There are nine commercial real estate terms that you must know before you make any commercial real estate buying or investment decisions.
1. COMMON AREA MAINTENANCE
The extra money that you pay along with your triple net rent to cover operating expenses is referred to as CAM charges. CAM stands for Common Area Maintenance or Management.
2. TRIPLE NET LEASES
A triple net lease (NNN) is a commercial leasing term that refers to a situation where the tenant pays virtually all the operating expenses associated with maintaining the property he’s renting.
This type of lease structure is used extensively in commercial real estate. It’s prevalent with single-tenant properties, but triple net leases are also often used in retail spaces.
3. FULL-SERVICE GROSS LEASES
When you sign a full-service gross lease, you pay a set amount that includes your rent and the costs of managing your space, such as utilities, repairs, taxes, and management.
4. OPTIONS TO RENEW
One of the most favorable terms that you can have your commercial real estate broker negotiate for on your behalf is an option to renew. Options let you stay in your space beyond your lease without you having to commit upfront.
5. TENANT IMPROVEMENTS
When you lease a new space, you typically need to have it customized for your needs. Those customizations are referred to as tenant improvements (TI), and you can frequently get the landlord to pay some or all of their costs.
6. RENT ESCALATIONS
Leases have language that makes their rate go up periodically and to keep pace with inflation. These increases are referred to as rent escalations and are prevalent in commercial real estate.
7. RENTABLE VS. USABLE SQUARE FOOTAGE
When you rent a space, the area inside its walls is called the usable square footage. You will usually also have to pay for your share of the floor’s common areas — like hallways and bathrooms. The combination of the two is called your rentable square footage.
8. LETTER OF INTENT
Because commercial real estate documents like leases and purchase agreements are frequently complicated, many people choose to start the process of negotiating a deal with a letter of intent, or LOI. They are short documents that spell out deal points and get used to draft legal documents.
9. NET OPERATING INCOME – NOI
Net operating income (NOI) is a calculation used to analyze the profitability of income-generating real estate investments. NOI equals all revenue from the property, minus all reasonably necessary operating expenses. NOI is a before-tax figure that appears on a property’s income and cash flow statement, which excludes principal and interest payments on loans, capital expenditures, depreciation, and amortization.
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