“When Can I Plan on Being in Space”? This is a common question posed to The HedgeFundSpaces.com Team. The answer is difficult as its highly dependent upon a number of factors- including the amount of work necessary in the new space, technology needs, timing for installation of data lines, whether the space is furnished or not, etc.
In order to properly plan for the future, we recommend planning for the move at least six months prior to the date required to be in the new office space. Since most immediate office space requirements don’t allow the luxury of a six month process, when timing is of the essence, we recommend only considering built and furnished spaces. (Looking for built and furnished office space? Click here for our free search.)
Below is a loose timeline for the typical office leasing process in New York City.
1-2 Months: Identifying potential spaces and getting educated on the marketplace.
This includes touring available office spaces, determining “likes and dislikes”, assessing relative value and getting comfortable with the building stock in the geographic locations you are contemplating.
1 Month: Negotiating deal terms with multiple landlord’s and preparing a final offer sheet indicative of the basic terms of the lease.
During this time period the basic lease terms, such as base rent, free rent, landlord’s work, base years, escalations, electricity, etc. will all be negotiated. Our goal is to have a number of spaces in consideration and have the landlord’s compete for your tenancy. There is no better leverage than having multiple realistic options and being able to say with confidence, “the best economic deal will be the deal I am going to make”.
1 Month: Negotiating the lease or sublease document.
A lease is a legally enforceable contract between a landlord and tenant. It is commonly a long document, at times in excess of 100 pages. The process of going back and forth between tenant and tenant’s attorney (in consultation with the tenant’s broker) and landlord and landlord’s attorney (in consultation with the landlord’s agent) often takes longer than all parties would like.
1 Month (For Subleases only): The Overlandlord Consent process
After negotiating a sublease document with the sublandlord, the document is sent to the building’s ownership for consent. The landlord must be reasonable with their decision to accept or deny the subtenant in question. This oftentimes takes up to one month.
1 Month: Making minor changes to the space.
If a space is fully built, it still takes a few weeks to a month to make minor changes. (i.e. repainting, replacing carpets, adding outlets, taking down a wall, building another office etc.)
3 to 4 Months or more: Building out space from scratch.
If a space is in raw condition, the build-out process can take anywhere from three to four months (or more) from the date that floor plans are finalized by landlord and tenant. Also, the landlord typically will not start the process until a lease is signed.
For a fund that has an existing office lease with a pending lease expiration, not only do they have to identify and negotiate for new space (assuming the existing location no longer suits the fund’s needs) but they also have to time it perfectly so there is little overlap between the date they can move into new space and expiration of the existing obligation. Nobody wants to pay rent at two locations! It is crucial to avoid “holding over” (remaining in office space past the lease expiration) as its common to be charged a holdover penalty of double (and at times triple) the monthly escalated rent, even if a tenant does not stay for the entire month.
As a start-up hedge fund, oftentimes the sooner you can get into new space the sooner you can launch your fund. Any delay can be costly as it puts off the date when management fees start accruing and may result in missed investment opportunities. When necessary, our start-up clients move into a managed space or an executive suite while they interview, hire and search for a permanent office. (Need help finding a built and furnished executive suite space?Click here for our free search.)
In closing, we suggest starting the process far in advance of when you anticipate needing to be in your new office space. It is never too early to begin educating yourself on the market and considering opportunistic transactions that may not exist during a protracted space search. We can all agree we spend more time in our office than we do in our residences and therefore, this is an important decision and one that should not be rushed!