Each year, hundreds of international companies decide to see if Sinatra was right, and open an office in New York City.

These locations range from 100,000-square-foot North American headquarters facilities to 500-square-foot satellite offices that are really just one employee, one desk, and a phone number with (hopefully) a 212 area code.

This international attention is part of what makes New York City the largest commercial real estate market in the world. However, New York City isn’t just the biggest market in the world—it might also be the most complex. Accordingly, it can be an intimidating market for newcomers, but with the right tools, its challenges can be navigated. Following are some basic concepts that are critical to understanding the New York City commercial real estate market.

Lease Structure

Leases in New York City are typically “gross” leases; this means that the building maintenance fees, taxes, and insurance are all covered by the landlord. Tenants are responsible for electricity payments and increases in taxes or operating expenses.

Rent Payments

Tenants are expected to pay rent on a monthly basis in advance.

Basis of Measurement

Rent is paid on the “rentable area.” The difference between the rentable area and the usable area is commonly referred to as a loss factor.

In New York City, the usable area is typically 25%-35% smaller than the rentable area.

Representation Fees

In New York City, the landlord or sublandlord will pay the commission fee upon completion of a lease document. This may seem like a conflict, but the tenant is, in effect, compensating the broker, albeit through their financial obligation to the lease.

Condition of the premises at the start of the lease

Landlords will deliver the space with a custom fit out, a pre-existing fit out, or demolished with a cash allowance.

Condition of the premises at the end of the lease

Excluding specialty alterations (such as vaults, reinforced security areas or any other feature costing more than a customary demolition), tenants are typically not required to restore the premises to their original condition.

Incentives

Landlords will usually provide new tenants with a tenant improvement allowance, which is colloquially referred to as a “TI package.”

The TI package represents the landlord’s contribution to the fit out and is outlined in the work letter.

Landlords will either provide a cash allowance, or complete the work themselves based upon a mutually agreed upon plan.

While this list doesn’t come close to covering the myriad intricacies of the New York City real estate market, it’s a good place to start. Hopefully, armed with appropriate information and guidance, foreign companies will be able to carve out their own niche in New York City. Because, if they can make it here…

Well, you probably know the rest.

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