Office Space Options and Startups Pt 3 of 4 Ep 8

0:00

as so. So back to the startups themselves, when you interview them? How do you know that they're financially qualified or fit for that for that landlord? Is it they're about to raise their next round of funding, they have money in the bank, or they're talking to investors kind of what stages Could they be at for them to actually have a serious conversation? And do you turn any companies down?

0:25

Typically, I tell my clients that these landlords are looking for a profit machine, a balance sheet and income statement for the last three months, usually for the last two years, but they don't have two years worth of that kind of information. But whatever they can provide. So they're angel investing who their backers are okay, if some big name backers, or an angel that would have VCs, that helps a lot, right. And also, if they have money in the bank, so that they can show they've got so much cash in a bank account that they can support landlord just want to make sure they're going to pay their rent or whatever obligation of service that they have. Because you know, a lot of startups to burn through cash, they've got a high burn rate. So the landlords just want to make sure that because they're investing in that company, when you think about it, yeah, it's, you know, it's money that they're generating every month. And so they want to make sure they're going to pay their bills. And then there's personal guarantees that are often asked for, okay, from startups.

1:21

So with that personal guarantee, say, I'm the founder of the company, is it me and my whole team that's guaranteed Is it just me and the other co founders, the what's the guarantee on

1:30

it's usually a personal guarantee, it could be a person who is one of the corporate officers who would be willing to guarantee the least people are not always that inclined to want to do that, and put their own assets on the line. So sometimes they'll ask for a letter of credit, or an increased security deposit is another option, right. So, you know, they really want to just try to cover upfront costs, like commissions, tenant improvements, any sort of concessions that have been given to these startup companies,

2:00

tell me about the tenant improvements, exactly what that is. And before answering that, so on to make another statement. If you want more information on this or any other topics we've covered, please visit us at Silicon Valley successes. com was Silicon Valley successes, calm right back to you. So what's tenant improvements,

2:18

I'll turn it on purpose, really the the criteria and the preparation of the space for the tenant to operate in their own business operations. So it's a matter of, for example, putting up walls, putting up offices, conference rooms, it could be a kitchen at it could be something like that. So it really up to the specs and design of the tenant. And then that will be negotiated with the landlord who pays for what how much of free rent that they can get. And that's where this is where the brokerage come in. And you can negotiate that on behalf of the 10 and the landlord. So the broker

2:52

come in and you go to the broker, listen, I want one month free rent, or three months for your and what's common, and what areas can a broker negotiate for the landlord or the tenant?

3:03

Well, in a tight market where the rents are really high, and it's very competitive, landlords can call the shots if they don't want to give free rent. They don't have to give free rent in a softer market, I would say one month of free rent for every, you know, two years or two months free rent for a three to five year type term. But that would be really saying a corporation that right? I mean, just a start up what's a typical startup? least six months? A year? Two years? I would say about a year,

3:28

yes, about 12 months, okay.

3:30

And if, say, 11 months in the startup goes, you know, we're have to file for bankruptcy. Sorry, that personal gain T, I really have no money because I spent all the startup what happens that?

3:42

Well, we as brokers can help to market the space and try to get another tenant to backfill and take that obligation off of the tenant. Technically, they're still obligated until we can, you know, relate the space, we can tell the landlord landlord may have another tenant because they do a lot of marketing as well. Some of them, they may have someone that might want to just backfill that space. So it just really getting the word out and trying to help these people and and make it as painless as possible. Do landlords every go to tenants and go listen, I have someone else that wants to pay more than what you guys are currently paying. I'll give you some money. If you leave.

4:17

That's happened. It could happen. Yeah, a lot of times, what happens now is that, you know, the climate is very kind of like, unpredictable. So you have a lot of tenants that are either downsizing or they're expanding. And so they need new space, it may want to abandon the current space, so we can help sublease that space as well. And if they need to leave early, then we can help them something except space as well. So really determines a lot of our communication between us brokers and the tenants and allows Mike Phillips and as well, so how often should the tenant be talking to you every three, four months or monthly, I recommend it because I put a client in a space back in October, and by May of the following year, we were looking for new people, then they had signed a one year lease obligations. So every couple months is a good idea to be just on the chicken them. So you

5:06

say your broker is actually part of you, your team, almost like your lawyer, your accountant, bookkeeper, that one guy always they're looking for that next operator space for you?

5:15

Well, yeah, it's all about relationships. And you want to start early on having these relationships that hopefully build into longer future relationships and growth that you're helping them to achieve. Because I, you know, I've had a client that started small and about 1200 square feet, they, I then expanded them to, like 5000 square feet, and then they move to 15,000, now they're in 30,000, it's just a great success story. So you love when you can stay on that path with them and be in touch with them and, and help them in their growth, especially with

5:42

the amount of people that they're bringing on and their space needs to drastically change when they get to those levels of needing bigger space to brokers also make other introductions to maybe to investors or potential business partners or to brokers ever reach out to their personal network and say, Hey, I have this startup here. I'd like to introduce you to is that ever happened?

6:05

Yeah, that's a good that's a great question. Actually, for me, I do because I take an interest in the tenant, I take an interest in a company because I've learned a lot through the process of helping them qualify. And then in that process, I actually asked them, you guys need help with funding, when's your next event would you like to be close to another type of 10 our type of investors because we'll know who's in a building or who's nearby and so we I like to connect them and it makes sure that they're also successful nervous as hopefully we play a role in that because a stressful 10 that will be a successful future business and they might grow and we can help them there as well. And then the lender will also help out because they will know that the they want their tenant to be financially successful so they can, you know, grow and take care of their property.