Power and Control

I took a class in college called “Power in American Society” which was taught by a real old-guard lefty. The subject of the class was how power is retained and how it is transferred, either legitimately or illegitimately.

This particular professor would get so worked up about the subject of the powerlessness of some oppressed group (in those days Central America was a big sore spot) he would turn red and literally get spitting mad. He died of a heart attack about a year after I took the class. No big surprise.

Real estate transactions are all about the transfer of power and control and any real estate transaction can come to seem like a power struggle where both parties fear being abused and some people react by getting spitting mad.  In a tenant’s market, as it was for a few years after 2008 tenants were the scarce commodity and had all the power. Today the pendulum has swung back hard the other way and landlords are asking more and offering less.

This isn’t such a bad thing because it means the economic pulse of the city has quickened.

But it also doesn’t mean tenants have lost all control, it just means that the control lies in giving yourself options.  Here are some suggestions:

First, start early, be flexible and ready to devote resources to the problem.  If you find a space that’s perfect, but you have to take it earlier than you might like, negotiate hard for enough free rent to cover any overlap, but be ready to pay double rent if the space is worth it.

Second, keep looking, even when you think a deal is done.

Third, have a back up plan in mind.  This may be extending your current lease or being prepared to take an alternate choice.

Fourth, be realistic about how much things cost. In a landlord’s market, they may ask unrealistic rents, but they have the expectation that in a market this crowded, somebody might be willing to pay it.

Flexibility and options are the best way to end up with a good outcome at the end of the day.

Maslow’s (Amended) Heirarchy of needs

In the early 20th Century a psychologist named Abraham Maslow proposed that human needs fit into a five-level hierarchy: The lowest need is that of physiological well-being — including the need to eat and drink — followed by the need for safety, then for belonging and love, then for esteem and finally for self-actualization. The emergence of each need characteristically depends on the prior satisfaction of a more basic need.

Over time I’ve noticed that there is a hierarchy of needs that applies fairly universally to businesses and space as well.  A business’s start up phase corresponds to the first phase: the need for physiological well-being where only basic needs must be met.  Typically, money is short and is flowing out for research, development, inventory, or just living expenses, and most people don’t want to incur an expense for rent.  So a business's first space might be a founder’s living room or a borrowed desk in a friend’s office. In this phase it’s usually only the founders working to build the product or make the first sales contacts and a New York City equivalent of a hovel would be fine, if a hovel could be found.

In the next phase, usually the work load is getting to be too much for the original founders and some help needs to be added.  Around 2 to 10 employees will be added and space must be found for them.  But still, it usually means working in whatever make-shift space is available: a sublet in a lawyer’s office, maybe, or an unused fashion showroom working on folding tables and chairs.   Maybe, if the company is really lucky, it can score some space in an incubator that has a ping-pong table and a stocked kitchen rather than just a Mr.Coffee that has to be cleaned out in the bathroom in the hall.  The only measures that really matter are that the space is warm(ish), dry, electrified, with internet and 24/7 access.

In the next step, the company has started to gather enough resources so that the founders don’t lose sleep before every pay day.  A solid round of investment or a solid base of customers seem to provide some measure of security and so the company feels comfortable upgrading its surroundings, but just a bit.  Some common actions are to look for space in the neighborhood the founders have always wanted, to find a space that offers more sunlight and feels slightly more open and less cramped.  They start to see the space they want, and by extension themselves, as worth more and they will invest a little more time and money into searching and finding the right place. Still, the maximum term the company will probably commit to is about 3 years since they still don’t trust they can see clearly enough into the future to commit to anything longer.  

After that, depending on how the company is scaling, they may plateau at 15 or 20 employees, or they may grow to 50 or the sky’s the limit. 

One thing I like about what I do is that I get to meet a lot of dreamers.  Moving from one hierarchy to the next is a leap of faith and that faith inspires me every day.