Continuing from the commercial real estate terms blog, here are an additional 16 common commercial real estate terms, along with their definitions.
Lease Extension Option
A lease extension option allows the tenant to extend its lease past the current lease expiration date. The tenant is not obligated to extend, but the landlord is.
Lessee
A lessee is a person who is leasing property. Also known as a tenant.
Lessor
A lessor is an entity or person who leases property to another entity or individual. Also known as a landlord.
Letter of Intent (LOI)
A letter of intent (LOI) is a written document that declares one party’s commitment to do business with another party. The LOI is used to state one’s full intentions to work with another entity. Typically, LOIs are not legally binding.
NNN (Triple Net) Lease
A NNN lease, also called Triple Net lease, is a type of lease agreement in which the lessee agrees to pay for the three net expenses: (1) real estate taxes, (2) property maintenance, and (3) insurance. In this type of lease, the lessee is responsible for paying these fees in addition to their base rent fee.
Option to Buy Clause
The Option-to-Buy lease clause allows the tenant or lessee to purchase the property it is currently leasing. If this clause is added to the lease, terms of the sale typically are included.
Rent Concessions
A rental concession is an act of rebate made by a landlord or property owner to adjust lease terms to attract tenants. Typically, a landlord may reduce the rent, including a tenant improvement allowance, or offer free amenities.
RSF (Rentable Square Footage)
Rentable Square Footage refers to the usable square feet of a property plus a percentage of the building’s shared common areas such as bathrooms, hallways, and lobbies.
Tenant
A tenant is an entity or individual that occupies a property that they rent from a landlord.
Tenant Improvements
A tenant improvement is a modification made to a space that makes it more operable for the tenant. For example, if a space has three offices, but the tenant needs four, building the fourth office is considered a tenant improvement.
TI Allowance (Tenant Improvement Allowance)
A TI allowance is a set amount of money allocated by a landlord to be used to make tenant improvements on their property. The TI allowance will be negotiated between the landlord and tenant, and the agreed-upon amount is included in the lease contract.
Triple Net Expenses
The Triple Net expenses include property taxes, property insurance, and CAM (common area maintenance) fees.
Usable Square Footage
Usable Square Footage refers to the area that a single tenant will occupy. This number should only reflect the wall-to-wall square footage of the space that is reserved for the tenant.
Vacancy Rate
The vacancy rate determines the percentage of physically vacant space in a building or market. It compares the amount of available square feet to leased square feet.
Evan Meyer is an experienced commercial broker that can assist with any real estate transaction! See how he can help you today.
While in the process of seeking commercial property leases, it’s common to be unfamiliar with the language or phrases being used. Below are the fourteen common real estate definitions.
Abated Rent
Abated rent, also called rent abatement or free rent is a provision within a property lease agreement that authorizes a tenant to defer rent payments. Abated rent is typically used as a concession to incentivize prospective tenants.
Acceptance of Premises
An acceptance of premises acknowledges the tenant’s confirmation that they accept the property “As-Is” and will take over possession of the premises.
Assignment
A real estate assignment refers to a situation in which the original buyer or tenant (called the assignor) transfers the legal rights and obligations of the purchase agreement or lease to another party (called the assignee).
Building Classifications
Building classifications are the determining factors that define and categorize commercial buildings or structures. Such classifications are based on the property’s usage, location, amenities, and more to denote the condition of the structure for building and municipality authorities. Commercial building classifications include Class A, Class B, and Class C buildings.
CAM (Common Area Maintenance)
Common area maintenance, or CAM, fees refer to the costs associated with operating a commercial building that are billed by the landlord to the tenant. Such expenses include maintaining shared areas such as hallways, stairways, elevators, lobbies, public restrooms, and parking lots. CAM expenses are most common in triple net leases.
Cap Rate
Cap rate, which is short for capitalization rate, is used as a valuation method for real estate investments. Cap rate is calculated by dividing a property’s net operating income (NOI) by the price. The ratio is expressed as a percentage to determine a real estate investor’s potential return on their investment.
Central Business District
The central business district refers to a city or town’s main business area where most commercial property is located.
Coworking
Coworking in real estate refers to a shared workspace that is used by employees from various entities. Coworking usually occurs in large buildings that allow multiple factions to work closely together.
CPI (Consumer Price Index)
The Consumer Price Index, or CPI, is an economic term that measures the average change in prices paid by consumers over a specified amount of time. When it comes to commercial real estate, the CPI is often used as a rent escalator. For example, if a tenant’s monthly rent is set at $1,000 and the annual CPI rate is 5%, the new rent price will rise to $1,050 per month.
Expansion Option
An expansion option is a clause that is negotiated within the lease that gives the tenant preferential rights to expand within the building in which they are renting.
Flex Space
A flex space, sometimes called flexible space, is a hybrid commercial property that includes an office and warehouse space. These spaces are under 5,000 square feet and typically include a warehouse door.
Full-Service Lease
A full-service lease refers to the all-inclusive rental rate included in some commercial leases. This means that the monthly rental rate will also include all operating expenses and building fees such as utilities, property taxes, insurance, and common area maintenance (CAM).
Landlord
A landlord is a person or entity that owns commercial property that is rented or leased to another person or entity.
Landlord Representation
Landlord representation refers to situations when a commercial real estate broker represents a landlord or owner. These real estate brokers help attract the right tenants to a landlord’s property and thereby improves the building’s investment value.
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When a business is in the market to lease a new location, it will have a list of specific requirements. After all, a business's space is the domain that represents a company's culture, ideas, and reputation. Unfortunately, finding the ideal space in the desired location at the right price can be a challenge. A commercial real estate broker can help through the service of tenant representation.
Tenant representation refers to a commercial broker, a tenant representative, or a tenant rep who exclusively represents a business's interests when leasing a commercial space. A tenant rep is a licensed professional specializing in various properties and helps identify the ideal location while negotiating the best price.
Proper tenant representation is essential for business owners as it can save valuable time and resources. In addition, commercial real estate brokers have the market knowledge to show properties most tenants do not have access to.
Additionally, working with a professional broker to help negotiate a lease provides leverage with the landlord. A tenant representative will also lower your risk of making treacherous real estate decisions by helping guide you through analytical, logical decisions.
Consider the following when searching for commercial real estate for your business:
Timing - One of the first considerations when looking for space will undoubtedly be focused on timing. This encompasses when the lease will commence and for how long. Often, the longer the term of a lease, the more concessions. It is also essential to consider the timing of any needed improvements. For example, is the property turn-key, or will the property require modification? A commercial real estate broker can easily help with planning and negotiating the terms of your contract to accommodate these needs.
Size -The size of the space is not only a consideration in the initial stages of searching for a property but also when planning what kind of space your company needs for the future. A commercial real estate agent has experience helping businesses plan for the size of space needed now and for the future.
Specialized Needs - Some businesses have unique requirements, including high fiber-optic internet, sprinkler systems, or need to be in a stand-alone building. Often time specialized needs will narrow down the options to one or two buildings. Consider these needs when evaluating options.
Location - Aside from budget, location is a decision of the utmost importance. Identify what part of town is ideal for your business. Do you prefer to be in the suburbs, downtown, or a rural area?
It is a commercial broker's responsibility to compile all these elements and help you find the ideal property. The perfect space does not always exist or may be hard to find, but Evan Meyer can help you identify a building that meets all your needs.
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Evan Meyer is an experienced commercial broker that can help!
Hiring a commercial real estate broker has several benefits. As licensed professionals specializing in various property types, commercial brokers can find the ideal location for your business. Taking into consideration all of your business needs, a commercial broker will also help negotiate the deal on your behalf, saving you valuable time and resources.
The following are five benefits of working with a commercial broker:
1. Market Knowledge: Commercial brokers have access to off-market opportunities. Some buildings are not listed on the market for the public to see, which can limit your options. With a commercial broker, there are more properties available to you.
2. Negotiations: It pays to have someone on your side during negotiations. Having a professional broker negotiating your contract gives you leverage with the landlord or seller. With their experience and knowledge in the industry, commercial brokers can ensure that you get the best rate possible for your space.
3. Lower Your Risk: There is always risk involved with regards to Real Estate. A trained and experienced commercial broker can recognize risky real estate transactions and guide you towards a better solution.
4. Make Analytical Decisions: Browsing for commercial properties can be an exciting and emotional time, which can hinder the decision-making process. It’s common for eager tenants to say yes to spaces that aren’t right for them based on a whim. However, a commercial broker can help put emotions aside, enabling a logical decision.
5. Let's You Focus on Business: A commercial broker takes over the responsibility and stress of finding a new working space so that you can focus on what truly matters, your business.
Contact Commercial Real Estate Broker Evan Meyer
Evan Meyer is an experienced commercial broker that can help!
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Each commercial space in Reno, NV is unique. Properties have different rules and regulations, as well as varying layouts and tenants. Though this is an exciting process, you must stay pragmatic with your decision-making. Start by getting as much information about the property as possible. The following list will help determine whether or not you will be satisfied in a space long-term:
1. Additional Expenses: Other than rent, what expenses are tenants expected to pay? The most common additional expenses owed by renters include NNN fees, utilities, janitorial services, HVAC maintenance, and more.
2. Mechanical Systems: In the event of a plumbing, HVAC or electrical failure, who will pay for the repairs?
3. Parking: How is parking divided up? Are there dedicated or shared spaces? Confirm that there will be adequate parking for your employees and customers.
4. Telecommunications: What telecommunication companies support the building? Is the building wired for fiber optics?
5. Building Management: How is the building managed? Is there a professional property management company or is it done directly by the owners? Also, if building issues come up, what is the process for remedying them?
6. Tenant Improvements (TIs): Is there a TI allowance? Does the landlord have a contractor they prefer to work with? If tenant improvements are needed, what restrictions exist?
7. Building Hours: What are the building’s open hours? Sometimes, tenants do not have 24/7 access to their space. Furthermore, large office buildings often shut down HVAC systems during off-hours and assess additional fees to use them during these times.
8. Other Tenants: Who are the other tenants in the building? Do any non-compete clauses exist?
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If you need help finding the perfect space for your business to purchase or lease, contact Evan Meyer today.
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A common question I get as a commercial broker is, "how does the tenant improvement process work?" Since most properties will not have a turnkey space for the tenant, alterations are frequently required.
A tenant improvement is a modification made to a space that makes it more operable for the tenant. For example: if a space has three offices, but the tenant needs four, building the fourth office is considered a tenant improvement.
Landlords typically establish a tenant improvement allowance range before listing a commercial space on the market. The actual allowance offered will depend on the tenant's credit strength and the terms of the deal.
1. Landlord Conversion: The landlord will cover all expenses and use their contractor to deliver a turnkey space for the tenant. This is the most common when minimal modifications are required. Landlords may also be willing to offer an entire space conversation for solid tenants.
2. Tenant Improvement Allowance: In this scenario, the landlord would provide the tenant a specified dollar amount of modifications. The tenant then would hire a contractor to do the required work but will always need the landlord's approval before commencing work.
3. At Tenant's Cost: The tenant may be required to cover the entire cost of the needed tenant improvements. This situation may occur when there is weak tenant credit, a low rental rate, a short-term lease, or a landlord's lack of funds. Regardless of the situation, the tenant still needs landlord approval before commencing work. PRO TIP: If the landlord is unable to offer any money for tenant improvements, ask to offset the cost with free rent.
If you need help finding the ideal space and navigating the tenant improvement process, contact Evan Meyer. He can work on your behalf to get the best deal possible.
There are four main categories of commercial real estate: office, retail, industrial, and multi-family. Each commercial property type serves a specific purpose and is intended to generate income and value.
Sometimes there is an overlap between commercial real estate types. For example, a dentist may decide to occupy a space within an office building or retail center.
A city’s largest office buildings are typically located within the central business district, commonly referred to as “Downtown.” Suburban offices are usually smaller buildings. Office buildings may be occupied by single or multiple tenants, depending on the size and concept of the property.
Office buildings are commonly ranked by class: A, B, or C. To learn more about these various tiers, check out our blog.
Retail consists of properties that are used by shops and restaurants. There are multiple types of shopping centers, including regional malls, community centers, strip centers, and power centers. The kind of shopping center is defined by its size, concept, type, number of tenants, and trade area.
Single-tenanted buildings are often occupied by big-box centers like Target and Home Depot, while pad sites remain open for businesses such as banks, restaurants, and other stores.
Industrial buildings are typically located in suburban areas and are often close to major transportation routes for convenient and expedited service. These properties vary greatly in size but are generally large open buildings with minimal office space.
Commercial properties are categorized into four groups:
Multi-family includes all types of residential properties except single-family. These properties consist of apartment buildings, condos, townhomes, and corporate housing. They are six categories:
When leasing a space, it is essential to confirm that the zoning is appropriate for the tenant’s use. Just because a building appears ideal doesn’t guarantee that it is legal to operate a specific business at the location. Always reach out to the appropriate municipality to ensure the building is acceptable and adequately zoned.
If you need help finding the right space for your business or are interested in investing in commercial real estate, contact Evan Meyer today.
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Multiple methods are often utilized to determine the value of commercial property.
The three most common methods are the income approach, the market approach, and the cost approach.
The income approach is the most commonly used method to value commercial property. It uses the income generated by the property to estimate value. Two factors are used:
The value is calculated by dividing the net operating income (NOI) by the capitalization rate:
Value = NOI / Cap Rate
Tip: The higher the cap rate, the lower the property price.
The market approach analyzes actual comparable property sales (comps) and is the most commonly used method to value residential property. It is also used for commercial property. This approach does not account for deferred maintenance, vacancies, or lost collections.
Tip: Make sure comps are comparable and not selected to distort value.
The cost approach estimates value based upon how much it would cost to build. This method includes the value of land, construction materials, permits, and labor.
Tip: Keep in mind that construction projects often run over budget.
Are you curious about how much your commercial property is worth? Evan Meyer is an experienced and qualified broker who is willing to provide a Broker Price Opinion (BPO) at no cost to you.
