Contributing Author: Levi Steier
As with any industry, Commercial Real Estate (CRE) vocabulary can sometimes be intimidating for the inexperienced. If you are starting a new business or considering investing in CRE, your interests would be best served by gaining some insider knowledge.
While you should always consult an experienced commercial real estate broker and retain their services, having a baseline understanding of some key terminology and concepts will improve your experience, make you more comfortable, and inform your decision making as you work toward a deal that is right for you and your needs.
While all businesses hope to grow, it is sometimes difficult to project the rate of growth and assess future needs. Additionally, most landlords want long-term leases. And of course, there is always a budget to consider. One way to mitigate risk, gain a level of cost certainty, and ensure the capability of expanding, is to negotiate expansion rights into the lease. This typically comes in one of two possible clauses:
Right of First Offer (ROFO)– A ROFO ensures that if new space becomes available, the landlord must inform you, their existing tenant, of the new opportunity and give you a chance to make an offer. The landlord can then accept, decline, or counter your offer.
Right of First Refusal (ROFR)– While it appears to be similar to the above-mentioned clause, a ROFR, on the other hand, provides that the landlord, if expansion space is available and has an offer in hand, must first give you the opportunity to lease space under the same terms.
This ratio is calculated by dividing the number of vehicle parking spaces into the building’s square footage and expressing the result per 1,000 square feet. For example, to determine the parking ratio of a retail plaza with 1000 parking spots and 100,000 square feet of shopping, you would divide 1000 by 100 for a parking ratio of 10 spaces per 1,000 square feet.
As the exclusive broker with the assignment, they may offer a portion of their commission fee as incentive and cooperation to other brokers to assist in the process. This interaction is co-broking, and the two brokers share the commissions on the sale or lease.
Gross Lease– A property lease where the landlord assesses the annual costs for expenses as a function of the annual rent. The Landlord accounts for these expenses monthly and uses the added rent to pay for all property costs directly. These include costs such as property taxes, building insurance, repairs and maintenance expenses, property management, snow removal, and lawn care, trash and janitorial services and even utilities in some instances.
Triple Net Lease (also known as NNN lease) – A property lease in which the tenant pays, in addition to rent, all expenses related to the operation of the property, including both fixed and operating expenses. As with other leases, it is important that each lease is reviewed to determine the expenses for which the tenant is responsible.
Regardless of whether you are looking to lease space for your business or you want to invest in your own property, it is imperative to have a basic understanding these terms and more as you work with your broker to achieve your goals. It is important for you to get the best deal possible and ensure you are on solid footing as you start your new venture. The ability to communicate more effectively on the topics above will not only speed up the process but also give you more confidence as you progress toward making a deal. With a basic understanding you can be more certain there are no blind spots in any negotiations and that you fully understand the terms of your contract once a deal is agreed upon.
Our brokers at NAI Platform possess extensive knowledge and experience of the industry’s intricate nuances, with a singular focus of working diligently to help our clients meet and surpass their goals.
For more information and expert guidance on your commercial real estate needs, please give us a call at NAI Platform or visit our website at www.naiplatform.com.
Levi Steier, Marketing Director
14 Corporate Woods Blvd.
Albany, NY 12211
Direct: 518-465-1400 Ext: 232
Fax: 518 465 1441