A business that’s been operating in a particular location for 5 years, 10 years, knows whether that space works for them or not. In some cases, there are factors that “if only” they could be changed in such-and-such way, it would be the perfect space. In other cases, that sentiment is more like “if only we’d known!” The difference between these two can be the difference between a decision to renew the existing lease, or to seek a new location altogether.
With hundreds and hundreds of transactions behind us, there have been many cases in which we’ve helped tenants – our customers – in analyzing the pros and cons of each scenario. It’s not always a cut and dried decision; sometimes when current market considerations, tax incentives, etc., are added into the mix, a surprising result emerges.
While many of the previously outllined steps appear to apply to relocation more than to renewal, it’s important for our customers to understand the full set of parameters that can affect the financial soundness of their decision. For this reason, we like to enter into every transaction with some open-endedness on this subject, to make sure we’re covering all the bases. Our intent is to leave no stone unturned in pursuit of the best solution for your business.
It can often take 8-10 months to successfully place a company into new space, starting from initial research, and moving through final selection, negotiation, build-out and move. With the turbulence we’ve been seeing recently in the real estate market, it’s especially important to allow plenty of time for a successful search and relocation to be completed in as much a stress-free manner as possible. Being up against the wall, with a lease ending before the new space is ready, is not a place you want to be!
When your lease is about to expire, it may seem the easiest course to simply renew your lease on your own if you’re happy with where you are. But there are some compelling reasons why you should still work with a broker. Not doing so could cost you a great deal.
Leverage – Once you tell the landlord you want to renew, you are basically saying “I want to stay in your building and am not looking elsewhere.” This removes a good portion of your bargaining leverage.
Market – How can you be assured of the best deal if you don’t have anything to compare it to? When you don’t use a broker, you lose out on that valuable information.
Concessions – Most tenants think that it’s all about the price and do not realize that they are owed free rent and cash. They forget that if they leave, the landlord will have to come out of pocket for a new tenant, with potentially considerable downtime. The broker’s job is to determine the right kinds and amounts of concessions to ask for. Not doing this is the single biggest mistake tenants can make.
New Real Estate Laws – There might be a new law that could come up down the road that tenants do not know about. If they are not protected, it can cost them thousands or even ten of thousands of dollars. For example, starting in 2019, all NYC office space must be sprinklered. This should be negotiated so that the landlord will cover the costs.
Changes in the building – Over the course of the tenant’s occupancy, a new owner could come on board and change aspects of the building for better or worse. For Example, 60 East 42nd street used to run on a CPI escalation with no cap. It now runs on a Direct Operating escalation, which is much better for the tenant. The tenant most likely would not know to ask for this.
Niceness doesn’t matter – As nice as the landlord may be, and as good a relationship you may have, you are still a piece of income to him. Tenants often assume that they are getting special treatment because of their many years in a building. Often, nothing could be further from the truth.
Protection of your interests – Most landlords hire an agent to represent their interest. It helps to level the playing field if you have someone represent yours as well.
Note that a typical renewal project takes substantially less time than a relocation. Here’s a typical timeline.
However, as with any project involving considerable cost and a certain amount of risk, you should allow plenty of time to consider all options before determining that renewal is the best course of action. While renewal often seems to be the least-impactful solution, when all the costs and benefits are weighed over, say, a ten year period, it can sometimes be worth biting the bullet now, in exchange for the long term benefits of moving.
Taken together, all of these parameters can be intimidating. WIthout careful analysis and controls in place, a missed opportunity can cost considerable advantage. Carrying out this kind of project is our entire reason for being. It should go without saying that you need to be well-represented when meeting with New York City landlords! Remember that our services don’t cost you, the tenant, anything. Norman Bobrow & Company is paid by building ownership to bring them quality – and qualified – tenants. Nobody wants a surprise down the road. When you work with us, you’ll know – and the landlord will know – what you’re getting into. And what that will be is the best location possible, with the best financial terms, in support of your business objectives.