8 Things You Could Buy With Your NYC Office Security Deposit

by Knotel: Jun 06, 2018

Nobody’s ever signed a lease due to the exciting prospect of forking over a hefty security deposit. But for decades, security deposits simply came with the territory. If you wanted to move your company into an office, you’d have no choice but to cut the landlord a big check—in addition to paying several months’ rent up front.

Generally speaking, security deposits for commercial real estate in New York City can range anywhere between two months and one year of rent. Landlords typically assess tenants to determine their perceived financial risk before deciding how much to charge. If yours is an established company with a track record of financial success, you’ll probably end up with a smaller security deposit than a startup would.

In New York City, companies collectively have $11.8 billion tied up in security deposits.

These funds sit in interest-bearing accounts and—if all goes well during the term of a lease—are typically repaid within 30–45 days of the lease ending (though as many folks know all too well, it can be exceptionally difficult, if not altogether impossible, to get a security deposit refunded).

When cash is tied up in a security deposit, it can’t be used to grow a business. Depending on the financial well-being of a specific company, security deposits can potentially cripple cash flow—making it that much harder to meet business goals.

Imagine a company has signed a seven-year lease for a 12,000-square foot office at $70/sf. That’s $70,000 in rent each month. Since the business is relatively new, the landlord decides to charge them nine months’ rent for their security deposit. That’s $630,000 that the company won’t see for seven years—if they see it at all—unless they break their lease.

That’s a lot of money any way you slice it.

What if there was a way to secure the office space you needed without having to write a gargantuan security deposit check? Here are eight ways you could invest that money.

 

1. Hire talented employees:

That $630,000 security deposit could be used to hire 10 talented employees at $60,000/year—and you’d still have $30,000 left over.

 

2. Give everyone a raise:

Let’s say 80 employees work incredibly hard out of your 12,000-square foot space—to the point you want to reward them with more money. You probably won’t wind up giving everyone a $7,900 raise. But if you didn’t have to pay the security deposit, you could afford to.

 

3. Buy 225 top-of-the-line MacBooks:

Apple’s most powerful MacBooks sell for roughly $2,800. You could buy 225 of them. Since you only have 80 employees, though, you can get everyone a new MacBook—and have over $400,000 remaining.

 

4. Take your team on an epic offsite:

Invest your security deposit in an awesome team-building activity that your employees won’t forget anytime soon. Take them to Europe or an island in the Caribbean. Spring for top-notch lodging and high-quality food. Better yet, be conservative and figure out how to put together an awesome trip for $100,000 or less. Use the remaining $500,000 however you want.

 

5. Cover a weekly happy hour for 12 years:

You can also use your security deposit to cover happy hours for a long, long time. For sake of argument, let’s say you spend an average of $1,000 on a bar bill every time you take your team out for drinks. Your security deposit will cover 630 weeks—or over 12 years—of drinks.

 

6. Send more employees to conferences:

Conferences aren’t cheap. But with $630,000 back in your bank account, they’re easier to afford. Use your security deposit to send more of your team to the conferences and trade shows that make the most sense for your industry. Keep in mind that 87% of millennials say professional development opportunities play a critical role in whether they stick around for the long haul. You’ll benefit from more knowledgeable employees who are more likely to stick around.

 

7. Acquire a smaller business:

Maybe there’s a small business you’ve had your eye on for some time. Use your security deposit cash to contribute to buy them out. Maybe throw in some equity, too, if the asking price is too high.

 

8. Buy a company helicopter:

You almost certainly don’t need a company helicopter. But wouldn’t you rather have one than have millions of dollars tied up in a security deposit?

 

Under the old model of commercial real estate, you had no choice but to pay a sizeable security deposit when you signed an office lease. With Knotel, large security deposits are not required—giving member companies access to the cash they need to grow their businesses.

To learn more about how your business can save money on security deposits, check this out.