How Commercial Real Estate Broker Services Help NYC Startups Compare Landlord Offers

The request for proposal: what goes to the landlords of your finalists

A request for proposal is a short document your broker sends to each landlord still in the running. It describes the tenant, the space wanted, the term and the date, and asks the landlord to price the deal: rent, free rent, the improvement allowance or the work the landlord will do, escalations and security.

It goes out after the tours, and after a test fit has shown the team fits each finalist. Sending the same request to every landlord at once is the point. The answers then come back in a form that can be lined up.

A worked comparison for a team of about 28

Take a hypothetical floor of 5,000 rentable square feet, about right for 28 people, on a five-year term, and two landlord responses. These figures are an illustration, not quotes.

• Offer A, as an example: an asking rent of $80 a square foot, five months of free rent, and an improvement allowance of $40 a square foot.
• Offer B, as an example: an asking rent of $76, one month free, and an allowance of $10.

Offer A: five years of rent come to $2,000,000. Subtract about $166,667 for the free months and $200,000 of allowance, and the tenant's net cost is about $1,633,333. Offer B: $1,900,000 of rent, minus roughly $31,667 for the free month and $50,000 of allowance, leaves about $1,818,333.

Spread across the term and the square feet, the example works out to about $65 a foot each year for Offer A and about $73 for Offer B. The offer that asked more costs about $185,000 less, as long as you would have spent the allowance on the buildout anyway.

Why the asking rent alone points at the wrong floor

Asking rent is one line of five. Free rent lowers what you pay in the first year. The allowance decides how much of the buildout comes out of your own cash. Escalations, usually a fixed step each year, change the total across the term. And rent is charged on rentable square feet, so two floors that seat the same 28 people can carry different square footage. The simple example above leaves out escalations and the time value of money; on a live deal the comparison should be run with both, and you should see the working.

So read the floors below, sized for a team of about 28, as starting points: the asking rent on each is where the conversation with that landlord begins.

From the winning proposal to the letter of intent

Once one proposal is clearly ahead, its business terms are written into a letter of intent: base rent and escalations, the term, free rent, the allowance or landlord's work, the condition the floor is delivered in, security, and the options you want, renewal first among them. The letter is short and mostly non-binding, and it is the cheapest place to change a number. Keep the second-best floor alive until the lease is signed. The letter of intent entry covers the document.

What a startup should look for in the lease that follows

The lease should say what the letter of intent said, and nothing less. Check that the free rent, the allowance and the escalation figure match, that the delivery condition is described, and that the sublet and renewal language you were promised is there. The landlord's attorney usually writes the first draft, and yours should confirm every legal point in it.