When you begin to think about the numbers it’ll take to build the office space of your dreams in your newly leased space, you must first figure out what kind of space you’re aiming for, as well as know what kind of lease you have signed. Let us break it down for you:

1) Negotiating with your landlord. The build out of a commercial space is a key point that is negotiated between the tenant’s real estate broker and the landlord. Manhattan landlords approach improvements to tenant’s space in various manners. Here are some of the ways your landlord might approach your build out:

• A new building installation (NBI) based on the tenant’s architectural plans. Landlords use building standard materials and finishes when they provide new building installations. If the tenant requires that above standard materials or finishes be used, the tenant is responsible for paying for the difference in cost between building standard and upgraded materials and/or finishes.
• A work letter reimbursing the tenant for the cost of construction. The tenant is allowed to hire their own licensed and insured architect and contractor to build out their own space. The landlord then reimburses the tenant. A cap based on a dollar amount spent per square foot is put on the reimbursement.
• Free rent in lieu of construction. Generally, the longer the term of the lease the greater the amount of free rent.
• A combination of free rent and a work letter.
• Offer modest improvements to the existing space. These modifications generally entail, paint, carpet and some cosmetic changes.
• Rent the existing space in “as is” condition.

Obviously, the more you want to do to the space, the more money you’re looking at – but often, this won’t be coming directly out of your pocket.

2) Union Buildings vs. Non-Union Buildings. Most of the big, nice and well-respected buildings in New York are union buildings – when you build out in a union building, you work with union contractors and union electricians, etc. Less fancy buildings, such as a small office building in Soho, are generally non-union buildings. Here, you’re not required to utilize union workers for your build out.
What’s the difference?

• Union building build outs cost twice as much as non-union building build outs.
• For example, a union carpenter costs $50/hr to a non-union carpenter’s $25/hr

3) Plain Vanilla Spaces vs. Sexy Spaces. There’s a price difference between what the industry calls a “plain vanilla” (read: builder’s beige) space and a sexy, colorful space.

• Plain vanilla spaces always cost less. For these spaces, you’re looking at $75-$100 per rentable square foot in a union building. In a non-union building, a plan vanilla space build out can go for as low as $40-$60 per rentable square foot.
• Sexy, colorful and more visually intriguing (read: more work to be done) spaces will cost you double that. In a union building, you’re looking at anywhere from $150-$200 per rentable square foot; in a non-union building, a bit less.

4) Office Furniture. Once your space is built, it’s time to think furniture. We’ve created the handy dandy chart for you to utilize below to calculate how much your office furniture will cost. Calculations are based on a density of 200 sq/ft per person and a mix of 20% private office and 80% open office cubicles.

Furniture Quality Level / Price Per Square Foot / Total Cost

A level furnishings / $25.00 x ____SF
B level furnishings / $20.00 x ____SF
C level furnishings / $10.00 x ____SF

This is just to get your started.  For more in-depth information, fill out the form below!

Given that most commercial real estate leases are upwards of 70 pages long, it’s easy to miss a few details here and there. That’s why it’s generally advised that you hire a tenant representative broker, as he/she will be trained to look out for the important parts of the legal jargon. However, whether you’re planning on utilizing the services of a tenant representative or not, there are a few hidden costs you should keep your eyes out for when scanning your new lease.

1. Electricity: Make sure you read the fine print when it comes to electricity in your new office space, because all contracts are written to try and confuse tenants (this works in the landlord’s favor). If you’re not careful, the number that you’re quoted could go up as much as 100% in a 5 year period. For example, on the day you move in, you could be paying $3.50/square foot for a 5,000 square foot space. This adds up to $20,000 a year for electricity. However, in most cases, landlords have clauses written into their leases that allow them to “survey” your space and then up your rate.

• A common practice is for the landlord to send in an electrical surveyor who will look at all your office equipment and make calculations presuming that everything is running full tilt 24/7.  This trick is called assessing electrical usage based on “connected load” as opposed to “demand load” or what you actually use.
• So even though you’re starting out at just $3.50/square foot, you could easily be forced to pay significantly more as early as the second month of your lease.

2. Freight Elevator Time: When you move into your new building, you can’t just lug those desks up the normal passenger elevator. You’re required to use the freight elevator, and unfortunately, this happens after business hours. This means that any moving has to be done after 5PM or on weekends. If you’re not careful, your landlord may charge you for the usage of the freight elevator, as well as for a union guard to be present.

• You could be looking at $500/hour to move in, and considering that moving an entire office space is going to take many hours, usage of the elevator quickly adds up.
• Tenants often don’t think they can negotiate the price or usage of the freight elevator. You heard it here first: you can negotiate just about anything. Make sure you talk to your landlord about using the freight elevator and perhaps, not being charged for doing so.

3. Light bulbs/Miscellaneous Maintenance: If you don’t read your lease carefully, your landlord might just include a cause that dictates that only their workers can change the light bulbs in your office space. That means they could potentially charge you $100 every time a light burns out. It sounds ridiculous, but if you don’t have it written into your lease that you, as the tenant, have the ability to change your own light bulbs, you’re looking at racking up them dollar signs pretty quickly.

4. Real Estate Taxes: We’ve touched on this before, but it’s of utmost importance to figure out how the real estate taxes in your building are being billed. You need to understand what will happen to you and your rent if the taxes of your building go out, and how those sorts of figures are calculated.

• In short, what is fair is that you pay a proportionate share of the real estate taxes above a base year.  What does this mean?  Let’s say the total real estate tax on a building this year is $1,000 and you have one of ten floors (10%).  Your base year should be equivalent to $1,000.
• In year 1, you don’t pay anything (remember you only pay your share above the base).  The next year the total real estate taxes go up $100 to $1,100.  You are responsible for 10% of the $100 increase or ten bucks.  Of course it’s impossible to know for sure what taxes will be going forward.  A reasonable estimate of what it will actually cost you (in NYC) is 35 cents per year starting in year two.

5. Preexisting Condition Clause: Most leases have a clause that states that when you move out of your office space, you must deliver it back to the landlord in its preexisting condition. That means all those walls you paid to put up must come down. All that specific task lighting you had installed must be uninstalled. That vibrant paint must be returned to builder’s beige. These sorts of expenses are negotiable, but don’t count them out – the more work you do, the more you could be paying to undo in the coming years.

In short, make sure you or your tenant representative broker read every last word of that lease, because if you’re not careful, you’ll end up paying out the ear for things you didn’t anticipate paying a dime for.

Back when the market was good, price per square foot wasn’t nearly as negotiable as it is now. What with the economy being pretty beat up, landlords are eager and sometimes desperate to fill their buildings – often at a much lower price than they would have offered a few years ago. In NYC for example, prices have dropped over 40% in the last 18 months.  Commercial space is usually priced by the square foot and figured by the year; $20 a square foot, for example, means $20 per square foot per year. Though it’s less likely, space is sometimes priced by the month; $1.60 a square foot would mean $1.60 per square foot per month, or $18 a square foot figured yearly. Either way, it’s sensible to check out rates for comparable spaces and ask for a reduction.

v Your negotiating power depends on whether your local rental market is hot or cold. If plenty of commercial space is available, you can probably win many landlord concessions. If your area’s rental market is tight or you are after a unique space, you’ll have considerably less leverage.

v Tenants are looking at potentially negotiating a savings of up to 20% off of the asking price, and in some cases, even more. Whether you’re considering a new lease, or renewing your current one, you definitely have wiggle room. If you’ve got a tenant representative broker on your side, you’ll do even better. Negotiating is part of the game, especially when you’re playing multiple buildings against one another.

v The more “must haves” you require, the less negotiating room you have. Know what you’d like versus what you must have – views are nice, but does it have to be of Central Park from every window? The smaller your list of “must-haves” is, the more negotiating power you’ll have.

v  Know what concessions landlords are giving in other spaces or buildings similar to the one you’re looking at.  For example, if a landlord is offering a full build out worth $50/s.f. and you can live with the existing condition of the build out, ask for that $50/s.f. in additional free rent.  You might just get it.

v It costs a lot of money for a landlord to lose an existing tenant.  What’s a lot?  12-18 months of lost rental revenue.  Sometimes more.  When tenants fully understand their value to a landlord, they get more concessions.  Often a lot more.

The lessons to be learned here:

• In this market, if you’re renewing a lease or looking for a new one, the odds are in your favor more than you think. Hire a tenant representative and a good commercial real estate attorney, and start saving money.
• The concept of negotiating price per square foot is entirely dependent on the market. Right now, the odds are in the favor of the tenant thanks to the recession, but it wasn’t like this before and it’s likely that it won’t stay like this forever. Take advantage of your negotiation opportunities while you can!

As with almost anything in life, there are the expert opinions, and then there is what you decide to do. Ultimately, how long you decide to sign a lease for is, of course, up to you. This being said, there are many things to consider when you begin to figure out how long you’d like your lease term to be. Here’s what you should know.

Landlords like long leases. This is because they have mortgages that they’re continually refinancing. When they go to refinance their buildings, one of the key things that a lender looks for is stability in the tenant roster. The longer the leases in the building the better the terms a Landlord can generally garner. Based on this Landlords generally demand a 3 year minimum lease and often times are requesting a 5 to 7 year minimum.  It’s rare to find a 1-or 2 year lease. Most leases range from 5 to 10 years.

The length of the lease you end up with can have a substantive impact on your business. We mention this because an office lease is generally the second largest fixed expense a business has after payroll. If you are a mature company and you don’t intend to grow employee wise significantly, sign a long term lease.  If you anticipate a good deal of growth, try to negotiate expansion options or an out clause if you grow.

-       As a tenant, you have to understand where you’re going and do some planning for the future. If you’re signing a 5 or a 10 year lease, you want to anticipate growth and to the greatest extent possible build in space options to protect you into the future.

-       These are ultimately impossible questions to answer, but statistically speaking, 70% of all tenants that sign 10 year lease in any market end their lease below what the current market will bear.

There’s no one right answer, but you need to think about where your company is headed.

PROS

• Plug and play – executive suites offer the ultimate flexibility
• Receptionist available
• Internet and phone set up for you
• Desks, bookshelves and other furniture already there
• Conference rooms available to you
• Interaction with other small business people
• IT people on call
• All expenses built into the rent
• Built in networking
• No commitment needed, no long lease to sign
• One month leases available
• Easy to move if business is bought or grows quickly

CONS

• Nothing actually belongs to you
• No choice of furniture, phone company, internet, etc.
• Receptionist also works for other clients in the space
• Expensive rent – the landlord is renting space, chopping it up, and then charging a higher price for it
• Long term leases generally not available
• You don’t work with your own people to fix things – the operator of the facility has their people and you have to do things on their timeline
• Lots of people around means shared conference rooms that are fist come first serve.

What is a green lease?

A green lease is a lease that is modified to:

-       remove disincentives to reduce energy, water and raw material consumption

-       increase recycling and use of sustainable materials in tenant build-out

-       creates incentives for the implementation of sustainable practices by both landlord and tenant

-       communicates shared environmental standards and goals

-       allocates responsibility to ensure that identified goals will be met by both parties

Because green leases are a relatively new concept, there’s no “one size fits all” green lease. However, you can rest on the following laurels – for a green lease to be effective, it must incorporate specific green goals and outline mechanisms for measuring performance to assure that the goals are met both initially and continue to be met throughout the term of the lease. It should also provide for allocation of costs for achieving the sustainability standards identified by the tenant and the landlord, offer appropriate remedies if one of the parties does not sustain his end of the deal, and take an integrated and holistic approach to the green process.

Why Landlords Resist Green Leases

Unfortunately, retrofitting old buildings to make them sustainable and incorporating green practices into a lease is expensive – which is why landlords don’t like to go green, even if it’s something they believe in. Some reasons why you might encounter resistance to a green lease are unfamiliarity with green concepts and fear of how much they’ll cost, lack of capital to make the changes required to go green, restrictions built into existing leases and indifferent or resistant tenants. Remember that there are other tenants in the building – and that they, just like the landlord, might not want to pay what it takes to go green. Your fellow tenants are probably worried about the costs to them if you push the landlord to go green – will the changes be at their expense? They too may be unfamiliar with green concepts – they might not know that LEED certification can be obtained for an entire building or on a stand-alone basis.

Feeling overwhelmed? Click here to download a PowerPoint presentation that details the process of green leasing, created by Louise C. Adamson, a LEED certified real estate attorney with K & L Gates.

Generally speaking, the high profile and more expensive buildings in New York won’t allow medical tenants. Others will allow dentists and therapists, but draw the line at anything that involves blood. Because medical tenants are not as sought after as your typical law or investment firm you’ll need to find medical space in the less high profile and more offbeat buildings. Unfortunately, this doesn’t necessarily mean that those looking for medical space will get cheap rent – on the contrary, because there’s a demand for medical spaces and not so much supply (what with the limited supply of buildings and the increased build-out costs), the rates can be higher than a typical office tenant would pay.

Here are a few things you should know:

• When a landlord is willing to accept medical tenants, he’s pretty much guaranteeing himself tenants and higher rents. Medical tenants tend to clump together, as this makes for easier referrals, and since landlords know this, they can artificially inflate their rent prices.
• Landlords may opt not to have medical tenants because of the amount of upkeep they cause. Medical offices mean a lot of foot traffic, higher build-out costs, clogged elevators, and more cleaning to be done. Many landlords don’t want the added trouble.
• As stated above, a lot of landlords don’t take medical tenants but a good broker will know who does and who doesn’t and will be able to navigate this on your behalf. Thanks to the current economic landscape, more landlords are opening themselves up to medical tenants just to fill their buildings. Three years ago, when the market was at a high, it was much harder to find a landlord willing to take in medical tenants.
• Many medical people would prefer to own their own spaces. Unfortunately, 99% of commercial real estate in Manhattan is not for sale! Doctors love commercial condos but they can be very expensive.

What it comes down to is this: if you’re looking to rent medical space, find yourself a top-notch tenant representative real estate broker as looking for medical space can be a challenge.

1. 4 Times Square – Known as the Condé Nast Building, 4 Times Square is an eco-friendly modern skyscraper in Midtown. The major office space tenants in 4 Times Square are composed of Condé and Skadden, Arps, the wealthiest law firm in the United States. The building stretches 48 stories high, making it the 12^th tallest building in New York City.

2. 825 Eighth Avenue – Also known as One Worldwide Plaza, 825 Eighth Avenue is part of a three-building, mixed-use commercial and residential complex. One Worldwide Plaza is the commercial component, stretching 49 stories high. The building has three separate entrances meant to accommodate the various commercial tenants in the building, which formerly included international advertising agency Ogilvy & Mather. Currently, 825 Eighth Avenue is home to the law firm of Cravath, Swaine and Moore, who occupy 600,000 square feet of space.

3. 1155 Avenue of the Americas – Home to the North American offices of law firm White & Case, 1155 Avenue of the Americas is a 40-story skyscraper designed by Emery Roth. It’s home to 400 White & Case lawyers, and it’s been the home of the firm for many years.

4. 450 Lexington Avenue – Home to law firm Davis Polk, 450 Lexington Avenue stretches above Grand Central Terminal, boasting 40 stories. Built over the historic Grand Central Station Post Office, the building makes a strong statement on an important Midtown Manhattan site while still remaining true to the architectural details of its base. Davis Polk currently leases 650,000 square feet at 450 Lexington Avenue.

5. 140 Broadway – Of course, you cannot neglect downtown Manhattan, where the space is cheap and the views are just so-so. Located between Liberty and Cedar Streets in the Financial District, 140 Broadway is a 52 story, 1.2 million square foot office space tower. Law firm Chang & Boos currently calls 140 Broadway home.