With the tanking of the stock market for Internet firms back in April, entrepreneurs are finding that landlords want more guarantees that they can pay for their leases. With space that needs any customization, landlords are asking for and getting a year s rent up front, usually in the form of a letter of credit. To be creative and preserve capital, David Gelfand, senior managing director of real estate firm Julien J. Studley, Inc., says companies should investigate surety bonds, insurance products that keep the line of credit open without compromising the needs of the landlord.
Premiums are less than a letter of credit.
Gelfand said they aren t as popular here as they are on the two coasts. He also suggested pre-payment of rent in lieu of a security deposit. One client recently put down six months rent on a year lease. You ve got to pay eventually. Some landlords are entertaining performance-based milestones, such as earnings, as ways to reduce letters of credit.