WHAT HAS EVERYONE YOU EVER TALKED TO ABOUT REAL ESTATE TOLD YOU?

Location Location Location!  True for residential and commercial

Building classifications  newer, great location, construction, amenities, parking- B , C, & D.

Consider your company image…does it fit your location?

Consider do you need a minimum traffic count, what plans does the

City or county have for the roads etc in the next 5 years

Is that area of town growing? 

Leasing negotiations – Can you get a better deal by signing a longer lease?  Be careful…look at your 5 year plan…can your business stay in the same amount of space for 5 years?  If you downsize…can you sublet?

WHY OWN COMMERCIAL REAL ESTATE?

As a landlord- fewer hassles.

Less wear and tear on the building and it’s improvements.

Used generally 5 days a week 8-5 compared to 7 days a week 24/7. Generally no children or pets. Build in increases in real estate taxes and insurance in your escalation clauses.

For your own business

No increases in rent you brand your location and business (right on the corner and right on the price!) When you need to make changes in the physical facility, no negotiation is required

Build equity i. e. wealth in residential when you are interested in a property, you generally get the ball rolling by writing an offer in the form of a contract.

In commercial real estate, you get the ball rolling with a letter of intent before going to contract.  The letter of intent usually is considered non-binding but it does state the terms and provisions and contingencies. 

Due diligence clauses can include environmental surveys, land use, zoning issues.  Because these can be very involved the time it takes to actually come to a complete agreement and close a commercial piece of property can be quiet lengthy. 90 days to 1 year is not uncommon…..It probably took you 30 days to close on your residential property.

A Quick Guide to the Language of Commercial Real Estate

Prepared by Georgia Turner

Base rent

A set amount used as a minimum rent in a lease with provisions for increasing the rent over the term of the lease

Base Year

The year of the lease term which is used to compare subsequent years; usually when calculating operating expense pass thorough.

Building Classifications

Class A Usually newer buildings with superior construction and many amenities for tenants. The class of a building may vary depending on the location of the property.  What is class B in one market could be class C in another market. Location, age, parking, traffic count, amenities, access all contribute to the classification.

Building Core

The section of the building where ventilation shafts, stairwells, elevator shafts, restrooms etc are located

Common Area 

There are 2 components of the term common area.  If referred to with the Load Factor calculation, the common areas are those areas within a building that are available for common use by all tenants or groups of tenants and their invitees.  On the other hand, the cost of maintaining parking facilities, malls, sidewalls, public toilets, service facilities and the like are included in the term common area when calculating the tenants pro-rate share of building operating expenses

CAM (Common Area Maintenance)

Additional rent charges to the tenant in order to maintain the common areas of the property shared by tenants in the building or complex.  Examples: outdoor lighting, parking lot maintenance, insurance

Condominium

A form of real estate, usually a dwelling with individual ownership of separate portions of the building plus shared ownership of common areas.

CPI

Consumer Price Index, sometimes used to index rental rate escalations. Commonly used to increase the base rent and protect the landlord’s rental stream against inflation

Demising Walls

The partition wall that separates one tenant’s space from another or from the building’s common area such as a public corridor

Effective rent

The actual rental rate to be achieved by the landlord after deducting the value of the concessions from the base rental rate paid by the tenant

First Generation Space

New space that is currently available for lease and has never been occupied by a tenant

Escalation Clause

A clause in a lease which provides for rent to be increased to reflect changes in expenses paid by the landlord such are real estate taxes, operation costs, etc.  This may be accomplished by several means such as a fixed periodic increase, increased tied to the Consumer Price Index or adjustments based on changes in expenses paid by the landlord in relation to a dollar stop or base year reference.

Fixtures  

Personal property so attached to the land or building (improvements that are screwed or glued) that they are considered part of the real property

Full Service Rent

An all-inclusive rental rate that includes operating expenses and real estate taxes for the first year.  The tenant in generally still responsible for any increase in operating expenses over the base year amount.

Gross Lease 

A lease of property where the tenant pays a flat sum for rent and the landlord pays for all property charges usually included in ownership.  (i. e. utilities, taxes and maintenance)

Leasehold improvements

Improvements made to the leased premises by or for a tenant.  Generally, the lease negotiations will include in some detail the improvements to be made and who will bear the cost of the improvements.

Letter of Intent 

An informal, usually non-binding preliminary agreement stating the proposed terms for a final contract.

Load Factor

The common area calculation used to convert usable square foot measurements (usually, the physical space actually occupied by the tenant) to rentable square foot calculations.  

Net Lease

The lessee pay not only a fixed rental charge but also expenses on the rented property, including maintenance 9 can include roof and structural repair and replacement).  A triple net lease (also net net net) requires tenants to pay all utilities, insurance, taxes and maintenance costs.

Parking ratio

The number of parking spaces available expressed in relationship to the rentable square footage.  Expressed as X spaces for every 1000 sq feet would show a parking ratio of 2:1000

Percentage Lease

A lease of property in which the rent is based upon the percentage of the sales volume made on the specific premises.  There is usually a clause for a minimum rent as well.

Real Property

Land and any capital improvements (i. e. buildings) erected on the property

Rent-able Square feet

Usually the space measurement which incorporates both the usable square foot measurement as well as the common area.  The difference between usable and rent-able is generally between 10-15%