What are the fundamentals of office leasing from site selection to closing and beyond? Any tenant needs to be aware of financial, operational and risk areas of a commercial lease.
The tenant needs to be able to understand lease terms, loss factors, escalations, electricity, tenant renewal options, default provisions, insurance and liability, landlord concessions, security deposits, work-letters, subletting and negotiation.
What does a tenant need to know as they navigate identifying and leasing of office space?
What length of term does the landlord looking for? A traditional lease runs from five to ten years. Terms shorter than that make it difficult for a landlord to recoup the costs of the initial leasing agreement which includes legal and brokerage fees and very often buildout costs. Those costs are amortized into a lease and it is often the case that a landlord isn’t in “the black” for the first few years of a lease.
Can I get out of lease once I have signed it? A lease protects both sides. Just as a landlord can’t say “Rents have gone sky-high and you need to move so I can achieve a higher rent,” a tenant can’t say “Sorry Mr. Landlord but my business isn’t doing as well as I thought it would and I need to walk away now.” A signed lease from an excellent tenant is an asset against the building that a landlord can use as collateral in the event they seek to get a loan. There are various mechanisms such as a “Good Guy Clause” that offer some measure of protection to a tenant but by and large, a signed lease is a binding legal document that is actionable in a court of law.
What is included in a base lease? Buildout? Heat/AC? Taxes? Every lease is different although most share some commonalities. It is common for a tenant to receive a custom buildout. It is usually capped to a specific per square foot dollar amount, generally in the $25-$35 per square foot range. Any tenant improvements that go above that capped amount would be at tenant’s sole expense. Heat and air conditioning are generally included in the base rent although the hours of operation will often be restricted. Most buildings supply heating and cooling during normal business hours and at least part of Saturdays. The reasons for this are that the entire building system needs to be activated in order to provide heat to one or two tenants or to the whole building. This is traditionally addressed in the lease where a stiff “overtime” charge will be applied to tenants needing heating and cooling outside of the business hours of the building.
Taxes are generally included for the base year of the lease. For example, if a tenant signed a lease in January of 2016, the taxes for that year would be included in the rent. Once the taxes go up (which they always do), the tenant will be responsible for the proportionate share of the increase. g. If a tenant’s suite comprises 2.7% of the entire building, a tenant would be responsible for 2.7% of any INCREASE over the base year taxes.
What other costs are usually in a lease? Escalations? Common area charges? Virtually all leases have an “escalator” that raises the rent at defined intervals. Most common would be a 3% annual increase that compounds over the full term of the lease. In almost all cases this escalation covers any operating cost increases that the building may need to absorb which would also include any common area charges.
What is a loss factor and why do they vary so widely? This issue is one of the biggest hurdles tenants have to overcome. An office building has many common areas. The main lobby, hallways on each floor, shared bathrooms, etc. From the building owner’s perspective, a tenant should rightfully pay their share for the use of those common spaces. In practice this equates to a tenant paying for square footage that isn’t for their exclusive use. Loss factors are always quoted as percentages. Most common is a range of 25-40%. For example, leasing a 1,000 RENTABLE square foot space would not actually equate to a true 1,000 square feet inside of the four walls. The actual USEABLE square footage would be a calculation based on the building’s assigned loss factor. The loss factors can differ greatly depending on the amount of common space throughout the building. It can also be impacted by the number of tenants on a floor-the more tenants per floor, the higher the loss factor.
Ingram & Hebron Realty deals with all of these issues on a daily basis. We have assisted hundreds of tenants in the leasing of millions of square feet of office space. It would be a rare situation that we haven’t successfully dealt with.
NYU Langone to build $204 million emergency room on the old Long Island College Hospital site
The new ambulatory care center and freestanding emergency department will go replace one that has been operating since LICH closed in 2014.
By: Jonathan LaMantia
The emergency department that opened when Brooklyn’s Long Island College Hospital closed is getting a $204 million overhaul.
NYU Langone Medical Center disclosed in a state filing that it wants to build an ambulatory care center and freestanding emergency department on the site in Cobble Hill, replacing a nearby facility that has been handling patients’ health care needs.
FIVE WAYS THE BROOKLYN NAVY YARD’S DOCK 72 WILL CHANGE THE GAME
New York Office Jul 09, 2015
This week, Boston Properties, Rudin Development, WeWork and the Brooklyn Navy Yard Development Corp (BNYDC) announced Dock 72, a 675k SF, $380M office development catering to the TAMI sector. Rudin Development CEO Bill Rudin, VP Michael Rudin and Boston Properties New York regional manager John Powers tell us why it’s so impactful.
1) IT’S A ONE-STOP SHOP
Dock 72 is the first ground-up in Brooklyn focused on the creative marketplace, Bill (above) says. They were able to include everything TAMI tenants demand—high ceilings, large open spaces, eight-foot windows for prime lighting, state-of-the-art wiring and HVAC systems, tenant-controlled A/C, a Di-BOSS building management system, and amenities like outdoor space, terraces, green areas, a basketball court, a cafeteria, specialty foods, a bike valet, a rooftop conference center, and health and wellness facilities. It’s also in discussions with BNYDC about transportation options, such as potentially opening a ferry stop at the property, he adds. Construction on the 16-floor project begins this fall with an anticipated two-year build-out.
A nine-story storage facility near the Brooklyn Navy Yard was picked up by Atlanta-based Storage Post from previous owner Moishe’s Self Storage, which continues to operate a portfolio of 500,000 square feet in Queens and the Bronx.
Easily recognizable by its bright-red exterior, the 280,000-square-foot building is located at 35 Ryerson St. in Brooklyn’s Clinton Hill neighborhood, right next to the Brooklyn Queens Expressway. The facility traded for $95.6 million, according to real estate website PropertyShark. This translates into $341 per square foot or $36.281 per unit.
With this acquisition Storage Post’s self-storage portfolio in New York City grows to ten properties. The company, which was founded in 1998, already owns and operates nine other locations in the Bronx, Brooklyn and Queens.
Brooklyn Heights Library CB2 hearing ends in stalemate after hours of testimony
The first hearing about the controversial sale and development of the Brooklyn Heights Library branch, required under the city’s ULURP process, ended in a stalemate Wednesday night after hours of testimony. Photo by Mary Frost
By Mary Frost
Brooklyn Daily Eagle
A passionate crowd filled the seats and spilled out into the hallway outside Dibner Auditorium at NYU-Poly in Downtown Brooklyn Wednesday night for the first public hearing regarding the controversial sale and development of the Brooklyn Heights Library branch, required under the city’s ULURP (Uniform Land Use Review Procedure) process.
The four-and-a-half hour hearing ended in a stalemate, as Community Board 2’s Land Use Committee failed to reach an affirmative vote. The next step has not yet been decided, but it is not likely another hearing will take place, said Robert Perris, CB2 District Manager.
“We may hold another committee meeting but the hearing is complete,” he told the Brooklyn Eagle.
The outcome followed hours of presentations and heated testimony, both for and against the proposed 36-story tower on Cadman Plaza West and Clinton Street.
At times, emotions spilled over. A yelling match broke out over the hearing process itself, as some audience members objected to the fact that questions were limited to committee members. Robert Perris, CB2 District Manager, had to raise his voice over the hubbub to explain that the purpose of the hearing was to help the people charged with making a recommendation come to a decision.
“It’s not a public conversation, it’s a process,” he said.
One attendee yelled out, “It’s stacked!” Michael D. D. White, co-founder of the advocacy group Citizens Defending Libraries, told the group’s supporters, “Let’s try and work with the process.”
Committee members did read questions slipped to them by attendees, and after the official discussion the audience was allowed to present testimony in two-minute segments.
Brooklyn’s office market has seen some high-profile additions lately, but Apts & Lofts’ Chris Havens says demand and supply are so out of sync that it’s putting a strain on the borough’s economy. In this interview, Chris digs into the causes of this “crisis” and what ought to be done about it. Chris Havens Bisnow: How tight is the office market in Brooklyn, and why’s that a problem?
The Brooklyn Heights Association has alerted us to a planned shoot of a commercial for the U.S. Army to take place Sunday, May 31, beginning at 6:00 p.m. to Monday morning, June 1, at 1:00. The shoot will feature people watching fireworks from the Promenade (the fireworks will be added digitally), will be produced by Moxie Pictures, and will be directed by Henry Lu. Approximately 100 people will be involved, including actors, extras, and crew. This may result in significant noise, especially for those apartments facing Montague Street from Hicks to the Promenade entrance, Montague Terrace, and Pierrepont Place.
Moxie has provided a map (image) showing the no parking areas that will apply for the shoot. The blue lines (all of Montague Terrace and Pierrepont Place, and the south side of Montague Street from the Promenade entrance to Hicks Street) mark “no tow” areas because Moxie didn’t put up signs in time. Those marked with red lines (the north side of Montague from the Promenade entrance to Hicks Street and both sides of Montague from Hicks to halfway to Henry) are tow-away areas starting at 10:00 a.m. Sunday.
The owner of a downtown Brooklyn development site is trying to sell the parcel again.
Nicholas Cammarato, the owner of a vacant lot at 215 Schermerhorn St., has put the parcel up for sale for almost $30 million, double the amount he paid two years ago. Ofer Cohen, the president of brokerage TerraCRG, which specializes in Brooklyn, was retained to market the property.
It is the second time in the past six months that Mr. Cammarato has attempted to sell the lot. Late last year, he reportedly offered it for about $26 million but took it off the market.
Mr. Cohen said that the price of lots have continued to rise in downtown Brooklyn as developers have succeeded in selling units at condo projects underway in the area. A 20-story condo building being constructed at 265 State St., for instance, is fetching record prices for downtown Brooklyn, Mr. Cohen said. The activity has prompted interest in building more condos. About 14,000 apartments are under construction in the neighborhood, according to Mr. Cohen, but most of them are rentals.
“There’s a big opening in the market right now in downtown Brooklyn for more condo projects,” Mr. Cohen said. “And this is an opportunity for a builder to capitalize on that.”
A 140-foot-tall, 75,000-square-foot building can be constructed on the site. Mr. Cohen said a hotel could also be built there. Downtown Brooklyn has become a popular neighborhood for hotels. An Ace Hotel is currently being built on Bond Street.
“There are about 1,000 hotel rooms getting built in downtown Brooklyn,” Mr. Cohen said.
A few years ago, even in Manhattan, building or converting an office property on spec was unheard of.
That is no longer the case, according to data from JLL, whose debt experts say the arrival of name-brand tenants has made office conversion deals in the boroughs increasingly appealing.
Class A vacancy in Downtown Brooklyn ticked in at a mere 3 percent in the fourth quarter of 2014, according to JLL’s numbers, and average asking rents were up 40 percent year-over-year, to just over $42 per square foot. In Long Island City, vacancy was 3.7 percent and average asking rents were up more than 35 percent from the same period in 2013, to $30 per square foot. For perspective, the vacancy rate in Manhattan was about 9.5 percent in Q4 2014, according to JLL.
“Most tenant demand is organic within Brooklyn, where companies such as Etsy and Huge have recommitted to the borough and expanded,” said JLL Managing Director Max Herzog.
A key force driving tenants to Kings and Queens counties is the city’s Relocation and Employment Assistance Program, he added. REAP is a tax credit for commercial businesses, excluding retail and hotels, that move to targeted areas in New York City, which include LIC and Downtown Brooklyn. The 12-year credit is equal to $3,000 per employee for companies relocating from Manhattan, according to the Economic Development Corporation’s website.