How to Choose a Tenant Rep Broker for an NYC Startup

What a tenant rep broker does for a startup

A tenant rep broker works for the company taking the space. The job runs from the brief to the keys: turning your headcount and timing into a requirement, surveying the market, building a shortlist, running tours, requesting proposals from landlords, comparing them, negotiating the letter of intent, and working the lease alongside your attorney until it is signed. A good one stays through the buildout, because the allowance, the schedule and the landlord's approvals all depend on what was negotiated.

The landlord has its own agent, usually called the listing or agency broker, whose job is to lease that building on the best terms for the owner. Both are legitimate roles. The point of hiring your own broker is to have someone on your side of the table who knows the market as well as the landlord's agent does.

Six tests that separate the good ones

Every firm will tell you it puts clients first. These six tests let you check, and each one can be run in a single conversation.

• Tenant-side track record in your submarkets and size band. Ask for the deals the broker closed for tenants in the last two years, in the neighborhoods you are considering, at roughly your square footage. A broker who leases full floors to large corporate tenants and one who places 30-person teams know different landlords, different buildings and different concessions. Names are better than adjectives, and anonymized deals with real terms are fine when clients are confidential.
• Who will actually run your search. Ask who will be on your weekly calls, who will tour with you and who will negotiate the letter of intent. At some firms the senior broker who pitches hands the work to a junior team; at others one person carries too many searches at once. Either can work, but you should meet the person doing the work before you sign a representation agreement.
• Access to sublease and off-market inventory. Some of the best value for a growing company sits in space that never reaches the public listing sites: subleases from companies that have shrunk or moved, floors a landlord has not yet marketed, and space coming back before a lease expires. Ask how the broker finds it and how many of their recent deals came from it.
• Proposals compared on effective rent, not asking rent. Ask to see a proposal comparison from a past search, with client names removed. Every offer should be converted to the same basis, with free rent, the improvement allowance, escalations, the term and the rentable square footage all priced in. A broker who compares offers on asking rent alone is leaving most of the negotiation unread.
• Buildout and project support. Signing the lease is roughly the halfway point. Ask whether the broker will arrange test fits on the shortlisted floors, get a contractor's estimate before you sign, size the allowance against that estimate and stay involved through construction. The cheapest lease can become the most expensive office if the buildout overruns.
• References from similar companies. Ask for two or three clients at your stage and size, and call them. Ask what the broker got wrong, how fast they responded and whether the person who pitched was the person who negotiated. A broker who cannot produce a reference from a company like yours is telling you something.

Effective rent, worked through

Here is why the fourth test matters. Take two hypothetical offers for the same 5,000 rentable square foot floor on a 5-year term. Offer A asks $80 per square foot, with 5 months of free rent and a $40 per square foot improvement allowance. Offer B asks $76, with 1 month free and a $10 allowance.

Over the term, Offer A's rent totals $2,000,000, less about $166,667 of free rent and $200,000 of allowance, for a net of about $1,633,333. Offer B's rent totals $1,900,000, less about $31,667 of free rent and $50,000 of allowance, for a net of about $1,818,333. Spread over 5 years and 5,000 square feet, Offer A works out to about $65 per square foot per year and Offer B to about $73.

The offer with the higher asking rent costs about $185,000 less, provided you would spend the allowance on the buildout anyway. This simple version leaves out escalations and the time value of money, and a good broker runs it both ways and shows you the math. These figures are an illustration, not quotes. For what space is actually asking today, see the live rent table.

Who pays the broker in NYC

In most NYC office leases, the landlord pays the tenant rep broker's commission, and the tenant does not write a separate check. The commission is set in an agreement between the landlord and the brokers and is commonly calculated from the rent over the lease term, which is why a longer or larger lease produces a larger fee.

That is the norm, not a rule. The lease terms and the commission agreement decide who pays on any particular deal. In a sublease, the company giving up the space usually pays. Some tenants choose to pay a broker directly, by fee or retainer, to separate the broker's pay from the size of the deal. Whatever the structure, you are entitled to know it before you commit.

Because the fee usually grows with rent and term, ask every broker how they advise when the right answer is less space or a shorter lease. A good one will have an example ready.

The dual-agency questions to ask any broker

Many NYC brokerages, large and small, also lease buildings on behalf of owners. That is normal and often useful, because agency work gives a firm deep knowledge of the buildings it represents. It becomes a conflict when your broker's firm also represents the owner of a building on your shortlist. In New York, a broker who represents both sides of the same deal needs the informed consent of both, so ask these questions early, before you share your budget or your walk-away terms.

• Does your firm represent the owner of any building on my shortlist, or hold a leasing assignment there?
• If it does, how and when will you disclose that to me, and will you put it in writing?
• How are you paid on this deal, by whom, and does your pay differ from one building on my shortlist to another?
• Who at your firm works for the owner, and how is my information kept from them?
• Will you show me space where your firm earns less, or nothing, if it fits better?

Clear, written answers are what you are looking for. Hesitation is an answer too.

Red flags

• They will not say how they are paid on your deal, or by whom.
• The shortlist leans on one landlord, or on buildings the firm leases for owners, without that being disclosed.
• Proposals arrive compared on asking rent only.
• They want a long exclusive representation agreement with no way out, before showing you any space.
• They cannot name recent tenant deals at your size in the neighborhoods you are considering.
• The senior broker who pitched disappears after you sign.
• Nobody raises buildout cost or timing until the lease is signed.
• Every space is about to be gone. Real scarcity happens, but a broker who manufactures deadlines is negotiating against you.

Running the selection in two weeks

Choosing a broker should take less time than the first round of tours. A simple process works for most startups.

• Write a one-page brief: headcount today and in 12 to 18 months, target move-in date, budget, the neighborhoods you would consider, and must-haves such as power, light or meeting rooms.
• Send the same brief to two or three firms and ask each for a short response: a market read, a few sample spaces, and answers to the dual-agency questions above.
• Meet the person who would run your search, not only the person who pitches.
• Call two references for each finalist.
• Sign a representation agreement with a defined term and a clear way out if the search stalls, and read how the broker is paid under it.

A broker worth hiring makes this easy, because the answers are already in hand.

How Nomad works

Nomad Property Group is a licensed New York real estate broker at 276 Fifth Avenue. When a startup gets in touch, a Nomad broker reaches out within the hour during business hours, and the first shortlist follows within 24 hours. In most transactions Nomad's fee is paid by the landlord; as with any broker, the lease terms decide it on each deal.

Nomad also offers agency leasing for building owners, so put the questions on this page to Nomad as you would to anyone else. The team has delivered 300+ offices and leased 2M+ square feet, and the same firm offers construction management and facilities management. The tenant brokerage service is described on its own page, and the quickest way to start is a short brief through the start page.