Whether it was the burst of the housing bubble in 2007 or the banking crisis, in 2008, that caused the recent recession, the undeniable fact is that the climate, and tone, of NYC real estate has been changed, especially in the commercial sector. The prices of residential and commercial real estate in NYC have dropped to their lowest level in recent years. Some estimates show a decline of as much as 30% in the most sought after commercial spaces like, Midtown Manhattan and the Wall Street areas. And while it may be bad for Manhattan’s landlords, it is undoubtedly a golden opportunity for new renters as well as for businesses already renting a commercial space.
During the heydays of the US golden economic era, when all seemed fine and Wall Street was booming, NYC landlords were in command. If you wanted a particular commercial space that badly, you had to pay the full price. But, that was then.
The recent recession brought with it a stricter money-landing policy that was soon adopted by lenders. The increased budgetary cuts by banks, security powerhouses and other businesses forced landlords and real estate companies to be more careful when lending money, approving a mortgage, renting an apartment or a commercial space. Now, even a finance whiz must provide a solid evidence of his or her ability to pay the rent or the mortgage before he or she can get approved.
Isn’t it ironic that landlords all over the US, including in New York City, are stricter in their screening process of any potential buyer or renter, yet are willing to compromise and come towards the renter or buyer more than in recent history? Well, the reason for it is simple – they do not want to sit on their inventory forever. They rather reduce your rent than lose you as a tenant.
What it boils down to, is this: Landlords are eager to rent out their commercial spaces. Landlords are willing to offer great concessions, but only if you can show the landlord a good credit history, and a solid proof that you have the financial ability to pay the rent.
Let’s assume you have found a commercial place, be it, an office or a store space, the first thing that the landlord will want to know is how able will you be to pay the rent. To accomplish that, your landlord will have you sign a release that will allow him to check your credit history. If, after checking, your landlord is satisfied with your credit rating, he or she will want to see a proof of all your assets, including your saving, and checking, bank accounts.
Only after the landlord is satisfied with your credit history and your financial stability, he or she will be willing to negotiate the terms and conditions.
If you intend to rent in the commercial districts of Manhattan, e.g. anywhere between 34th and 59th streets – an area known as Midtown Manhattan – or on Wall Street, then you should get a broker that will help you negotiate the terms of the lease.
The broker – though his commission will be paid by the landlord – is there as a go between you and the landlord. Now, just because the commission is paid by the landlord, that does not mean that you should renain passive. In fact, this is the time for you to look at the terms and conditions and decide what it is that you would want to change.
Let’s say the landlord is willing to rent you an 800 sq. feet store on Sixth Ave. between 54th and 55th street and the rent he is asking is $10.000 per month. Your plan for the space is opening an exclusive, gourmet, sandwich store. Is the rent too high? Well, that is the time you present to the broker a counter offer, let’s say, of $7,000 for the first two years without any escalations in rent. The broker comes to you and says the lowest the landlord will accept is $8,000, and he is OK with no escalations in rent for the first two years. You have just saved yourself $2,000 a month, or $48,000 for the next two years.
You may think this is hard to do. Yes, it used to be hard four years ago, but not today. As stated above, for as long as you demonstrate a good credit history and the ability to make payments, the weak commercial real estate sector is on your side, which translates to landlords willing to offer great concessions.
Negotiating the rent and the yearly escalations, are only two examples of the concessions you can discuss. You can also ask for a longer lease, longer rent-free time to renovate your new store. This, last item, is a common concession under any market climate. So, if in the good days landlords will allow two months of free-rent for renovations, now you can ask for five and will probably end up getting four months.
However, the soft commercial real estate market does not only favor new tenants. Even renters who had signed their leases years ago, can get the landlord to reduce their rent. To do so, all you have to do is to demonstrate to your landlord how the present recession has affected your business. If you can provide the landlord evidence in the form of tax returns of the last few years versus the latest one that clearly shows a drop in revenues, your landlord will be inclined to help you. Why? The reason is that the landlord rather lower the rent just to keep a tenant with a good-paying history, then risk losing him or her.
As you can see, whether you are a new business entrepreneur looking to rent a commercial space in NYC, or one that is already in business – in both cases the real estate market in its present state is on your side. Knowing these facts, use them to get your landlord make some great concessions.