■REAL ESTATE Sometimes I wonder how real estate lease transactions ever get done. If you consider how non-standardized the process is, how every lease is unalike, or that every property appears to charge tenants differently, it becomes clear why there is still a need for brokers and attorneys to get involved. While loan officers, travel agents and stock brokers have seen their business drastically altered, the commercial real estate business, is still the “wild, wild east”, and should be explored cautiously. Looking from outside in, it can look like we’re either making it all up, or follow no rules at all. The price per square foot is advertised, but the loss factor is almost never advertised up front. That’s mostly because many landlords and brokers pretty much make it up in New York. A 1,000 sq ft of actual or net of office space could be billed as anywhere from 1,000 to 2,000 rentable or gross square feet. Yet the method to calculate the “net” square feet could vary in itself. So you’ve come to grips with the seemingly ridiculous and confusing methods by which size is set in real estate leases. But since every property does this, you simply resign yourself to measuring Wild, Wild East (of commercial real estate) by david dynak David Dynak is a real estate broker at First Pioneer Properties and an LIC resident. He’s lived in Western Queens since 1993. the space, comparing the monthly cost, and end up renting what makes the most sense for your business. The rest should be easy, right? Well, there is more to compare. Whereas one landlord may add 50 cents per square foot for cleaning and charges proportionate share of increases in operating expenses each year, another one prefers a flat three percent annual increase, but also tacks on a sprinkler charge, a proportionate increase in lobby guard cost, and meters your gas usage. Yet another includes all of utilities in the rent. Unless you add this all up and compare properly, you are comparing apples to oranges every single time. A landlord owns the property, but he will pass real estate tax increases on to you, as well as any government-imposed capital expenses and building violations your space and your business use may cause. Want to avoid any surprises? Check with your architect, your attorney and your accountant to avoid additional rent expenses making your stay unsustainable. If it seems like all the variables above serve only to protect the landlord, consider the irony of commercial lease as a legal binding contract. Since most leases are signed in a company’s name, and the company’s ability to pay rent is only there as long as such company is in existence, the reality of any lease is that to protect itself from default. A landlord must rely on tenant’s credit, judged on previous years’ financial statements and track record paying rent, plus whatever amount of security deposit the landlord can collect up front. Even in a transaction where the owner spends money to market and build space, pay commissions and provide rent abatement, he/she can usually cover only a part of the cost, and in cases where tenants break their lease and leave, the landlord can only pursue the business entity for the remainder of the lease payments. Most commercial tenants who break a lease either dissolve the entity on the lease, transfer or sell off its assets, or declare bankruptcy – all of which make it very difficult to collect anything at all. As long as such tenant vacates the space, even partial guarantees like a Good Guy Guarantee the landlord’s best recourse is to re-lease the space as fast as possible. Hence landlords’ preference to rent to established brand-name and asset-rich companies that are not able to disappear easily. That is, unless a company’s principals sign a personal guarantee. In which case you are technically personally responsible for the whole amount of the lease, and a landlord can pursue all of your personal income and assets. Which sounds a lot like some medieval times security deposit. Another reason to seek advice from someone who can help you minimize the risk– a real estate attorney, broker, an architect, contractor, or accountant – that comes with venturing into the wild, wild pastures of NYC real estate. ABSOLUTE CLEANERS SERVICING ALL L.I.C. BUILDINGS WITH OUR FREE NO HASSLE VALET PICK UP & DELIVERY RIGHT TO YOUR RESIDENCE • Custom Dry Cleaning • Shirt Laundering • Tailoring & Alterations • Leather & Suede • Wash & Fold Service • Drapery Cleaning • Houldhold Items • Free Box Storage www.absolutecleaners.net 4-71 48th Ave. • 7 18.392.3139
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