The Signature Gets the Worm
In today’s world of fast-paced retail leasing in Manhattan, a hot restaurant-equipped space does not last long on the market. Restaurateurs are perhaps the most active operators in the market right now, but because of today’s unsure economy, landlords have become very weary of new concepts and operators.
This leaves local businesses at a disadvantage.
Even though they are usually able to bid near the market asking rent, landlords will typically demand that an untested user pay a higher security deposit—up from three to four months through as much as six months base rent—but even then, if the space attracts the liking of a credit tenant, the corporate signature usually gets the worm. Sure, the time to complete the lease with a corporate tenant might take an additional two to four months, but landlords seem willing to lose that rent if it means they are leasing to a financially-sound tenant who is guaranteed to be able to pay for the extent of the lease term. The big picture is that real corporate tenants provide a guarantee from the substantial parent company and landlords know they can depend on them, so signing a credit tenant is an appealing option for those landlords looking to increase the value of their property.
Although at times it might seem an uphill battle, there are ways to get the deal done as a non-credit tenant. As a tenant broker, we try to sell our customers based on proven track records, landlord references, financial statements, and of course a significant security deposit. In my experience, mom-and-pop landlords are more likely to entertain the idea of an established non-credit tenant over the sexiness of a corporate tenant deal. They are also easier for a non-credit tenant to deal with as mom-and-pop landlords are prone to two-page LOIs, as opposed to the eight to 10 pages usually offered by more corporate owners. They are happy to get the space off the market and begin collecting immediate income rather than deal with corporate holdups.
Though the tight market and fierce competition may be hard to navigate for an untested restaurant operator, the hard work is well worth it because these non-credit tenants and innovative concepts help maintain the creativity, liveliness, and originality of New York City.