Good for you! You’ve found an ideal office space in New York City. You like it but can you really afford it? Of course, you are wondering. But do you know that, on the other side, the landlord is probably thinking the same thing? He knows you are considering submitting an offer to lease the space but he wonders if you can pay the rent on time and over the long haul.
ASSESSING THE CREDITWORTHINESS OF AN NYC BUSINESS TENANT
Landlords are conservative business people and don’t like taking chances unless they’re convinced that they’ll receive timely rent payments throughout the term of a lease. So, if you see a space that works for you, you still have a long way to go before signing on the dotted line.
First of all, to prove your creditworthiness, you will need to present several financial documents:
-Last two years of your company’s corporate tax returns (recommended)
-Corporate P&L statements or balance sheets (optional)
-Several months of corporate bank statements (optional)
Accompanying these documents will be an official written offer submitted on your behalf by Metro Manhattan Office Space, Inc. Here’s a handy tip: It’s helpful to have your financial statements on hand when you start your property search, so they are ready to be included with the offer your broker will submit to the landlord. Providing a complete package to ownership strengthens your proposal.
The Security Deposit Hurdle
Then the question of the amount of security deposit always comes up. An unscientific formula for determining the amount you will need to pay is directly linked to your creditworthiness and the number of years you have been in business.
Landlords will always look at your past and present profitability as well as your company’s balance sheet. If the managing agent sees that your company’s consistently profitable, that there are substantial liquid assets, that sales have increased and that you own a growing business, then he knows you’ll pose little risk.
But what if your financial statements are soft? What are your options then?
If your profit and loss statements are less than stellar but you still have a strong balance sheet with cash on hand, it may reassure the landlord. Consider this also: Even if you can’t “afford” space, you usually make a deal by ramping up the amount of your security deposit or having the lease guaranteed by a company or individual with strong credit. It may not always work because landlords have varying attitudes, but a Metro Manhattan real estate broker has the experience to guide you when aspiring to a particular commercial office space lease in Manhattan.
The amount of security deposits you need is tricky—the less money you have to tie up the better. But consider that landlords need to protect themselves and they all have a story to tell. In that perspective, the amount of security the landlord requires is calculated according to the potential risk of default your company presents when leasing a commercial space. There’s no getting around it. You are NOT alone! Everyone has to put up a security deposit. Chalk it up to the cost of doing business.
Also keep in mind that one possible way to minimize the amount of your security deposit is to get a strong letter of recommendation from your current landlord, providing of course that you’re on good terms and have consistently paid your rent bills through the years. A good letter from an old friend can do wonders in increasing the comfort level of a new landlord and help him to go easy on you.
No Rule of Thumb
The Rule of Thumb is that there is no Rule of Thumb when it comes to security deposits and many factors come into play.
For example, if your space requires a complete build-out, the landlord is making a major investment and will want the cost invested in construction securitized. In any case, don’t forget that the security deposit is your money: you will get it returned when your lease term ends. It may even be possible to get the landlord to agree to a “burn down”, a partial return of your security deposit that can occur perhaps as soon as a year after your lease commences.
In all situations security deposit amounts and its return are negotiable. Turn to your Metro-Manhattan broker to secure the office you want and need, with a security deposit that makes sense. We are here to help you every step of the way. Call us at 212-447-5403. You see, YOU can afford office space in Manhattan!