Looking For Commercial Property

What is the meaning of commercial property?
Commercial property refers to immovable property used for industry. Commercial property typically refers to a building that house businesses, land that is intended to make a profit, and larger residential rental properties.

What is the meaning of commercial property?

Commercial property refers to immovable property used for industry. Commercial property typically refers to a building that house businesses, land that is intended to make a profit, and larger residential rental properties.

 

While you may know the basics, each sector comprises different types of properties.

  • OfficeOffice buildings are generally categorized into two types: urban or suburban.
  • Retail. Retail comprises the properties that house the retailers and restaurants we frequent.
  • Industrial
  • Multifamily
  • Hotel
  • Special Purpose

 

 

Buying Commercial Realty

It is critical to understand exactly what type of commercial realty you are purchasing when investing in a building or storefront. It is also important to know what type of tax structure will be required, and what will be expected of you by municipal governments.

 

There are many questions that you might ask when looking for your own commercial property. But it is important to understand what it is that you are really looking for. Most people do not understand the intricacies of property ownership; nor what it means by discussing the “investment” end of it.

 

The idea of commercial realty being a self-contained “investment” is somewhat skewed. Yes, there is the likelihood that the value of the real estate in which you own will increase over time. That generally happens with commercial real estate investments, though there are notable exceptions both on small and large scales. What you need to understand is that property is a fairly poor investment in and of itself. Sure, the value of the building you own may be higher than when you bought it; however, you have also probably put a lot of maintenance expenses into your property, which offsets any profit you may make. The value that you gain is in the use of the property and any buildings located on it. The land and the building will probably never reach the value that you have invested in them, but they will pay off in the business that you built there.

 

It is important to be mindful of how your commercial realty affects the businesses and people around you. Sure, it is your property to do with as you please, but the condition you keep it in, the style of business you own, and many other factors, affect the value of everyone else’s properties located nearby; so be a good neighbor and consider others in your community.

 

If you are new to investing in commercial real estate, it can seem daunting. Being a property owner is not an easy role, nor has it ever been. However, it can absolutely be worth the time and effort that you will need to expend to own your own piece of realty.

Leasing Commercial Space - Thank you Brandon Carter

Commercial Leases Usually, an investor or group of investors owns the building and collects rent from each business that operates there. Commercial lease rates—the price to occupy a space over a stated period—is customarily quoted in annual rental dollars per square foot.

 

At first glance, projecting the cost for renting space in a commercial building may seem straightforward. Once you and your team decide on a commercial space to lease, you negotiate a cost and terms, sign on the dotted line, and move into the space. In reality, fully understanding a commercial lease requires attention to detail and help from a tenant broker. Who will be responsible for paying property taxes and insurance, you, or the landlord? Who will pay for utilities? To discover the answer to those important questions, you need to know exactly what kind of commercial lease you are signing. Let us review the different types of commercial real estate leases so you will know what to expect as far as cost and how to negotiate an agreement.

What is a Full Service aka Gross Lease?

Signing a full service lease (or gross lease) means you are responsible for paying the base rent. However, the landlord covers all the building expenses, including maintenance fees, insurance, and real estate taxes. When preparing to sign a full-service lease, pay attention to how much the lease says you owe for common area maintenance. The landlord may regain his costs with Load Factor in the rent.

Net Lease

A net lease usually stipulates that tenants pay a portion (but not all) of the building’s operating expenses: maintenance fees, real estate taxes, and insurance. Types of net leases include triple, double, and single.

Triple Net Lease

triple net lease is essentially the opposite of a gross lease. The tenant (you) agrees to pay for not only the fees for rent and utilities but also all the commercial property’s operating expenses, such as maintenance fees, building insurance, and property taxes. Usually, triple net leases require reduced rental prices because the tenant has assumed responsibility for the operating expenses.

Double Net Lease

double net lease requires the tenant to pay for the rent and utilities, as well as the property taxes and building insurance. However, the landlord pays for the building’s structural maintenance expenses. Landlords renting an office building to multiple tenants will likely divide the property tax and building insurance expenses fairly among the tenants.

Single Net Lease

A single net lease stipulates that tenants pay for rental and utilities as well as property taxes. The landlord would take care of building insurance and maintenance expenses. Be careful not to confuse a single net lease with a net lease. A net lease refers to a category of leases including single, double, and triple.

Modified Gross Lease

A modified gross lease occupies the middle ground between a gross lease and a triple net lease. In general, a modified gross lease means that the tenant pays base rent, utilities, and a portion of operating costs. The details vary from contract to contract. In some modified gross leases, tenants pay only base rent and utilities for the first year but in each additional year pay a pro rata share of the building’s operating costs. Their share of expenses would likely be based on the percentage of the building that they occupy. For example, a tenant occupying 50% of a building would be responsible for 50% of its operating costs.

Absolute NNN Lease

Sometimes people incorrectly use the terms “absolute NNN lease” and “triple net lease” interchangeably. They are not, however, the same. Usually, triple net leases require tenants to pay for some or all building repair expenses, but in some cases the landlord will assist with those expenses. Conversely, an absolute NNN lease delivers the landlord from all responsibility for the building in every case. That means the tenant must cover all building expenses, including any maintenance or repairs to the building’s roof and structure. This lease usually applies only to tenants with national or regional footprints and excellent credit.

Percentage Lease

Percentage leases require tenants to pay a base rent in addition to a percentage of business sales. Landlords often ask for seven percent. Be wary if one asks for 10 or 12 percent. Retail mall outlets typically have these types of leases.

 

Negotiation Tips and Exceptions

These commercial leasing categories do not represent absolute rules, though they can give you a general idea of what costs to expect for each one. Remember this: every contract is different, and every contract is negotiable. Read the fine print and review it with your Commercial Real Estate Broker/Agent and attorney before signing.

Commercial Lease Type Chart

Lease Type Expenses Use Case
Gross Lease You pay rent, the landlord covers all operating expenses but may recoup his costs with “Load Factor” in the rent. Any commercial space
Modified Gross Lease You pay rent + a portion of the building’s annual operating expenses; these contracts vary widely. Any commercial space
Triple Net Lease You pay rent + taxes, insurance, and maintenance fees. Any commercial space
Double Net Lease You pay rent + taxes and insurance. Any commercial space
Net Lease You pay rent + some degree of taxes, insurance, and maintenance fees. Types include single, double, and triple. Any commercial space
Absolute Lease You pay rent + all building expenses (taxes, insurance, maintenance), including roof and structure repairs. Long-term leases to credit tenants
Percentage Lease You pay rent + a percentage of your monthly sales Retail space
Single Net Lease You pay rent + property taxes. Any commercial space

What is the meaning of commercial property?

Commercial property refers to immovable property used for industry. Commercial property typically refers to a building that house businesses, land that is intended to make a profit, and larger residential rental properties.

 

While you may know the basics, each sector comprises different types of properties.

  • OfficeOffice buildings are generally categorized into two types: urban or suburban.
  • Retail. Retail comprises the properties that house the retailers and restaurants we frequent.
  • Industrial
  • Multifamily
  • Hotel
  • Special Purpose

 

 

Buying Commercial Realty

It is critical to understand exactly what type of commercial realty you are purchasing when investing in a building or storefront. It is also important to know what type of tax structure will be required, and what will be expected of you by municipal governments.

 

There are many questions that you might ask when looking for your own commercial property. But it is important to understand what it is that you are really looking for. Most people do not understand the intricacies of property ownership; nor what it means by discussing the “investment” end of it.

 

The idea of commercial realty being a self-contained “investment” is somewhat skewed. Yes, there is the likelihood that the value of the real estate in which you own will increase over time. That generally happens with commercial real estate investments, though there are notable exceptions both on small and large scales. What you need to understand is that property is a fairly poor investment in and of itself. Sure, the value of the building you own may be higher than when you bought it; however, you have also probably put a lot of maintenance expenses into your property, which offsets any profit you may make. The value that you gain is in the use of the property and any buildings located on it. The land and the building will probably never reach the value that you have invested in them, but they will pay off in the business that you built there.

 

It is important to be mindful of how your commercial realty affects the businesses and people around you. Sure, it is your property to do with as you please, but the condition you keep it in, the style of business you own, and many other factors, affect the value of everyone else’s properties located nearby; so be a good neighbor and consider others in your community.

 

If you are new to investing in commercial real estate, it can seem daunting. Being a property owner is not an easy role, nor has it ever been. However, it can absolutely be worth the time and effort that you will need to expend to own your own piece of realty.

Leasing Commercial Space - Thank you Brandon Carter

Commercial Leases Usually, an investor or group of investors owns the building and collects rent from each business that operates there. Commercial lease rates—the price to occupy a space over a stated period—is customarily quoted in annual rental dollars per square foot.

 

At first glance, projecting the cost for renting space in a commercial building may seem straightforward. Once you and your team decide on a commercial space to lease, you negotiate a cost and terms, sign on the dotted line, and move into the space. In reality, fully understanding a commercial lease requires attention to detail and help from a tenant broker. Who will be responsible for paying property taxes and insurance, you, or the landlord? Who will pay for utilities? To discover the answer to those important questions, you need to know exactly what kind of commercial lease you are signing. Let us review the different types of commercial real estate leases so you will know what to expect as far as cost and how to negotiate an agreement.

What is a Full Service aka Gross Lease?

Signing a full service lease (or gross lease) means you are responsible for paying the base rent. However, the landlord covers all the building expenses, including maintenance fees, insurance, and real estate taxes. When preparing to sign a full-service lease, pay attention to how much the lease says you owe for common area maintenance. The landlord may regain his costs with Load Factor in the rent.

Net Lease

A net lease usually stipulates that tenants pay a portion (but not all) of the building’s operating expenses: maintenance fees, real estate taxes, and insurance. Types of net leases include triple, double, and single.

Triple Net Lease

triple net lease is essentially the opposite of a gross lease. The tenant (you) agrees to pay for not only the fees for rent and utilities but also all the commercial property’s operating expenses, such as maintenance fees, building insurance, and property taxes. Usually, triple net leases require reduced rental prices because the tenant has assumed responsibility for the operating expenses.

Double Net Lease

double net lease requires the tenant to pay for the rent and utilities, as well as the property taxes and building insurance. However, the landlord pays for the building’s structural maintenance expenses. Landlords renting an office building to multiple tenants will likely divide the property tax and building insurance expenses fairly among the tenants.

Single Net Lease

A single net lease stipulates that tenants pay for rental and utilities as well as property taxes. The landlord would take care of building insurance and maintenance expenses. Be careful not to confuse a single net lease with a net lease. A net lease refers to a category of leases including single, double, and triple.

Modified Gross Lease

A modified gross lease occupies the middle ground between a gross lease and a triple net lease. In general, a modified gross lease means that the tenant pays base rent, utilities, and a portion of operating costs. The details vary from contract to contract. In some modified gross leases, tenants pay only base rent and utilities for the first year but in each additional year pay a pro rata share of the building’s operating costs. Their share of expenses would likely be based on the percentage of the building that they occupy. For example, a tenant occupying 50% of a building would be responsible for 50% of its operating costs.

Absolute NNN Lease

Sometimes people incorrectly use the terms “absolute NNN lease” and “triple net lease” interchangeably. They are not, however, the same. Usually, triple net leases require tenants to pay for some or all building repair expenses, but in some cases the landlord will assist with those expenses. Conversely, an absolute NNN lease delivers the landlord from all responsibility for the building in every case. That means the tenant must cover all building expenses, including any maintenance or repairs to the building’s roof and structure. This lease usually applies only to tenants with national or regional footprints and excellent credit.

Percentage Lease

Percentage leases require tenants to pay a base rent in addition to a percentage of business sales. Landlords often ask for seven percent. Be wary if one asks for 10 or 12 percent. Retail mall outlets typically have these types of leases.

 

Negotiation Tips and Exceptions

These commercial leasing categories do not represent absolute rules, though they can give you a general idea of what costs to expect for each one. Remember this: every contract is different, and every contract is negotiable. Read the fine print and review it with your Commercial Real Estate Broker/Agent and attorney before signing.

Commercial Lease Type Chart

Lease Type Expenses Use Case
Gross Lease You pay rent, the landlord covers all operating expenses but may recoup his costs with “Load Factor” in the rent. Any commercial space
Modified Gross Lease You pay rent + a portion of the building’s annual operating expenses; these contracts vary widely. Any commercial space
Triple Net Lease You pay rent + taxes, insurance, and maintenance fees. Any commercial space
Double Net Lease You pay rent + taxes and insurance. Any commercial space
Net Lease You pay rent + some degree of taxes, insurance, and maintenance fees. Types include single, double, and triple. Any commercial space
Absolute Lease You pay rent + all building expenses (taxes, insurance, maintenance), including roof and structure repairs. Long-term leases to credit tenants
Percentage Lease You pay rent + a percentage of your monthly sales Retail space
Single Net Lease You pay rent + property taxes. Any commercial space

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