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FAQ and Things To Know.
NO SURPRISES...

New York Commercial Real Estate is a dynamic and often confusing marketplace, with a unique set of conventions and laws. As Tenant Representatives, we dislike surprises as much as you do, and we take pride in helping you fully understand these conventions and the many details associated with NY leases.

Included below are a few key concepts that you, as a prosepective tenant, should be aware of from the outset.

► Rentable Square Footage (RSF) vs. Usable Square Footage (USF).

► Additional Rents and Other Costs: Escalations and Real Estate Taxes.

► The Lease Is A Binding Contract: Sublet and Assignment and the Good-Guy Guarantee.

► Foreign Businesses, Financial Records and Start-ups.

► What is The Difference Between "Asking" Rent and "Taking" Rent?

► Why Use a Tenant Broker?

► Should I Work With Several Brokers?





► Rentable Square Footage (RSF) vs. Usable Square Footage (USF).



You will encounter one of the most difficult aspects of commercial RE when you measure a space only to find it smaller than that advertised. This difference is called Loss factor and exists to a greater or lesser degree in every single space you will see in New York.

Below are the accepted definitions and conditions by NYS Dept of State for Rentable vs. Usable square footage, for your information. The source is the Real Estate Board of New York (REBNY):

Rentable Area

In New York, commercial property rents are calculated on an annual basis per square foot of space rented. In deriving the annual base rent amount, the property owner calculates the space's rentable area. Rentable area is the total area or square footage of a floor or unit of space in an office building (as determined by the property owner) to be used for the purposes of calculating the annual rent. It is this square footage that a tenant pays rent on. It is a square-foot figure based on a full-floor tenancy.

The formula for calculating the rentable area on any given space will vary depending on the method of measurement used. For example, New York City uses both the Real Estate Board of New York (REBNY) guidelines for measurement as well as those of the Building Owners and Managers Association (BOMA), which are different.

To calculate the annual base rent that will be charged, the rentable area is multiplied by the dollars charged per square foot. In New York, it is customary for the dollar per square foot figure to be expressed as an annual dollar per square foot amount. By contrast, in Los Angeles, the price per square foot is quoted on a monthly basis.

There isn't a regulation or law that governs rentable area calculations in New York. Outside of guidelines that are provided to their members by local boards such as the REBNY or associations such as BOMA, it is an arbitrary calculation that is made on the part of the property owner. This calculation often becomes the subject of controversy in negotiations with tenants. The rentable area of any space within an office building usually includes a proportionate share of non-income-producing spaces such as the entrance lobby, building common areas, and mechanical floors or spaces. Therefore, in actuality, the tenant pays rent based on square footage that is greater than the interior square footage that the tenant actually makes use of.

A rentable measurement guideline might be the following: area measured to the inside finished surface of the outer building walls, to exclude vertical penetrations (i.e., stairs, elevator shafts, etc.) of the floor.

Loss Factor

In square footage terms, the difference between the rentable area and the actual interior space measurement is called the loss factor. The loss factor, which is commonly expressed as a percentage, is defined as the difference between the usable area (discussed next) and rentable area. In almost every city in the country, a loss factor is prevalent in commercial property space measurement. Loss factors are calculated by using the following formula:

Loss factor = (Rentable area minus Usable area) divided by Rentable area

The quotient can be expressed in either as a square footage measurement or in percentage terms.

For example, assume that the rentable area of an office space is 10,000 square feet. The usable area consists of 8,000 square feet. Calculation of the loss factor is as follows:

(10,000 rentable square feet − 8,000 usable square feet) ÷ 10,000 rentable square feet = 0.20

Thus, the loss factor expressed as a percentage is 20 percent (20% loss).

The loss factor expressed in square footage is represented by the quotient: 2,000 square feet (10,000 − 8,000).

Usable Area

Usable area is the area obtained by subtracting the loss factor from the rentable area. The concept is applied to account for the space taken up by office items such as furniture, office equipment (for example, copy machines), and personnel. Usable measurement can be calculated from the inside tenant wall (separating the common areas from the office) to the window line, but methods for establishing this figure vary.

Guidelines for measuring usable area might read: "Area measured to the inside finished surface of the permanent outer walls to the finished surface of the office side of the common areas and to the center of any partitions that separate the office from adjacent areas. No deductions are made for convectors, columns, or other space obstructions."

This space measurement variable is extremely important when evaluating space layout and is commonly used in the space planning process. The space planner bypasses the rentable area measurement in the layout process and will determine the usable area first. This helps the planner verify space use and efficiency. Usable space measurement is more important to the tenant than it is to the owner. Because of the different approaches to space measurement that exist, owners are often reluctant to represent usable area to tenants and do not volunteer loss factors.

However, as tenant brokers, we feel this is an important question to ask while we are visiting the space for the first time, if not before. While there are no truly effective ways to dispute it, and while it may seem like a "bad deal", it is, in fact, normal operating proceedure in NYC.

Therefore, instead of becoming indignant, the more important considerations are, "Is this space right for me, is the location what I need and the exposure good, and is the price right for my budget?"

We will help you determine these answers and will explain what is acceptable loss and discuss options and solutions.

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► Additional Rents and Other Costs: Escalations and Real Estate Taxes.



After you have found a space and the terms for it's lease has been fully negotiated and agreed to and the Term Sheet has been issued (a memo that specifies the terms of the various items that were negotiated and agreed upon by both parties), you (or actually, your attorney) will receive the DRAFT lease for attorney review (something we strongly recommend). Among the many items covered in the lease rider will be a section called Additional Rent, in addition to your base rent. Some of the charges may include:

Electricity, charged either by the square foot, sub-metered + an administration fee, or direct with Con-Ed
Maintenance of Fire Suppression Systems
Garbage removal
Cleaning
Security
Freight elevator charges
Porters Fees
Overtime charges for HVAC
Extermination
Water sub-metering
, among others.

Escalations are compounded percentages added to your rent each year for the term, usually around 3%, that reflect annual increases in the operating costs for the Landlord. These days, many Landlords are tying it to the C.P.I. to protect against possible future inflationary economic conditions.

Real Estate Taxes are your proportional share of any increases only, over the base amount for the year specified in your lease.

As an example: you have a 1,000 SF space and the building is 10,000 SF. Your proportional share should be 10%. In the base year that you signed the lease, taxes are $10,000 per year. They increase the following year $1,000 for the building to $11,000 per annum. 10% of $1,000 = $100 per year, your proportional share of the increase. This is just an example: taxes can be higher.

There is no reliable way to know what the tax increase will be from year to year on any given building since either the assessed value of the property can increase or the tax rate can rise, or both. But we will research and explain the building size, determine your proportional share and provide you with the tax bill for the base year, the year you sign the lease, with spreadsheets showing a range of possible increases so you have an idea of what your payments might be.

Insurance is required by all New York landlords, so this needs to be included in any business plan. It includes General Liability, Business and Umbrella Policies, among others. Monthly rates vary, so shopping around will yield the best prices. We can assist with this so please feel free to contact us anytime.

Construction Costs are a large part of the budget since spaces are usually provided as a "white" or "gray" box, or raw, or may require demolition of the previous tenant's build-out. Most construction requires a permit from the Dept. of Buildings, and only licensed architects can file those permits, so their fees need to be included. We will consult with you beforehand about these costs and provide reliable referrals to smooth the way.

Attorney Fees should also be factored in, preferably from a Manhattan attorney familiar with New York City leases. It is strongly advised to retain an attorney to review the final lease since it is a legally-binding contract.

We will explain all of these items in detail, providing you with spreadsheets of actual costs and comparable conditions for nearby buildings to make certain they are fully understood, as well as referrals to professionals we trust. These points will also be aggressively negotiated before you agree to terms and any lease drafted.

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► The Lease Is A Binding Contract: Sublet and Assignment and the Good-Guy Guarantee.



After we have explored all the options for your gallery and seen all available properties, and you have decided that one or more would work well, we submit a written offer specifiying your desired terms. This is where negotiations begin, after we receive the Landlord's counter-proposal. This is a process that can take two or three weeks, so advance planning is important if you have a deadline for opening your gallery.

The only legally binding document in this entire process is a fully executed and delivered lease, by and to both parties. Once this has happened, your lease is a legal contract that binds the parties for the term.

If for some reason the need to move arises, you will need to find another party to take over the space and lease. This is done either by sublet or assignment of the lease to a third party. In a sublet, you basically act as a sub-landlord for the space, accepting the security deposit from the new sub-tenant as a replacement for your own. In an assignment, you play less of a role and the security deposit goes to the true Landlord, who then returns yours. There are other conditions we will discuss but, in either case, the true Landlord must approve this new sub-tenant, and you are technically still responsible and liable for the master-lease.

The Good-Guy Guarantee states that in the event the tenant has to break the lease, the tenant will notify the landlord, pay their rent up until the date they vacate the space (a period often specified in the lease), vacate the space and return the keys. If, and only if the tenant does not abide by this guarantee, a principal of the tenant's organization will be held personally responsible. In this regard, it is form of limited personal guarantee. The original security deposit is forfeited.

READ MORE HERE.

This is a feature of most all NYC leases and should be expected beforehand.

There are other options open to you and we will discuss them all, even using them as bargaining chips, making certain that you receive the best possible terms.

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► Foreign Businesses, Financial Records and Start-ups.



Foreign non-US based companies will need to form a US-company (LLC or Corporation), open a US-based bank account and file all appropriate state and federal forms and acquire all necessary licenses in order to operate in the US as a gallery. Immigration requirements may apply. More information may be found here, here, and here.



This information is general in nature, not legal advice and it is imperative that you consult an attorney in the state where you wish to start a business regarding legal matters, and an accountant regarding tax matters.

► You can also contact PBDB & Partners for information regarding foreign business ventures opening in the US, or call (+1) 347.746.2136.


New York Landlords. Many European and Asian clients are accustomed to dealing directly with the Landlord. This is not the custom in New York (please see below), nonetheless, we will try to facilitate this to the extent that we can. However, almost all Landlords will refuse, which is why they hire a Landlord Broker in the first place. As Tenant Brokers, we are your proxy with the same force and effect. We also always advise you candidly regarding maneuvers that, on the face of it, seem logical or conventional outside of New York, but will ultimately weaken your position here.

Financial Statementss. Landlords need to see Financial Statements for a company seeking a lease that are submitted with the proposal to lease the space. The Landlord will not make any decisions without this information.

For an existing business, corporate tax-returns for the past 2 years showing revenue, expenses and profit & loss are required.

For a new business or foreign-based company (see above), US-based bank statements showing adequate cash-on-deposit will suffice. The amount should be sufficient to cover the Security Deposit, Construction Costs, plus Operating Expenses and Rent for 6 to 12 months.

Limited financial disclosure is customary in New York. We have found that some European and Asian clients consider this a privacy issue. All information submitted is kept in strictest confidence.

Security Deposit. Don't be surprised, even with adequate cash-on-deposit, that the Landlord initially insists on 6 to 12 months of security deposit for a start-up business. We apply very successful strategies that counter this and keep Security Deposits to a minimum.

It is important to us that your Security Deposit stays as low as possible, and we will discuss these strategies with you.

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► What is the difference between "asking" rent and "taking" rent?



The "ask" is the amount of rent the landlord wants to cover operating expenses and make a profit. It is an amount set with the help of his Landlord Broker to maximize the landlord's profit, based on his broker's knowledge of the market and other factors.

The "take" is the least amount of rent the landlord will accept. Since most expenses are fixed (escalating annually) and are often passed on to the Tenant in various ways, these "Additional Rent" amounts (see above) and the profit margin are the variables. A Tenant Representative can help the tenant analyze records to determine the true expenses, and will negotiate to keep the rent below this thresh-hold, and expenses passed on to the Tenant as Additional Rent at a minimum.

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►  Why use a tenant broker?



Everyone likes the satisfaction of having gotten a "good deal" on their own, but no one likes the feeling of finding out they could have done better after it's too late.

Having a Tenant Broker gets you the first, while avoiding the second.

New York Landlords hire a Landlord Broker to represent their interests in lease negotiations. Their brokers also improve the marketability of the Landlord's property, market the property, show the property, and vet prospective tenants, checking financials and background. They also provide background information to advise their client regarding past and current leasing transactions.

To the Landlords, the commission they pay their brokers is worth the professional guidance, marketing experience and negotiating expertice they will receive, as well as the reduced aggravation and greater return in rent they will see.

The Tenant should have the same advantages. When you call the Landlord's brokerage firm directly, you are working with them in a dual agency capacity. While every effort is made to be fair, their primary fiduciary responsibility is to the Landlord who first engaged them.

A Tenant Broker is an experienced professional with the same fiduciary responsibility to you, at no cost.

► A Tenant Representative will show you all possible space solutions and options.

► A Tenant Representative levels the playing field, providing you with a range of property information and ownership background, historical insights, rent data, spreadsheets and market trends that you will need to make informed and effective decisions and avoid costly surprises later.

► A Tenant Representative will employ negotiating strategies that deliver the lowest possible rent and security deposit, and the best overall terms.

► A good Tenant Representative will stick with you after the lease has been signed, providing problem-solving business support for as long as is needed, post-lease.

►  You pay no fee for these services. The commission is paid from the funds that have already been allocated by the Landlord as payment to their broker as the cost of doing business. No significant savings will result from not having a dedicated advocate on your side.

You may, in fact, pay more - for various items that you were not aware of during the transaction that can result in higher rents, greater security tied up and other Additional Rents than are necessary.

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► Should I Work With Several Brokers?



Well, if you have a toothache, would you go to several dentists?

Probably not.

Using several brokers is like having several dentists drilling in the same hole: it's a recipe for pain and confusion and in the end, you won't be any better off than had you chosen one, a costly and inefficient approach.

It's more likely you'd visit one dentist who, beyond just drilling in your mouth:

• Offers the best and easiest solution to your problem,
• Is a expert in the field, with the experience to avoid complications,
• Provides comprehensive care, considering all aspects of your well-being,
• Delivers conscientious follow-up,
• Addresses issues before they cause you problems later,
• Has a roster of satisfied return patients,
• Utilizes effective yet pain-free techniques.

Same thing... except we won't send you a bill.

But, won't more brokers show me more spaces with more options?

No. There are only so many vacant gallery spaces in New York, most of them are shown here, and showing space is just a small part of the process of obtaining your lease for the best terms. A targeted approach delivers accurate results faster.

We advise using the best tool for the job, whether you use us or another broker.



To read about our mission and methodology, please CONTINUE below.



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