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How Hard Could it Be?: Adventures in Office Space
May 29, 2008

I just wrote a check for $215,481.75. And that was only a deposit.

By: Joel Spolsky

We're moving. Our lease is about to run out, and we have 21 employees crammed into space built for 18, so I started looking for new offices on January 23. We lost some time because a deal to expand at our current location fell through -- it turned out that the extra floor we wanted wasn't actually, to use the real estate jargon, "available." This technicality had been overlooked by the leasing agent all the way through to the point at which we were scheduled to sign a lease. Such is the Byzantine rug market of commercial real estate. Luckily our current landlord was a real mensch and let us stay on a few extra months.

Our agent, Ruth Colp-Haber, quickly came up with a list of several alternative spaces to look at in downtown Manhattan. Why downtown? This spring, according to TenantWise, the average asking price for Class A office space was about $95 per square foot in midtown but only about $52 per square foot downtown. I assume that's because the average Class A CEO lives in Greenwich, Connecticut, and for them the idea of taking the subway from Grand Central every day is just too horrible for words. My employees mostly live in the city; if anything, downtown is more convenient for them.

The first space we looked at seemed great. The rent was below market. The landlord had a terrific reputation. The building, on Broad Street, was one of the first to be renovated for tech companies back in the '90s, and it had ridiculously good Internet connectivity. I was pretty sure this was the place for us.

The rest of the hunt was anticlimactic. We saw a law office with a serpentine layout that we just couldn't get excited about; another place, at 55 Broadway, that was way too expensive; and to top off the tour, a hilariously badly designed office that had the cheesiest wood paneling you've ever seen -- a kitschy attempt by a third-rate financial firm to seem classy. There were wood floors as well as wood walls, and the overall effect was that you were working inside a crate.

It seemed as if the offices on Broad Street were our best bet, so I went back with our architect, Roy Leone. The space was nicely built out, except for one thing: The individual offices were too big for one person but too small for two, so we couldn't really fit everyone. And we couldn't easily adjust the size of the offices. We would have to demolish the whole interior and rebuild it from scratch.

"Can we save anything?" I asked Roy. "The ceilings? Ducts? Sprinklers?"

Half of the cost of an interior building project, I'm learning, is incurred above the ceiling.

Nope, he said. You need a sprinkler and vent in every office. And it's impossible to get demolition crews to cherry pick a few things that you want to keep. It's much easier just to let them gut the place to the slab, Roy said. How much would that cost?

"Hoo-wah," he replied. I've learned that it's never a good sign when your architect says "hoo-wah."

We would have to use union labor, which would mean paying a premium of at least 30 percent. And the building was close to the New York Stock Exchange, where, for security reasons, everything has been closed to traffic since 9/11. So getting a truck anywhere near the building would be difficult. The kinds of things that are trivial when you're building in the suburbs, like making a quick run to Home Depot for a floor sander, are three-hour logistical ordeals in my world.

Bottom line? Maybe $2 million, which we couldn't really afford. And the most the landlord would chip in was $80,000, Ruth told us.

I went back to my desk to try to figure out some way to renovate just half of the floor, squeezing in a dozen more offices and leaving the rest intact. But the next day, Ruth called me back and said, "You know, the landlord at 55 Broadway really wants you in there."

"It's too expensive," I told her.

"I think he might be willing to do a deal," she replied. "And he'll build it for you, so you won't be out a penny up front."

I mulled over the offer. When we moved into our current offices, our rent had been equal to 15 percent of revenue, which was high. But the company grew, and today our rent is only about 2 percent of revenue. The rent at 55 Broadway was roughly equal to 10 percent of our current revenue, and we're still growing.

But was the office really worth 25 percent more than the space at Broad Street? I decided to do some spreadsheets. I got the floor plans and drew in 8-by-10 offices around the perimeter. And I realized something I hadn't noticed before: Even though 55 Broadway cost 25 percent more per square foot, it actually had room for 25 percent more offices thanks to a great layout. The columns holding the building up were around the perimeter, and the core (the elevators, emergency stairs, plumbing, etc.) was extremely compact. The net result was that 55 Broadway was actually worth 25 percent more in rent.

So that's where we're moving. We will be on a high floor, with river views and lots of natural light. There are windows on three sides, which makes it easy to put in scads of private offices. And the landlord has an in-house construction crew and can do all the building for us. Which is terrific. When it comes to New York City construction, the aspirin costs alone can bankrupt a small business.

The only sticking point was that the deal assumed something called "building standard installation." Drywall, low acoustic tile ceilings, ugly fluorescent light fixtures, frightening industrial carpet -- it was the kind of space The Office pokes fun at.

Not our class, darling. My No. 1 priority as CEO is to recruit the top computer science graduates from the top schools. To get them, our office has to look amazing. Otherwise they will go to Google (NASDAQ:GOOG), where they will get foosball tables and bouncy balls, or Microsoft (NASDAQ:MSFT), with its volleyball courts and 388-acre landscaped campus.

Our office has to be bright. That means glass, not drywall. It has to be modern. That means polished concrete floors, not linoleum. It has to have all the amenities found in a first-class passengers' lounge at a major airport.

During the lease negotiation, I sent the landlord a long list of upgrades we wanted -- at our expense, of course. Glass partitions, floor-to-ceiling mosaic tile, imported German fittings by Dornbracht, granite and marble -- and that was just what we wanted for the shower.

I think the building management went into a little bit of shock. What? You want nice? Unheard of. Don't you know that you're going to have to pay money for nice?

Yes. And it's worth it to us. That's our business model. Nice offices, smart programmers, great products, profit.

Eventually the landlord realized that we were serious. We made a $215,481.75 deposit toward the extra cost of nice and sat down to go over our plans with the building's architects, Russell DeRosa and Natasha Suzansky.

Like many architects who do a lot of commercial work, they were thrilled to finally have a client ask for something other than cheap. These poor architects get out of grad school, imagining all the creative, artistic spaces they will design, and they get their first clients, and they sit down for a meeting, and they start talking about negative space and permeability and modernism, and the clients cut them off and say, "Actually, we want cheap."

And the architects say, "How about if I design something nice and cheap?"

And the clients say, "No. Not nice. Not nice and cheap. Just cheap."

So if you ever hire an architect and tell him or her to create something cool enough to put in a portfolio to show to potential clients, and you invite the architect to make a beautiful and useful space instead of a cheap and nasty space, the architect will love you and go to the ends of the earth to figure out ways to raise the ceilings another 2 inches. Which is why we're going to have a great space to move into at the end of the summer.

There will be a reception area with a dry creek of stones and pebbles and plants that will make a great first impression on our guests. There will be a big lunchroom, because we all eat together, as well as a coffee bar, a lounge, a 180-gallon saltwater aquarium, the aforementioned shower, a library with reclining chairs for naps, two private meeting rooms, 20 private offices for programmers, 23 adjustable-height workstations for everyone else, Wi-Fi, a big screen for movies and video games, and enough glass to build the world's largest ant farm. We will have some room to grow, finally. And in two years, if all goes well, it will be too small for us.

Joel Spolsky is the founder and CEO of Fog Creek Software in New York City and the host of the popular blog Joel on Software.

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