Jared E. Paioff, partner at Schwartz Sladkus Reich Greenberg Atlas LLP.

NEW YORK CITY—New York City has become a hub for foreign tech startups. Germany, Israel, Canada and France have all established tech accelerators here, and, as a result, the industry has grown dramatically in the past 15 years. Today, New York City is second only to Silicon Valley as a home to technology and other emerging companies. With all that New York City has to offer, companies tend to lose sight of some of the logistical challenges that arise when creating a physical presence here, such as finding and leasing the right office space.

Typically, foreign entities will form a wholly owned subsidiary in the US to run their operations here, and in many instances, they incorporate in Delaware and register to do business in New York, where their global or U.S. headquarters will be located. But once foreign startups are ready to open their doors in New York, they need to find an office to accommodate their current (and often times, projected number of) New York-based employees. Startups that begin operations in a co-working space may, after a year or two, require 40,000 square feet of space, and this exponential growth, while certainly a positive, comes with obstacles. It is not uncommon for a company to have four leases in five years, so a ten, seven, or even five-year lease becomes problematic unless it is structured with significant flexibility.

While the right to sublease is almost always included in an office lease, it can be heavily restricted. Landlords also may insist upon a sizable security deposit in the form of cash or a  letter of credit, or even a personal guarantee, for newly formed entities that do not have a track record with strong financials. Plus, the transaction costs of building out multiple spaces over the course of a few years, broker's fees, legal fees and moving costs add up. For a new or emerging company, these added restrictions and expenses can be financially onerous.