure of exactly what’s
going to happen in the future. It’s a leap of faith
to take space that you can only imagine needing,
that you hope you will need. My advice would be
this: consider however much you are 100 percent
confident in needing for the next three years plus
however much more your current income can
support. But even as I say that, I can immediately
think of a dozen arguments for making a different
decision, such as—take as much space as you can
comfortably afford if your business contracts by
twenty-five percent or you will fit in for five years if
your company grows by fifty percent.
Growth is a double-edged sword. On the one
hand, it’s a good problem to have, and if you are
outgrowing your current space, you probably have
the revenue to afford something larger. But in that
case you might have to sublet your current space
in order to live up to the terms of that lease. Or
you might consider a second space on another
floor or in another building, in which case you
would have to split the company. There is pain
of different sorts in any of these choices,
the analysis is which one is the least painful.
If you’re still unsure, talk to people: your
PAGE NO. 21
accountant (who will probably advise you to take
much less space), your lawyer (who will probably
advise you to stay where you are), or to other
business owners (who will probably advise you
to do whatever they did, but who may tell you
about mistakes they made that they—and you—
can learn from). Eventually, your gut will tell you
how much space to get.
THE
RULES
When searching for space, some people find
it useful to create a list of about four (or six or
eight) attributes that every space must have or
it can be eliminated immediately.
THOSE FOUR RULES MIGHT BE:
»»The right neighborhood
»»The overall size
»»Tenant-controlled air conditioning
(as opposed to building-controlled)
»»Completely open space except for one large conference room
OR THE FOUR THINGS MIGHT BE:
»»Overall size
»»The right number of offices already built
»»A pantry
»»An attended lobby.
The exact number of rules doesn’t really matter,
but there should be few enough to be kept in
PAGE NO. 22
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
PAGE NO. 23
3. TIMING
DOES YOUR BUSINESS HAVE ANY SPECIFICTECHNICAL
REQUIREMENTS?
»»A battery backup system to keep your computer system
online 24/7/365?
»»A certain amount of power available because of some
specialized equipment?
»»Access to the freight elevator at all hours of the day and night?
mind when the initial spaces are being evaluated.
All of these things are possible; you just need
to know the touch points that will include or
exclude a building for you.
My experience with businesses has shown me
that these things are rarely all defined perfectly
from the beginning. Sometimes they don’t
surface until well after the search is underway,
often not until attention is starting to get focused
on one particular space and people start to
really think through all the details. Suddenly a
great space will start to look untenable. There
isn’t very much you can do to prepare yourself
for this; it’s just the way things go. The process
teaches flexibility if nothing else.
PLANNING
BACKWARD
The timing of a move is never going to be perfect;
it can only be optimized. What is the latest date
you can imagine moving in to your new office?
Start there and work backward. Since you’re
reading this book you’re already thinking about
moving, so the timing of your search is already a
factor. In order to decide when to move, you have
to examine the forces at work that initiated the
desire to move and factor in the logistics involved
in the move itself.
SO WORK BACKWARD:
1.When do I need to be in the new space?
2.When does my current lease expire, and how much overlap is optimal?
3.How long will it take to find the right space?
4.How long will it take to negotiate with the landlord?
5.How long will it take to get the space ready?
A business that requires less than 2,000 square
feet or has fewer than five employees can
probably do without a lot of paper planning
without any problem.
But as businesses get larger the complexity
increases geometrically, and the move will need
a lot of attention in order to plan and execute it.
My experience has shown that moves are best
organized when one person is the central point of
PAGE NO. 24
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
contact for all things related to the move rather
than dividing areas of responsibility among a
group. It would be best if that person has the
ability and authority to delegate responsibility,
with everything flowing back to him or her.
STARTING
EARLY
If you’re a small or medium-sized business and
you’re starting to look more than six months
before your optimal move-in date, it should be
with the understanding that even if you like the
first thing you see but you’re not willing or able to
act on it, you may have to let it go. For a landlord
the risk calculation is quite simply “is this bird in
the hand really better than the one that might
be in the bush?” His point of view is going to be
based on his experience with this issue in the
past and his view of the current market, which
can also be described as his appetite for risk. If
a landlord knows you don’t want to move in for
six months and thinks he can start collecting rent
sooner from someone else, he will go with that
other tenant. If there is some factor that makes
you more attractive than average (e.g., you’ve
been in business for a long time, have a lot of
cash in the bank, or are offering a very attractive
rent figure), he might decide it’s better to wait
for you and accept the time that the space sits
fallow as a part of his overall expense. Don’t
forget that free rent is always seen as a dealmaking expense by the landlord and is money
out of his pocket.
It’s perfectly fine to go out and start to educate
yourself about the market by looking at space,
even if you’re not really ready to make the move
yet or if the possible move date is far out in the
future. I have had the experience, though, of
working with tenants who believed they could
break their current lease when, in reality, they
couldn’t. If that’s your situation, be realistic with
yourself about it. Most landlords won’t allow it.
Even if you think a landlord ought to think it’s
a good idea because the market is strong and
you’re paying less than market rent, they may
or may not for a number of reasons. Have your
broker talk to your landlord and find out whether
or not he will allow it.
Remember too that in a weak market, a tenant
may be able to finesse the move-in date and free
rent2 to their advantage. But in a strong market,
landlords will try to force you to sign a lease
today and start paying rent tomorrow.
STARTING
LATE
2
FREE RENT IS DEFINED FURTHER IN SECTION 3, BUT BRIEFLY IT IS A PERIOD OF TIME THAT A TENANT
POSSESSES A SPACE BUT IS NOT REQUIRED TO PAY RENT.
PAGE NO. 25
Starting too close to your deadline to move
adds a lot of additional pressures. While I don’t
PAGE NO. 26
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
recommend it as a form of thrill-seeking—there
are better ways to raise your heart rate—just
because you’re late doesn’t mean you won’t find
a perfectly suitable new space.
But being short on time definitely puts you
at a negotiating disadvantage. In general, it
requires more willingness to make concessions
on all manner of choices and it narrows your
maneuvering room. The initial search may turn
up one or two promising spaces. If you only
have 21 days until you must move, one of those
spaces is going to have to be your choice. In that
case, though, if the landlord has some onerous
provision in his lease that in other circumstances
might kill the deal for you, you may have to suck
it up and accept that provision rather than walk
away. Being late also demands that the condition
of the space fit your requirements more readily.
The landlord may not be willing to do a rush job,
or he may not be able to accommodate your
schedule to make changes for any number of
logistical reasons.
If a lease expiration is what’s driving your move,
you might be able to stay in your current space a
little longer. First make sure you know the exact
date on which the lease expires. It’s very common
to misremember a date that was decided on years
PAGE NO. 27
before. You should also examine your lease
and make sure you understand the holdover
provision. Most leases stipulate that if you stay
beyond the end of a lease, you are “holding over”
and will be required to pay a penalty for doing
so. That penalty is usually that the monthly rent
increases to about 1½ to 3 times the current rent.
Once you’re sure you might bump up against the
expiration of your lease, have your broker open
a dialogue with your current landlord. A lot of
landlords won’t enforce the holdover provision
as long as they’re given sufficient notice of your
intention to hold over, and as long as they aren’t
going to be damaged in some way by your doing
so. Many times, they’ll be glad to have the space
occupied longer to give them more time to find a
new tenant.
A search is a perishable item; it has a time
frame and once time goes by, the time cannot
be regained. One day you’ll be thinking that you
have all the time in the world and then suddenly,
before you realize it, you might find that time is
running out. This can happen for many reasons.
Sometimes the forces that impact a move can’t
be controlled, and so be it. You have to play the
hand you’re dealt. As I said, no timing is going
to be perfect; it can only be optimized. Four to
six months is generally the right amount of time
PAGE NO. 28
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
to allow for an average search. Four months is
just about the minimum for an average search
for a small company that requires a few offices,
open space, a conference room, a pantry, and a
reception area. The larger and more complex the
requirements, the more time should be allotted.
Nine months is the minimum amount of time
when you need 20,000 feet or you have a lot of
special technical needs.
4. WHERE TO LOOK?
As with the uses of space, the reasons for
choosing one area over another are entirely
subjective. You know where you feel most
comfortable.
WHAT’S MOST IMPORTANT TO YOU?
»»Restaurants for client entertaining?
»»Safety at night?
»»Easy transportation?
»»Proximity to others in your industry or your customers?
»»Something that helps retain employees in your industry?
»»Allegiance to a neighborhood?
»»Cost?
Below is a chart showing the major commercial
office districts in Manhattan. Keep in mind that
this is not about retail space, which is a whole
different ball game.
PAGE NO. 29
NEIGHBORHOOD
2013 PRICE RANGE,
$ PER SF PER YEAR
BOUNDARY
EAST/WEST
BOUNDARY
SOUTH/NORTH
VIBE
Gramercy Park
$40 to $60
3rd Ave. to
5th Ave.
19th St. to
24th St..
Hip, Laid-back
Union Square
$45 to $70
3rd Ave. to
5th Ave.
11th St. to
18th St.
Ultrahip
Murray Hill
$40 to $55
3rd Ave. to
5th Ave.
25th St. to
39th St.
Down-to-earth,
work-a-day
Grand Central
$50 to $90
2nd Ave. to
5th Ave.
40th St. to
50th St.
Commuter driven
Plaza District
$60 to $105
2nd Ave. to
5th Ave.
51st St. to
60th St.
Exclusive,
expensive
Flatiron District
$45 to $70
5th Ave. to
6th Ave.
14th St. to
24th St.
Ultrahip
Lower Chelsea
$40 to $55
6th Ave. to
8th Ave.
14th St. to
23rd St.
Hip on a budget
Upper Chelsea
$35 to $55
5th Ave. to
9th Ave.
23rd St. to
29th St.
Less hip, on a
budget
Chelsea Gallery
Dist.
$45 to $80
9th Ave. to West
Side Highway
17th St to
29th St.
Cool, but far from
transportation
Meat Packing
Dist.
$50 to $100
9th Ave. to
11th Ave.
Little West 12th
St. to 16th St.
Ultrahip,
expensive
Garment District
$35 to $55
5th Ave. to 6th
Ave. (includes
Broadway)
30th St. to
40th St.
Nice buildings,
good value
Penn Stn/
Garment
$30 to $45
6th Ave. to
9th Ave.
30th St. to
40th St.
Best value, but
very workmanlike
Hudson Yards
$45 to $70
9th Ave to West Side
Highway
30th St. to
40th St.
Good potential
when completed
Times Square
$45 to $75
5th Ave. to
8th Ave.
41st St. to
50th St.
Crowded,
convenient
Hell’s Kitchen
(Clinton)
$40 to $65
8th Ave. to West
Side Highway
40th St. to
59th St.
Trendy, midpriced
Columbus Circle
$45 to $115
5th Ave. to
8th Ave.
51st St. to
63rd St.
Exclusive,
expensive
SoHo
$55 to $80
3rd Ave. to 6th Ave.
Houston St. to
Canal St.
Crowded, trendy,
convenient
Hudson Square
$45 to $65
6th Ave to
West Side Highway
Houston St. to
Canal St.
Big lofty spaces
Tribeca
$45 to $75
Broadway to West
Side Highway
Canal St. to
Chambers St.
Trendy, expensive
City Hall
$35 to $45
Chambers St. to
Fulton St.
Pearl St. to
West St.
Good value, drab
Insurance District
$30 to $45
Fulton St. to Wall
St.
Pearl St. to
West St.
Good value, drab
Wall St./Financial
District
$30 to $80
Wall St. and below
River to River
Veers from drab to
outrageously nice
PAGE NO. 30
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
Generally speaking, anything on an avenue
will command a price at the higher end of the
spectrum. Anything directly facing certain
parks—Union Square, Bryant Park, and Madison
Square Park are a few examples—will probably
get a 10- to 15-percent premium over the
average rent for the area. Penn Station/Garment
District and the Financial District have given
the best value for the dollar consistently
throughout my career, though at the expense
of having the lowest cool factor. The Plaza
District has the highest percentage of Class A
buildings (see the sidebar) and is therefore the
most expensive and exclusive. At the height of
the market, in 2007, rents there reached as high
as $140 per square foot.
BUILDING CLASSES
Building classifications are one of those ideas that have a different
meaning in every individual’s mind. In a way, it’s a useful means to rank
buildings in comparison with other buildings. In another way, it’s simply
a marketing tool that owners use to set their building apart from others.
A Class A building should be a full service building. It will have numerous
passenger elevators to minimize waiting time and marble bathrooms
that are spotless. Building staff will take care of any and all maintenance
issues within the space like leaky sinks, electrical shorts, burned-out
light bulbs, cleaning, etc. They also tend to be clustered near major
transportation hubs like Grand Central and Wall Street, where financial
services firms tend to be. Some iconic Class A buildings are the GM
Building, the Lipstick Building, and the World Financial Center.
PAGE NO. 31
But even within the A classification, there are A minus buildings that are
not quite the same standard or that might have been upgraded from a
Class B building; the lobby might not have the same soaring ceiling, the
building staff might not be as attentive, the hallways might not be quite
as elegant.
Class B buildings emulate all of the above to some degree but have less
of it. They usually have 24/7 door guards, but no concierge service.
The lobbies and elevators are usually nice but not ultrasleek. Common
areas range from nice to just okay. Cleaning is sometimes included and
sometimes not. Maintenance within the space is usually the tenant’s
responsibility.
Class C buildings include everything else. Any multistory building with
less than 100,000 square feet is probably a Class C building because it
can’t generate enough income for the landlord to offer better service.
The quality of these buildings varies immensely, and they employ
every imaginable scheme for security, maintenance, and services. The
buildings might be former factories, garment manufacturing buildings,
old department stores, converted dairies, bakeries, or rendering plants;
some are quite eccentric and some are quite nice.
PAGE NO. 32
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
PAGE NO. 33
5. BEGINNING THE SEARCH
USING THE
BROKER
Once you know what you’re looking for in broad
strokes, you’re ready to begin the search. Your
next task is identifying potential spaces. Should
you use a broker? As I said in the beginning of
the chapter, I’m a broker, and I think you should
just get in touch with me (www.gettingtolease.
com). That’s bald self-promotion, yes, but even
so, I think it’s true.
There are a lot of resources on the internet these
days and I understand the temptation to believe
that a human broker is obsolete, that you can do
it all from your desktop. But the fact is I’m not
obsolete. By virtue of the fact that you’re reading
this book, I’m guessing you want help with the
process, so the question is simply how much.
HOW MUCH IS YOUR TIME WORTH?
»»I’ll run a well-organized, methodical search that will yield an excellent office that can sustain you for whatever period of time you want and
for whatever purpose you need.
»»I’ll help you think about things you might not have otherwise. That’s
the benefit of my experience as a tenant looking for space.
»»I’ll analyze the financial aspects of multiple potential deals and present them to you in an apples-to-apples comparison. That’s the benefit of my financial and analytical background.
»»I’ll help you determine whether a given space has all the technical attributes you need; that’s the benefit of my construction experience.
»»I know how to negotiate terms with a landlord, what to ask for, when to push, and when to fall back. That’s the benefit of my experience
as an agent.
You should expect no less from any broker.
What I can’t do is make you trust me if you’re
inclined to think that I’m a back-stabbing,
double-dealing bloodsucker. If you think that, I
can’t help you, but you’re also not alone. I talk
to people all the time who think that way. I know
it’s partly because there are a lot of commercial
real estate brokers, and some of them behave
like I’ve just described. It’s true that as a group
we’re competing for scarce resources, often by
calling you out of the blue and trying to pressure
you to look at space or tell us when your lease
expires or generally being annoying. We tend
to be pushy, overtly and sometimes comically
ingratiating and…well, baldly self-promoting.
I understand all of that. But I still think you
should call me.
If you must call someone else, get a
recommendation from friend or another
business owner you know and trust. There are
valid reasons not to go it alone. For one thing,
while you might negotiate for a new office lease
five times in your career, Landlords might do
it five times a month which immediately puts
you at a disadvantage. In New York commercial
leasing, unlike residential leasing, the landlord
pays the tenant’s broker, so there’s no economic
PAGE NO. 34
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
disincentive. The market is extremely variegated
and chaotic, and an experienced person acting
as an advisor should be nothing less than
welcome, if for no other reason than to act as
a curator of the vast amount of information you
will encounter.
There’s also a temptation to simply call a bunch
of different brokers. Often, people from out of
town tell me with absolute certainty that “the
best deals never make it to the market” and ask
me to use my contacts to get them something
that’s off-market. It’s true that the building
sales market is that way. The very best deals in
building sales in Manhattan rarely get publicly
disseminated before some insider/ developer/
golf buddy offers to buy it first.
But with rentals, the worst that can be said is that
it sometimes takes a couple of “extra” weeks
before something gets listed. And in that case,
there’s only one broker or one firm that knows
about it, and if you don’t happen to call that
particular broker or firm at exactly the right time,
you’re not going to have access to it. Most active
brokers in New York City subscribe to a database
called CoStar.3 It’s very expensive, but about 98
percent of all space gets listed there. Unless
one of the three or four brokers you happen to
3
COSTAR IS THE SOURCE FOR MOST OF THE STATISTICS USED IN THIS BOOK.
PAGE NO. 35
call (I defy anybody to use more brokers than
that) has something perfect for you in his or her
pocket, the chances of a phone call leading to a
successful lease of an off-market space are no
better than those on a roulette wheel. The fact is
that the New York commercial real estate market
is gargantuan (according to Costar, there is more
than half a billion square feet of commercial
space in Manhattan alone) and there is simply
too much space available not to list it publicly
even in a tight market.
Many brokers will require you to work with
them exclusively and to sign an agreement to
that effect. But should you sign up with one
broker? Again, it all boils down to trust and to
your thoughts regarding how much your time is
worth. Companies that are accustomed to signing
contracts for labor will generally have little trouble
signing an exclusive with a single broker. Larger
companies with a well-formed bureaucracy and
a large, diverse workforce will also have little
trouble signing an exclusive arrangement and see
it as a simple division of labor. An entrepreneur
who has built a company from scratch and is the
driving force behind a company’s growth will
generally believe he or she would be ceding too
much control via an exclusive agreement and
won’t do it.
PAGE NO. 36
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
Personally, I rarely work without an exclusive.
There are circumstances where I won’t require
one, certainly, and my decision to do so is always
made on a case-by-case basis. Most larger firms
will never allow their agents to work without
one. In those few cases where I don’t have one,
as long as we’re agreed that you’ll work with me
solely until you’re satisfied I’m not getting the job
done for you, I won’t force the issue. But I never
knowingly get involved in a scrum with other
brokers. If I know you’re seeing space with other
brokers, I may only show you space I control
directly, which will take just a couple of hours of my
time, but which, as I’ve said, the law of averages
states probably won’t lead to a successful result.
Without putting too fine a point on it, all of the
most effective brokers work this way.
If, for whatever reason, you want to do it
yourself, this too can be done. I found the
following description in a post by Joel Spolsky,
a tech blogger who at one time wrote a lot
about creating office environments friendly to
programmers. In this post, from 2003, it’s clear
his opinion of brokers is pretty low, though he
has changed his mind as the years passed and in
later posts has spoken highly of the broker who
eventually found space for his company.
PAGE NO. 37
“FIRST, DO SEARCHES ON TWO WEBSITES, WHICH OVERLAP
SOME BUT NOT ENTIRELY IN THEIR LISTINGS: CITYFEET AND
MROFFICESPACE. 4
IF YOU WANT CHEAPER, ARTSY SPACE, CHECK THE VILLAGE VOICE."5
"Avoid two things: ads that sound like
executive office spaces, and ads that
are just pitches for brokers disguised as
listings. You can identify these because
they don’t give any details about the space,
like the address. If the address is not in
the listing, don’t bother responding, it’s
almost certainly a broker who is fishing for
potential tenants. He’ll tell you to meet him
at Starbucks at 10:00 am where he’ll show
up with exactly the same list you printed
out from MrOfficeSpace.
of tenants to see if they’re mostly software
companies, architects, and graphic
designers, or if they’re mostly clothing
factories, importers, and methadone
clinics. Check out the neighborhood.
Like the building? Here's the next step,
for which you should be reasonably well
dressed. Go into the building's service
entrance and ask to speak to the super.
Tell the super you're looking for office
space and you want to see the space in his
building. He will show it to you... That's all
Next step: do not call the broker in the there is to it.
listing. Yes, they can show you the space,
but you don’t need them yet. First go to the Now, if you like the space, call the broker."
building in the listing and see if you like the
building. Check out the lobby. Read the list
"'What would have happened,' you may ask, 'if I had just called the number in the ad?'
Well, nothing terrible. The broker would have met you in the building lobby, and then
he would have asked to see the super, and the super would have shown you the space.
You see, the super has the keys and knows how to drive that cool manual elevator that
goes to the floors where the fancy automatic elevators don't stop because there are
no tenants there."6 — Joel Spolsky
From this post you get a reasonably good idea of how to go about looking
for space without a broker. The question is, again, how much is your time
worth? I won’t beat this horse anymore, but, to my mind, the answer
is—call me.
4
NOTE: MROFFICESPACE IS STILL IN BUSINESS, BUT LOOPNET AND PROPERTY SHARK HAVE OVERTAKEN IT AS MORE EFFECTIVE TOOLS. CR AIGSLIST WORKS, TOO, BUT IS HIT OR MISS BECAUSE THERE ARE SO MANY DUBIOUS LISTINGS.
5 AS OF 2013, THE VILLAGE VOICE IS NO LONGER EFFECTIVE. FOR SMALL SPACE, USE CR AIGSLIST, WHICH DOES WORK WELL FOR THIS PURPOSE, IT JUST TAKES SOME DIGGING.
6 HTTP://NEW.JOELONSOFTWARE.COM/ARTICLES/OFFICENEW YORK.HTML
PAGE NO. 38
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
PAGE NO. 39
6. YOUR ATTENTION
NO MATTER WHAT
A real estate broker can only do so much to
keep the search on the right track; even with a
good, experienced broker guiding your search,
somebody from your organization is going
to need to be 100- percent responsible for
organizing the search internally. There will be
a lot of information coming in and somebody’s
going to have to keep track of it and manage the
flow up and down the organizational chart and
out to other consultants and service providers
like architects, furniture planners, and IT
consultants.
THE CEO
By its very nature, the space hunt requires
a lot of subtle decisions, not all of which are
easy to communicate. But they still have to be
communicated. If you are the ultimate decision
maker and have taken the lead on the search,
you can make course-changing decisions on the
fly. The hunt will almost always require some
compromises only you can make. It’s your vision
that’s ultimately being brought to life and, along
with the raw data analysis, the decisions involve
spatial awareness and emotional connections
that may be hard to communicate to an
employee. I can’t tell you how many times I’ve
heard the phrases, “I’m not feeling it here,” and
“I’ll know it when I see it.” So go out, see some
space, and feel it.
THE SCOUT
If you’re the office manager or an executive
assistant, you’re going to be acting as the scout
and reporting information back to the decision
makers. Here’s where determining the Rules
(see page 21) becomes imperative. If you can,
try to get the decision maker to express the most
important attributes and keep them in mind
when looking at space. But don’t get complacent
about them; keep going back and pressing the
decision maker to see if there are possible
exceptions or any new information. I’ve often
had the experience where a busy executive has
expressed a strong desire to the person who has
been delegated to do the search and then, when
speaking to me, expressed something much
more flexible, which can make you feel like you’re
standing on constantly shifting ground.
It can be frustrating, but just know that it’s very
common. Changing course several times is
the rule rather than the exception in a process
like this, which is another good reason to leave
yourself plenty of time.
Whoever is the point person should have
the most up-to-date information about the
company’s requirements and should be able to
understand how each space under consideration
fits into the current thinking.
PAGE NO. 40
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
I once had the experience where a scout thought
he had identified a good candidate space that he
wanted the busy CEO to come out to see. We
had to jump through a lot of hoops to find time in
the CEO’s schedule, but we had high hopes that
the search could be concluded after this meeting.
The CEO spent about a minute walking through
the space, then turned on his heel and walked
out. Outside he dressed us down for wasting his
time on a space that was about half the size it
needed to be. The scout and I were both stunned
because it was in the middle of the size range
we had been tasked to find. As it turned out, the
company’s latest projections predicted it would
be doubling in size in the next year, so the new
space needed to be a lot bigger, but nobody had
told the scout. We came to find out that this
projection had been known for some time and
the scout had spent at least a month touring and
cataloging data on unsuitable spaces. Now the
entire search had to be recalibrated with this new
information.
Aside from being just aggravating, this lack of
simple communication cost a month of time,
which, in a fast-paced market like New York,
could have been decisive in acquiring or losing a
good space for the company.
PAGE NO. 41
So keep the information flowing up and down the
line. Ideally, the scout will have a direct pipeline
either to the decision maker or the decision
maker’s trusted advisor. Avoid a situation in
which the scout is made to feel like he or she
is taking up too much of the decision maker’s
time by reporting the findings regularly. At the
very least, there should be someone who has the
decision maker’s ear and to whom the scout can
speak freely.
THE
COMMITTEE
Avoid the temptation to create a search
committee unless it has the power to actually
make decisions. Even within an organization
that appears very like-minded, there will be
differing opinions about what constitutes good
space and what doesn’t, and a committee can
get mired in details that may not be important
to the decision maker.
I’ve had the experience where a requirement was
poorly defined by a committee and not consistent
with the wishes of the decision maker. The
committee approved the terms of an offer, but,
as it turned out, while the CEO liked the space,
he didn’t like some of the terms regarding timing
and build-out the committee had approved, so
the offer had to be changed. I wish I had known
sooner that this was the dynamic at work
PAGE NO. 42
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
because I could have counteracted it. As it was,
the landlord accommodated that first change,
but as new information and requirements kept
coming from the committee, the landlord became
mistrustful and started to think that the changes
would never stop. Eventually the mistrust grew
toxic on both sides and the deal fell apart.
PAGE NO. 43
moment. Then, when new information requires
you to request a change in terms, you won’t have
used up your goodwill and created an impression
of chaos that could kill an otherwise viable deal.
7. SETTING YOUR EXPECTATIONS
To make a generalization, it’s no longer automatic
to assume that if the broader economy is faltering,
the real estate market in New York will swing
down dramatically as well. During the “Great
Recession,” from 2008 to 2010, office space got
cheaper, but not cheaper than it was in 2005.
A group of people may be good at deciding
the details of laying out the space, but more
often than not they will muddy the waters in a
negotiation.
Define your needs as clearly as possible with
the information you have now. The first offer
to a landlord is a powerful moment. A new
relationship is being formed. Even though the
details are memorialized in a lease, what you’re
entering into is really a relationship between
people. Every communication is important to
forging that relationship, and you should strive
not to appear capricious.
Just to give you a little history, after 9/11 the
market crumbled and New York experienced
a wave of bankruptcies leading to a dramatic
rise in vacancies. This was followed by two or
three years of robust but rational growth. Prices
started to inflate in 2006 and continued to inflate
all through 2007. That period saw the fastest
run-up in prices in anybody's memory. There
were people who had been in the business for
30 years who had not seen anything like it,
and everybody wondered where it would stop.
Prices hit their high point in January 2008 and
started an inexorable slide which didn’t stop until
January, 2010.7
While consistency is your ally in negotiations,
I’ve rarely had the experience where an
opening stance was perfectly consistent. Minds
change and new information leads to different
requirements. So start with what you can control,
which is your knowledge of what you want at that
7
CoStar
PAGE NO. 44
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
But the interesting thing was that prices never fell
as much as most tenants had hoped. Everyone
heard stories about the spectacular bankruptcies
of some high-profile property owners, and many
hoped all space would soon be had for a song.
Prices did drop an average of 33 percent8 which
sounds great until you understand that in the
run-up that preceded it, prices had risen an
average of 40 percent so all the loss didn’t equal
the gains made during the bubble. Why? Some
of it can be chalked up to inflation, but also, in the
wake of the Great Recession, there was no swift
landslide of companies going broke and creating
a glut of empty space. Because there were still
plenty of companies in New York City with
robust cash reserves who were able to keep the
market buoyant, the number of available spaces
rose slowly and steadily rather than in a torrent,
as in 2002.
Average rents did fall during this time, and
landlords did offer more concessions. Rents
of $140 per square foot fell by more than half.
Class B and C buildings in some neighborhoods
cut their rents much less, though. And in some
particularly fashionable neighborhoods, prices
hardly fell at all, and then only for a short period
of time.
8
CoStar
PAGE NO. 45
MY PERSONAL VIEW IS THAT NEW YORK HAS
REACHED A TIPPING POINT WITH SEVERAL
DISTINCTIVE FEATURES:
»»Typically, as industries evolved and left behind empty space,
there were opportunities to find cheap space; artists, for instance,
moving into unused warehouse space. Then other pioneering businesses would move in to take advantage of the low prices too.
Eventually the area would become more and more popular and the prices would go up, driving out the early pioneers but leaving a
more desirable neighborhood. Now the majority of that conversion is complete in Manhattan.
»»All new construction in New York is one of four types:
Residential condominiums
Hotels
Retail
Class A office space
»»With no new construction of Class B office space and no new
conversions of Class C space the market for that space will
stay supported.
»»The improved quality of life that began in the 1990’s led to immense population growth which in turn led to a resurgence
of economic activity has continued to draw capital and customers from all over the world. As long as that’s the case, the market
here will stay strong.
Two other factors played a part in supporting
prices during the recession as well. First, despite
the broader reasons for the crisis, there were
many New York City landlords who hadn’t
succumbed to the lure of cheap credit and so
entered the crisis with good cash reserves, low
debt ratios, and enough wisely chosen, rentpaying tenants to keep them afloat without
making fire-sale deals.
PAGE NO. 46
GETTING TO LEASE
SECT. 1 PLANNING THE HUNT
Another component that kept space from
getting cheaper was the fact that loss factors—
the difference between how much space a
tenant can use and the size the landlord calls a
space for marketing purposes—rose as well as
rents. In 2009, the 33-percent average drop in
price wiped out much of the dollar cost inflation
of the previous two years, but the increase in
loss factor is like a lingering hangover that isn’t
likely to go away.
My advice to tenants is to always use the
advertised size and price as a starting point.
Figure out if the space is the right size for what
you intend to do with it and proceed from
there. If you’re signing a long- term lease, hire
a space planner or architect to make sure your
business fits into the usable space. They’ll be
able to help define the “program” or list of your
requirements and then perhaps do a test fit of
all your furniture to see if everything works.
As of this writing, rents have risen in some areas
of Manhattan to historically high levels. Union
Square, Flatiron, and SoHo have never been more
expensive. This is mostly due to the fact that
so many technology start-ups want to be there.
Plaza District and Grand Central are starting
to recover their 2007 heights. Nicely built
PAGE NO. 47
space that’s well configured is renting quickly
everywhere. If you’re looking during a landlord’s
market, you’ll be best served by planning ahead
and allotting plenty of time. Space that needs
to be built lingers on the market the longest, so
a good strategy is to look for a space that may
have good overall structure that can be changed
to your specifications. Taking a longer-term view
opens up your options considerably.
Another strategy is to expand your horizons.
Other areas may be more desirable than you
first suspected and on closer examination of your
needs may not be the handicap you once thought.
A third strategy is to simply wait and be poised
to pounce when something good comes along.
Right now, good space in the Flatiron district
between 3,000 and 5,000 square feet and
priced below $50 per square foot rents within
a week of coming on the market. If you’re the
company ready to rush in, you may get it.
Just remember, this is a market and exactly what
you want may or may not be in stock at any given
time. But with the right amount of flexibility and
a devoted search, New York City will give it up
every time.
PAGE NO. 48
GETTING TO LEASE
LOSS FACTOR
Loss factor as practiced in New York City is a means of keeping
the advertised dollar cost per square foot of a space low.
It’s exactly the same as what happened to other product
packaging. You used to be able to buy coffee in one pound cans,
and people got used to the familiar size and shape of the can.
Sometime in the past, a coffee can started to hold only 15 ounces
of coffee, though the price remained the same. And although
it was stated clearly on the can, most consumers didn’t register
this as a 6.25-percent price increase, even though it was.
This practice has been a part of our consumer society as long
as there’s been packaging. One of my earliest memories of my
father’s working life was him telling me that his company was
designing a package for a Sara Lee Pound Cake that was less
than a pound. Eventually, the price of coffee rose too much to
disguise through skinny packaging and not only did the cans
get smaller, but the price rose, too.
Some amount of loss factor is perfectly understandable. New
York City is a vertical city with elevators, sometimes a lot of them,
and thick walls with thick supporting columns. A floor that has
been divided into several units will have hallways and common
bathrooms. It’s reasonable to expect landlords to include some
ratio of that in their space calculations.
But as it is practiced in 2013 in New York City, the concept of loss
factor has stopped having a rational basis and is simply a way
of raising the rent without raising the rent. Today you will find
buildings with loss factors that approach 50 percent.
The latest run-up started in 2006. That year rents started their
astonishing rise, which reached a 40-percent increase by the
end of 2007. But what got little or no press attention at the
time was the simultaneous rise in loss factors. Buildings that
are actually 100 feet x 100 feet (10,000 square feet) suddenly
SECT. 1 PLANNING THE HUNT
PAGE NO. 49
had floors of 12,000 rentable square feet. This also became
known as the “market adjustment,” and its pervasiveness was
justified in the industry by the fact that since everybody was
doing it, then everybody had to do it. There’s some validity to
this argument because based on first impressions, just like the
can of coffee, when a tenant looks at two spaces, one priced at
$42 per foot for 10,000 square feet and one priced at $35 for
12,000 square feet, the second space seems like a better deal,
until, on closer examination, the actual usable area might be
exactly the same for exactly the same rent per year.
PAGE NO. 186
GETTING TO LEASE
NEW YORK CITY HAS OVER HALF A BILLION
SQUARE FEET OF OFFICE SPACE. SO HOW DO
YOU FIND THE OFFICE THAT IS RIGHT FOR YOU?
THEN, ONCE YOU FIND IT WHAT WILL A
LANDLORD EXPECT FROM YOU? AND WHAT
CAN YOU EXPECT FROM A LANDLORD?
For all the dizzying possibilities, there is no shortage of people with advice and
opinions about how to approach New York City leasing. But how will you know
that the advice you’re getting is real, actionable, and useful? The answers can
be found in Getting to Lease.
Getting to Lease is a comprehensive guide to leasing office space
in New York City. It’s all here:
»»Search guidelines outlined
»»Financial terms simplified
»»Negotiating strategies planned
»»Lease conditions clarified
»»Construction variations detailed
Everything you need to know about finding and leasing office space
is here in one concise guide.
MICHAEL PINNEY HAS 16 YEARS OF COMMERCIAL REAL ESTATE
EXPERIENCE. AS BOTH A TENA NT A ND A BROKER HE HAS
NEGOTIATED FOR HUNDREDS OF THOUSANDS OF SQUARE
FEET OF SPACE WORTH MILLIONS OF DOLLARS IN RENTALS
AND SALES. HE HAS ALSO SUPERVISED CONSTRUCTION WORTH
MILLIONS OF DOLLARS.
MIKE IS A NEW YORK STATE LICENSED REAL ESTATE
SALESPERSON WITH THE SPECIALTY OF REPRESENTING
TENANTS SEARCHING FOR OFFICE SPACE.