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GMAC Real Estate
Tenant Alert
In This Issue:
Are you paying too
much rent?
Thousands of companies in New York City-large and small-are
experiencing significant increases in their operating costs: rent,
electricity and taxes.
Many executives and managers throw up their hands in frustration and
simply pay the rent. However, several strategies can reduce operating
costs, and every dollar saved in rent boosts the bottom line.
First, businesses need to analyze whether they are paying too much rent.
- Study
the most recent rent bill. This amount has likely escalated since the
first payment. This increase comes from operating expense escalation
clauses in the lease.
- Divide
the total bill by the square footage of rented space. This figure is
the "per square foot" rent.
- Find
comparable rent data. Call GMAC Real Estate at (212) 620-2611. An agent
will provide comparative rent information in the area, as well as the
building's true rent.
Next,
companies must focus on the lease expiration date. All forecasts
indicate office and retail space rents will continue to increase in the
next three years.
Why? Demand for office and retail space is strong, and almost no new
space is being built. This results in a steady increase in rental rates.
If the lease expires in the next three years, businesses will likely
experience sticker shock. Landlords may announce that rent is
doubling-or even tripling, in some cases.
Often, executives and managers manage their business plan-as they
should-but forget about their real estate plan.
Companies can prepare now for major increases in rent and improve their
profitability.
For more information, contact President George Donohue at (212)
620-2611.
Executive View -
Supply, demand set NYC rents
Vacancy rates in New York City have reached an all-time low. Couple
this fact with steady demand for office space and lack of new
construction, and office rents skyrocket.
In the last 12 months, for example, the average asking rent for office
space in Midtown Manhattan increased by 28% to $69 per square foot per
year-an increase many office tenants were not prepared for.
In Midtown South, office rents increased by 21%; the average asking
rent for office space is $41 per square foot per year.
Downtown Manhattan has benefited from rising Midtown rents. In the last
two years, many companies moved downtown, where asking rent averages
$39 per square foot per year. This trend resulted in more than
2,000,000 s.f. of office relocations.
The root cause behind these increases is supply and demand. There is a
steady demand of companies that want to be, and need to thrive, in New
York City. No new substantial supply is coming on the market. Demand
goes up; supply remains relatively the same. Therefore, rents must go
up.
Tenants whose leases expire within the next two years will certainly
see an increase in rent, but they can make the best of the situation by
taking key measures.
This type of environment requires a well-thought-out real estate plan.
Businesses must begin their search for new, cost-effective space at
least six months before their lease expiration. They need to hire a
real estate professional that will protect their interests, while
negotiating with their existing landlord to renew their lease.
For more information, contact President George Donohue at (212)
620-2611.
Jargon - Sublease
vs. Assignment
Key factor: Lease term
The difference between a sublease and an assignment has to do with the
lease term.
In a sublease, the tenant lets someone else use the space for less than
the remaining term of the lease. With a sublease, the tenant regains
possession before the end of the lease-even if it's for only a short
time (e.g., one day).
In an assignment, the tenant lets someone else use the space for the
entire remainder of the lease term.
Tenants often confuse the two terms. For example, a tenant may ask a
broker to help find a proposed "subtenant" when he really means
"assignee"-because he plans to hand over the space for the remaining
lease term.
Resulting relationships
Once a tenant subleases or assigns space, what relationship does the
owner have with the subtenant or assignee?
In general, a subtenant has no legal relationships with the owner, who
continues to deal directly with the tenant. The owner can't sue the
subtenant and vice versa.
But an assignee does have a legal relationship with an owner. One can
sue the other to enforce the lease.
Financing - What
determines your interest rate?
Interest rates are not "one size fits all." Lenders evaluate several
factors when setting the interest rate for each loan. These factors
generally represent different levels of risk to the lender, which in
turn, determines how much the lender charges.
For example, a borrower purchasing an investment property is considered
a higher risk than a buyer who is purchasing a primary residence.
Statistics show that if a buyer encounters financial difficulty, he or
she is more likely to pay the mortgage on the primary residence before
the investment property.
Other factors that affect interest rate include:
- Loan
size. Jumbo interest rates (for loans over $417,000) may be higher than
loan amounts below $417,000. Also, very small loans or large loans can
have higher rates.
- Property
type. Multi-unit buildings, high-rise condos and co-ops may have a
higher rate.
- Credit
score. Lower credit scores may mean higher rates.
- Loan-to-Value.
Zero down loans, or loans with little down payment, are considered more
risky than loans with larger down payments. Generally speaking, low or
no down payment will lead to a higher rate.
- Pre-Payment
Penalty. If the buyer is willing to have a pre-payment penalty, the
rate may be slightly lower.
- Level
of Income and/or Asset Verification. Full disclosure of income and
assets will get the lowest rates.
For more
information on financing, contact Christian Deutsch at (212) 620-2619.
Or visit the RECAP website at www.recapam.com.
GMAC Real
Estate / IPG New York
520 Eighth Avenue
22nd Floor
New York, NY 10018
Phone: 212-620-2611
Fax: 212-265-8751
GMAC Real Estate IPG is an independently
owned & operated firm.
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