A commercial real estate broker that represents tenants.  In commercial real estate, brokers classify their work as either “tenant representation” or “landlord representation” (the latter are “agency” or “listing” brokers).

The right broker can be an invaluable resource to you.  Commercial real estate brokers have access to information regarding all available space, not just the spaces being represented by their company.  The major real estate firms also maintain databases with information regarding signed leased transactions which is very powerful information that can be leveraged in negotiating for you. Beyond just negotiating rents and concessions, a skilled broker will ensure that the landlord does not shift responsibility for operating costs or building maintenance that should appropriately rest with the landlord, and will also focus on lease clauses that protect your company from unanticipated liability.

Generally the landlord pays the brokerage fees in commercial leasing transactions.

No. Sometimes, when a landlord deals with a tenant that has limited experience with commercial leasing, he will try to convince the tenant that they will get a better rent if they don’t work with a broker. Unfortunately, the opposite is true. Due to the way that buildings are financed, lower rents impact the overall valuation of a property, so “cutting you a deal” negatively impacts the value of the property. When the landlord “saves” a commission, he generally uses his portion as the managing partner of the real estate asset to pay that commission to an entity that he controls. Also, since the landlord pays the brokerage fee, there is no reason not to take advantage of having an advocate on your side who understands market conditions, is familiar with the terms of recently completed leases, and can highlight potential problems in a building that will help you select the best among your options. Make sure the landlord pays for you to have guidance, rather than lining his own pocket.

It protects you from a liability standpoint. If you visit the same space with two different brokers, both brokers may try to make a claim for a commission.  Since the landlord will not be willing to pay commissions to two brokers, your company will be asked to indemnify the landlord against this risk.

It ensures that you are benefiting from the highest level of service that your broker can provide. Brokers’s compensation is made from commissions from closed deals, therefore they are very conscious of how they spend their time.  If there’s a chance that you will go off a sign a lease without them why would they invest significant time working for you?

Your broker will look out for your best interests.  If a broker does not have an exclusive agreement their priority is closing the deal as quickly as possible under any circumstance.  This may lead to the broker withholding information or misleading their client.  If a broker knows they will be compensated at the end of project their focus is on providing the best service.

The total timeline to lease a space varies depending on the complexity of the project and market conditions. Generally, you will need at least six months even for a smaller lease, but may spend over two years planning and executing larger projects. To download a copy of our planning timeline click here

Lease terms in major markets vary widely.  Standard direct leases are generally for terms of five to ten years.  The lease term required for a direct lease is directly impacted by the landlord’s out-of-pocket investment in base building work, tenant build-out costs or the improvement allowance and the amount of free rent, as well as lease roll-overs of other tenants in the building. The term of sublets vary from a few months to 10+ years.

“Executive suites” are available through operators that specialize in running centers with many individual offices or workstations that can be licensed for a period as short as one to three months.  While highly flexible, these options can be expensive due to the a la carte fees charged for necessities like phone connectivity and copy services.  They do, however, provide a very credible presence that is beneficial for newer companies meeting with new investors, customers or key new hires.

Pre-built Space: 

• This is space that has already been designed and built by a landlord and is ready to move in or will be soon.   Landlords may be willing to make minor modifications to a pre-built unit, but have already invested in a unit that is designed to have instant market appeal.   In some instances, a landlord will divide a floor of a building into smaller units with varying lease expiration dates targeted to align with expansion options granted to a larger building tenant.  These situations are advantageous for the start-up if it is willing to work within the landlord’s lease term parameters.

“Turn-key”:

• When a lease transaction obligates the landlord to “turn-key” the space, the landlord will build space according to plans prepared to the tenant’s specifications, utilizing materials that are “building standard” (ie. purchased in bulk or at known costs and used frequently in buildings owned by the landlord to achieve volume purchasing pricing).  “Turn-key” does not mean “blank check.”  The landlord always has a maximum budget in mind for a turn-key build out, but often landlords are unwilling to divulge what it has budgeted as it may sound low due to the beneficial volume purchasing prices achieved.  Since landlords will show examples of built spaces leased by other tenants, it is important to understand whether these spaces reflect the finishes budgeted by the landlord, or if upgrades were paid for by the tenant.

Tenant Improvement Allowance: 

• When a landlord provides an improvement allowance it does not usually provide these monies upfront to the tenant.  The tenant will be responsible for paying for all improvements first and then presenting the landlord with receipted bills and lien waivers in order to be reimbursed for these expenditures.  If the tenant’s work is estimated to exceed the amount of landlord’s improvement allowance (as it generally does in most major CBD markets), then the landlord may require the tenant to post a completion bond to ensure that the tenant’s share of the construction costs will be paid.  Landlords are very wary of unpaid construction as contractors can place liens on the real estate that the landlord would need to pay or settle prior to selling the asset.

After hours services

• Employees at start-ups often work outside of “norma” business hours. However, building heat and air-conditioning is usually provided for the traditional business day hours from 8 am to 6 pm.  Some higher-end buildings offer services from 8 am to 1 pm on Saturday, but many limit services to Monday through Friday.  If your employees are working long hours or a lot of weekend hours, you may find it beneficial to lease space in a building where the space has dedicated HVAC units that are tenant-controlled or an HVAC system with small zones, resulting in low costs for overtime HVAC services should they be needed.  The downside to dedicated, tenant–controlled  HVAC units is that the tenant is often responsible for the cost of electricity to operate the HVAC units and some or all of the maintenance.  Understand the capacity and age of dedicated systems!

Security

• Longer, later, less traditional work schedules should also be taken into account when considering the level of security offered by various buildings.  Some buildings have lobbies that are attended 24/7, while others may have a lobby attendant that only works during “business hours”, or no attendant at all.  Buildings with less security offer lower rents, but there is a cost to protecting employees and computers or other equipment in your space.  Carefully consider the level of security that makes sense for your company!

24/7 Access

• Most office buildings are accessible on a 24/7 basis, but those without attendants or card key systems may issue keys to each person employed in the building.  Security in these buildings is not reliable as it is almost impossible to have all keys returned by people no longer employed at the building.  If you are a willing to lease space in a building that has no 24/7 lobby attendant, we recommend choosing a building with a card key system where access can be tracked and cards can be terminated quickly if employees leave or are terminated.

You can “incubate” your company in a temporary space in an executive suite location.  There are many operators and locations for this type of space.  Historically, these operators concentrated these facilities in Class A buildings and locations, but now many are venturing to more “creative” and offbeat neighborhoods and the types of loft-type buildings preferred by start-up companies.  These facilities offer secure offices, conference room facilities available on an as-needed basis, secretarial and mailroom services paid for as utilized, immediate access to phone and fax service and a veneer of credibility that is key when your company is getting established with vendors, clients, investors and prospective new hires.  Your broker will help you identify the executive suite locations in your preferred geography, investigate availability and negotiate the best rates.

Often, it makes sense to commit to space in one of these environments so that your company can be immediately operational while you are committing investors, and until you are ready to open up your permanent office—and carefully complete the leasing process.

Yes!   Your broker can recommend a few attorneys for your consideration.  Since their fees and availability varies, you should speak to a few attorneys over the phone before you select one.  Some key questions to ask in choosing an advisor include:

• Will I be working mostly with a partner or an associate?
• What is the average size of lease handled by your firm?
• Who are some of your key clients?
• Do you have experience assisting start-up companies?
• What is the average number of hours you spend/bill for each lease that you handle for a client?
• Will you cap your fees for the project?

Some tenants are unwilling to begin architectural work until a lease is signed, but we recommend overlapping the architectural work and lease negotiation with the goal of finalizing complete architectural drawings within two weeks from lease execution.  Your broker should seek to negotiate a rent abatement (“free rent”) period to at least offset some, or preferably all, of the time required to complete your construction.  Commencing the architectural process incurs fees, but those fees are less than the cost of paying rent during a construction period that extends beyond the rent abatement.

We recommend that you interview architects immediately so that the resource is readily available should it be needed to assess the appropriateness of, or likely renovation costs for, any of your options.  Your broker can provide you with a list of architects that you can meet for one-hour interviews at our offices or at another location appropriate to your need for strict confidentiality.  Our Strategic Occupancy Solutions team at Jones Lang LaSalle has developed a Request for Proposal that outlines the services required from an architectural firm, helps you to compare proposals equally and can be used as an attachment to any standard AIA (American Institute of Architects) contract to ensure that a comprehensive scope of assistance is committed.  Since the RFP breaks the work down into phases, it enables you to contain your costs if the space you eventually select is built or partially built.

 Office furniture is sold by licensed dealers.  However, you can see the product and obtain information from the manufacturers directly by contacting them and visiting their showrooms in major markets.  The manufacturer will connect with a licensed dealer that can help you to select the best furniture, provide “fit plans” for your selected space, negotiate pricing and arrange for installation.

In addition, used furniture is available at prices that are 30-50% off new product.  Our firm can help you compare  your  options for either new or second generation product.

Direct lease with landlord

If the premises need to be constructed, the timing for plan preparation, permitting and construction can be 10 – 24 weeks.  Cabling and furniture installation generally take at least two weeks.

Sublease

If the premises are built and furnished, the timeline for occupancy may be greatly reduced.  However, the overlandlord will have the right to review the financials of the subtenant and provide consent to the sublease.  The consent process can be 30 – 60 days from overlandlord’s receipt of all information.  Many leases require the sublandlord to provide a fully negotiated and executed sublease for overlandlord review.  In some cases, the overlandlord may have the right to “recapture” the premises, presenting a risk to the subtenant that it could lose the space after investing the time and money to finalize a sublease agreement.  When pursuing a sublease your broker should understand the applicable timelines for consent and seek to shorten them if possible as well as keep back up options appropriately engaged.

Direct lease with landlord

Total build out costs vary throughout the US.  In New York City, build-outs from a “warm shell” vary from $60 to $100 psf and up.  A landlord may agree to contribute towards these costs (“tenant improvement allowance”), with contributions equal to 6 – 12 months of rent.

Sublease

The residual value in subleases is realized, and ingoing costs are reduced, when a start-up limits its alterations to cosmetic items such as carpeting and paint.  When walls are moved, there may be a costly impact related to ceiling finishes, lighting, and heating, ventilation and air-conditioning. Additionally, charges of this scope require architectural plans and the work must be permitted prior to commencing (permits can be obtained within  two weeks with the use of an expeditor which adds to fees).

Subleases are generally offered on an “as is” basis or with limited monies for renovations.  Re-carpeting and re-painting a space can be completed for under $30 psf.  If carpeting under workstations needs to be replaced, there is special equipment that can be used to lift the workstations without disassembling them.

Direct lease with landlord

Furnishing and cabling new space can cost $30 psf or more.  Remanufactured (used) furniture can reduce costs, but it is important to get appropriate warranties on the installed condition and operability of used inventory. Replacement parts for workstations may be limited if the models purchased are discontinued or no longer readily available.

Sublease

Sublandlords will often include existing furniture in the sublease agreement as an inducement to a subtenant.  Ownership of, and responsibility to remove, the furniture at the end of the term are negotiated between the parties. The most advantageous arrangement would provide use of the furniture during the term, with no obligation to remove it upon the lease expiration.

Direct lease with landlord

Direct leases can be highly flexible if the landlord has the ability to relocate your growing or contracting company within the building or other buildings that it controls.  When a company leases space directly from the owner, there is also the possibility to negotiate a termination option.

Sublease

Subleases are the least flexible in terms of growth, contraction or termination.  Generally, the subtenant does not inherit the sublandlord’s rights to terminate or expand.  Sublandlords generally seek to sublease their space for the entirety of their remaining lease term, and subtenants may be restricted from further subletting.   The flexibility in sublets results from the possibility of a shorter term commitment with lower write-downs should your company need to leave the space before the lease expires.

Direct lease with landlord

A company that leases directly from the building owner has a direct line for addressing needed repairs, approval for desired alterations, and approval of “licensees” (other start ups that can absorb the cost for excess space while your company ramps up and grows into the entire space).

Sublease

Under a sublease, a company has no direct relationship with the landlord and must generally rely on its sublandlord to request repairs and approvals.

Direct lease with landlord

A start-up can assess the landlord’s financial stability with the help of its broker. Brokers have access to information on the debt carried on individual properties, as well as anecdotal information on landlords’ wherewithal and operating reputation. In negotiating a direct lease, a company may be able to get a non-disturbance agreement protecting it in the event that the building owner defaults on its mortgage.

Sublease

Non-disturbance agreements may be available for subtenants, but generally smaller spaces encompassing less than a full floor of a building do not benefit from this protection.

If a sublandlord defaults on its lease, the subtenant may be entitled to remain in the premises, but may have to step up to the higher of the contract rent outlined in the overlease or to market rent. This is a serious risk that your company should assess when subleasing from other young companies, or from established companies with a tenuous risk profile.

Direct lease with landlord

Both landlords and sublandlords are often wary of signing leases with new companies which have a shorter operating history, less financial wherewithal or indeterminate viability compared to more mature companies.  Young companies, especially privately-owned entities,  should expect to post a cash deposit or letter of credit at least equal to all of the landlord’s upfront costs for tenant improvements/build out, commissions, free rent and legal fees.  Some landlords may want additional monies equal to a few months of rent to cover re-tenanting downtime.  This deposit may be reduced as your company begins paying rent on a regular basis and the landlord recoups all of its initial expenses and begins collecting “beneficial” rent.  Lower security deposits may be possible, but it’s best to use this as a benchmark.

Sublease

Since the sublandlord is at risk, its security deposit demands may be more or less stringent than in a direct lease.