Leasing NYC: The Insider's Guide to Leasing Office Space in Manhattan

By Gregg Lorberbaum

New York, NY

• Language: English
• Publisher: Greenleaf Book Group
• Release date: Mar 15, 2013
• ISBN: 9781608324392

Book preview

NYC

Preface: You Don’t Know What You Don’t Know About Leasing Office Space in Manhattan

On my way to a business meeting recently, I was in an elevator that got stuck between floors for a few minutes—which seemed, at the time, like an eternity. There were four of us in there, awaiting our freedom. After an awkward silence, a voice via the intercom announced that we would soon be rescued. Now that the situation was under control, two of the people began having a conversation as if the rest of us weren’t mere inches away. I always thought that discussing confidential information in elevators was unwise, but it seemed these two hedge fund managers couldn’t care less about divulging business details in front of strangers in close quarters. They started talking freely about the office leases they had just signed, even chatting casually about what they were paying per square foot for the space. And there I was, the proverbial fly on the wall.

As it turned out, I was quite familiar with virtually all the specifics of both of their deals because I was friendly with both brokers handling their transactions. I made a mental note to check with our deal comps database, which tracks the actual taking terms of recently negotiated transactions. (This information is not public, and one of the benefits of having strong industry relationships is access to this type of information.) When I got back to my office, I found that both deals had been negotiated at the same time for substantially similar space in the same building. Each of the tenants had committed to ten-year transactions. Yet when I did some calculations, I found that over the life of the lease, one of them had a 33 percent larger all-in cost of occupancy than the other. Ironically, the manager who was a little boastful about his deal was the one who was paying so much more. Factoring in the all-in costs, he was actually paying over $3 million more than his friend over the term, for a nearly identical space.

That elevator conversation was the genesis for this book—in essence, to help you not be that person who overpays for lease space. In this book, I offer you the benefit of my nearly thirty years of experience in New York commercial real estate as a tenant representative. (I believe there is inherent conflict in trying to serve two masters, and I have chosen to devote my career exclusively to serving the needs of you, the tenant, rather than the landlord.)

My career in commercial real estate began nearly three decades ago. I started as a junior broker with Friedman Realty Group, a boutique tenant representative firm. I am indebted to Peter Friedman and Jeff Lichtenberg for the opportunity they afforded me many years ago.

In 1996, I was honored when I was selected, along with my partners Patrick Robinson and Peter Hennessy, to become one of the founders and owners of the Staubach Company’s New York office. In this role, I was charged with building the office, providing transaction oversight to key clients, and creating and overseeing the firm’s consulting department. During my tenure, Staubach experienced substantial growth and market penetration. Staubach’s Manhattan office began with three full-time staffers and, after growing to nearly fifty people, was subsequently sold to Jones Lang LaSalle.

It was a wonderful experience to work with Roger Staubach, who personifies individual and corporate integrity. It was through Roger that I came to realize the importance of collaboration and that teams outperform individuals. Roger won the Heisman Trophy in 1963 and, after graduation, served his country in Vietnam. Beginning his NFL career as a twenty-seven-year-old rookie, Roger went on to earn two Super Bowl rings and a place in the Pro Football Hall of Fame. If you ever ask Roger about any of his accomplishments or what it was like to win a Super Bowl, he will quickly correct you and say it was not him but rather the team that was responsible for the victory.

In my current role as founder of Centric Real Estate Advisors, I work with tenants and their transaction teams every day in all aspects of the leasing life cycle, from concept to execution. Over my career, I’ve been involved in over fifteen million square feet of office leasing transactions, approaching one billion dollars in transaction value. In this book, I distill the key lessons from my career, to help ensure that your leasing experience is as smooth as it can be and rewarding for you and your business.

Readers and authors have expectations of each other, and it’s best to make those clear. As a reader, you should expect this book to be worth your time. As an author, I expect that you are an unusually busy person whose time is at a premium. If you’re like me, you will probably flip quickly through the book, then turn to the conclusion to see whether the book is worth investing your time reading. Knowing this, I have structured the book to be as useful to you as possible. At the end of each chapter, the key takeaways are summarized. In the conclusion, you will find these key points compiled so that you can absorb them quickly.

My hope is that you will browse through these points and decide that there is far too much information in this book for you not to read it—or have someone else (probably your internal project manager) read it on your behalf.

Gregg Lorberbaum

New York, New York, 2012

Introduction

The New York commercial real estate market is among the most challenging in the world. Of course, New York is also one of the world’s most exciting and rewarding places to do business, and the city is full of beautiful and inspiring commercial office buildings that are home to a wide variety of world-class businesses. This book provides you step-by-step guidance through the entire leasing process—from defining your needs to negotiating your lease to moving into your new space. Throughout, I’ll help you understand the risks and opportunities and help you avoid the many pitfalls that commercial leasing can pose.

To a hammer, everything is a nail. Perhaps as a real estate broker I make too much noise about office space, but most working people I know have, at some point in their careers, spent more time in their office than at home. The office environment matters to the people who work there, and because of that, it matters to me.

Leasing office space has a profound and wide-reaching impact on your business. The cost of a commercial lease can be enormous. In fact, in a privately held business, the cost of office space is likely to be by far the largest fixed expense you will incur. Employee compensation is probably your only other comparable expense. Apart from key personnel who have long-term contracts, the majority of your staff is likely employed through at-will contracts, meaning that staff changes can be made easily to reduce operating overhead if necessary. This is certainly not the case with your office lease, which remains a large fixed cost throughout the term your company occupies the space.

But your office lease has a much greater impact on your business than just its cost. Your office space provides the backdrop for your corporate culture to unfold. It impacts the relationship among various levels of management and contributes to the corporate psychology, as experienced by you and your coworkers alike.

Your office space creates the first impression your business offers—to your employees, your customers, and your vendors. This image is shaped by the neighborhood that you choose to occupy, the space and the specific building, and the other tenants that are there.

In addition, the layout and aesthetic design of your office space affects the way employees relate to one another. For instance, an open floor plan fosters different relationships than an office with a series of small, enclosed spaces. A space that is multipurpose in its design—with a few folding walls, a reception area, and a conference room—can be turned into a space for large company functions, gatherings, etc. If you understand how the configuration of space can affect the work your employees do, then you’re better equipped to select and design an office space where they will thrive.

Where someone sits in an office can significantly impact their productivity, self-esteem, and job satisfaction. When spouses attend company functions, often the first thing they will do is to compare the size and location of people’s offices. If there is an inconsistency between someone’s perceived importance to the company and their office stature, disappointment and negative feelings can be the result. It speaks to the human condition, but you as an owner already know this. The point being that space—and size—matters. These intangible considerations should all be taken into account as you plan and search for office space.

No other decision has a greater impact on your business while—at the same time—is so difficult to get your arms around. The purpose of this book is to help demystify the process and enable you to make the right decisions for your business. My hope is that by sharing some of the lessons I’ve learned in commercial office leasing, I can help make your office transaction successful.

I have worked on hundreds of transactions and have developed a strong technical background and expertise involving the legal, construction, engineering, and operational issues of office leasing transactions. In this book, I offer you the lessons and insights from my many years in the trenches of the New York City market.

WHO SHOULD READ THIS BOOK

This book is written for the owners and designated internal project team leaders (CFOs, GCs, heads of facilities, etc.) of New York City–based businesses. More specifically, the purpose of this book is to assist businesses that lease space approximately every five to ten years and whose owners and managers are personally impacted by the cost of the lease. My goal is to help you increase the productivity, morale, and profits of your business by reducing the all-in costs of leasing your office space.

The way you navigate the process of securing office space has a significant impact on you as a business owner, and that impact is far greater than the price you pay for your space. Done well, an office relocation can invigorate your company. Done poorly, it can have a detrimental impact on your employees and company morale, and can place your company at a competitive disadvantage within your industry.

While this book offers insights that apply to virtually all office markets, its specific focus is on leasing office space in New York City, particularly Manhattan. A Manhattan office space acts as a backdrop to the drama of commercial enterprise that unfolds each day. As the song says, If you can make it here, you can make it anywhere. The Manhattan office leasing market includes almost 360 million square feet of office space and represents the world’s most vibrant and eclectic place to do business. More Fortune 500 companies have their headquarters in New York than anywhere else, over twice as many as the next city on the list. New York was rated the number one most successful city in 2011 by PricewaterhouseCoopers. New York is a fashion capital of the world and home to the United Nations.

In this twenty-three-square-mile space you’ll find some of the greatest restaurants, medical institutions, museums, and cultural centers in the world. New York has more completed skyscrapers than any city in the world besides Hong Kong. New York is the most densely populated major city and is home to the world’s largest public transit system, with 6,374.6 miles of streets. It is also the world’s most linguistically diverse city, with over eight hundred languages spoken. Approximately 50.2 million tourists visited New York in 2011 (a record-breaking number) and spent $32 billion dollars. Hotel occupancy was at 90 percent for the year. New York is a world leader in education, from Columbia University to Juilliard to the Fashion Institute of Technology to NYU to the School of Visual Arts. New York has become a hub for technology companies. Over 40,000 location shoots take place in New York each year. The New York City Marathon is the largest such event in the world. There is simply no other place like Manhattan.

As varied as the New York scene can be, almost all New York businesses have one thing in common—the desire and the need to be where all the action is. Your Manhattan office is the stage where you as a business owner will likely spend more time than anywhere else. It’s my job to help you find a space where your employees and business will thrive.

Done well, an office relocation can invigorate your company. Done poorly, it can have a detrimental impact on your employees and company morale, and can place your company at a competitive disadvantage within your industry.

Before we get started, I think it’s important to note that the purpose of this book is to help you, not to hurt anyone else. This book is not a guide to help you out-smart or trick the landlord. The world of commercial office leasing in New York can be competitive and stressful, and it’s easy to begin to think that others are out to take advantage of you during the negotiation. It has been my experience that this is not the case. The landlord and brokerage community in New York City is one of the finest in the world, and my experience is that it comprises reasonable professionals who are not trying to cheat you.

I’ve found that when you assume the best in other people, that’s what you get back, and that is the principle that guides this book. My aim here is to arm you with as much insight and information as possible, not to help you get one over on the other guy. If you’re well informed and know what to look for, your decisions and negotiations will be more rewarding and more successful. Ultimately, the torque is achieved through maximizing leverage as you effectively position landlords to bid for your tenancy through a negotiation process that unfolds literally hundreds of times each day in our great city.

A Manhattan office space acts as a backdrop to the drama of commercial enterprise that unfolds each day.

A STUDY IN INSPIRATION

This book includes nine case studies illustrating the results of my collaborative work with clients, and I am grateful to these clients for permission to share them with