Leasing Space as a Startup

Less than a decade ago, if you were a tech startup, you weren’t thinking New York. You went west, to California, to Silicon Valley, the hub of all things tech. But times have changed, and over the past few years, there’s been a tech explosion in New York City, making it one of the hottest destinations for tech firms, rivaling Boston and Silicon Valley as the place to be when you’re building a business from the ground up.

How did this happen? For starters, several of the world’s most prominent startups were born in the Big Apple: among others, Foursquare was started at an East Village kitchen table; Twitter and Facebook both have offices here as well. Also, in places like Austin Texas, many firms have reached a point where they have exhausted their talent pool and need to branch out to other markets like NYC.

With this rapid flood of startups to New York, it’s no surprise that many young business owners are searching for office space in the city. But as most quickly learn, New York real estate is a special kind of beast, and looking for office space here requires organization, time, dedication, and most importantly, the right team. 

The key to looking for space as a startup is organization. As a new business, typically you have no track record and you may not have a lot of cash. The smartest thing you can do is find a broker with a proven track record in finding space specifically for startups. You need someone who can properly sell you as a new business with very little capital, to a landlord. Once you identify a space that you’re interested in, you’ll have to put together a compelling story about who you are as founders, and as a business – and you have to do this in a way that a landlord can understand. 

Tech firms and Landlords are little like Hatfields and McCoys. To say the least, you don’t understand each other. Landlords tend to be old, or at least old guard, and some are very corporate. Whereas tech firms… aren’t. Generally speaking, landlords are not savvy about tech, and tend to be wary of young entrepreneurs with limited track records.

What a good broker can do for a start up beyond finding great space and negotiating the right deal, is to carefully put together a game plan for how you’re going to sell yourself to Landlords. By and large, what we believe you need to do is feed them a small, and easily digestible, amount of data. It’s not so much about putting together a business plan as it is about impressing the landlord in question, up front and in person. The right broker will help you set up a meeting with the landlord and his associates, and it’s their job to instruct you as to how to approach this meeting so that you can snag the space you want. Landlords like smart people, so make sure you come prepared. If your landlord likes you, you have a much better chance of getting the deal done. 

One great example of this is a company we’ve found multiple spaces for over the last couple years: General Assembly. When the guys of General Assembly were starting out, it was clear that their task based education model was brilliant but Landlord’s did not get what they were trying to do. What made the difference was getting the Founders and the right Landlord in one room and appropriately setting the stage so they could get to know each other and build trust. In doing this the Founders were able to tell their story directly to the folks that mattered and convince them of their value and desirability.

Another big piece of the puzzle for startups is the security deposit. Typically landlords want a lot more security than start ups are able to post. When landlords look at startups, they’re often tempted to ask for a year or more of security, – which is a death sentence for a startup, who is typically strapped for cash, especially at the outset. The last thing a startup should do is tie up money in a security deposit. This is where your broker comes in. You need a smart broker, one with startup experience, one who can ensure that you’re meeting the right landlords, the ones who are willing to take a chance on a new business. Good brokers know the game and the players, and know how landlords think. It’s of utmost importance to find a broker that really knows what they’re doing, to ensure that your startup navigates this initial courtship with the landlord in as effective a way as possible. 

One last thing to keep in mind? Short team leases in New York City aren’t common. Most office space leases are between 5-10 years long; landlords make the bulk of their money by refinancing their buildings, and banks and lenders evaluate the worth of a building by evaluating rental commitments over time. To a lender, a building that’s full of tenants on ten year leases is worth more than a building that’s full of 3 year leases.

For many startups, this can be a big hiccup in the search process. The startup world is one that changes rapidly — one day, you can have five employees; in a year, you can have two hundred. This dictates flexibility in your space. Your broker will help you cross that bridge when you get to it — but don’t go into your meeting with a landlord talking about how your business model may change ten times by Sunday. Landlords like stability; they like to know they’ve got stable tenants who have a plan and are sticking to it. If you need flexibility, turn to your broker to help bridge the gap between what you need as a startup business and what the landlord needs. There’s a happy medium to be found in every deal, and your broker will help you find it.