by Prince Licaylicay | Apr 30, 2020 | All Articles, Investing
As a commercial real estate broker with Commercial Properties, Inc., I frequently encounter prospects, tenants, and even new brokers trying to understand terms like Triple Net. To fully grasp Triple Net, it’s essential to not only understand the definition but also be aware of the costs involved in a basic commercial lease. According to Wikipedia, in commercial real estate, a net lease requires the tenant to pay, in addition to rent, some or all of the property expenses, which are typically covered by the property owner.
Breaking Down Commercial Real Estate Lease Costs
Commercial real estate leases typically involve three key cost areas:
- Base Rent
- Triple Nets
- Electric and Janitorial
What is a Triple Net Lease?
The term Triple Net (or NNN) represents the three major net costs:
- Property taxes
- Property insurance
- Common area maintenance (CAM), which usually includes water
Understanding these components is crucial, as they play a significant role in determining the overall cost of your lease.
Types of Commercial Leases
When entering into a commercial lease, you generally have three main options:
- Triple Net Lease
- Modified Gross Lease
- Full Service Lease
The term Triple Net is commonly used because, regardless of the lease structure, landlords still have to cover these expenses. However, they often pass these costs through to the tenant, with little to no markup for profit.
More on Triple Net Leases
In a Triple Net Lease, the tenant is responsible for all ongoing operating expenses. The landlord, on the other hand, charges an annual base rate, while passing along the costs of the three major nets. Additionally, other costs like utilities, janitorial services, internet, and phone are not included in the lease rent. Essentially, a NNN Lease requires the tenant to manage the space and handle all operating expenses, property taxes, utilities, insurance premiums, maintenance, and interior repairs.
The Three Main Lease Types
- Triple Net Lease (NNN Lease):
A NNN lease requires the tenant to pay a lower base rent, but also to cover additional costs associated with operating and maintaining the space. In fact, the landlord will pass on utility costs that aren’t separately metered, along with all Common Area Maintenance (CAM) charges. CAM costs typically include water/sewer, trash, restrooms, landscaping, parking lots, fire sprinklers, roof repairs, and anything that all tenants share. - Modified Gross / Modified Full Service Lease:
Unlike a Triple Net lease, a modified gross lease includes one, two, or all three Nets as part of the base rent. Therefore, it’s essential to ask your broker which expenses have been included or modified. Typically, a modified gross lease will combine several of the Nets into the base rent, making it easier for tenants to manage their expenses. - Full Service Lease:
In this type of lease, the base rent covers all costs, including taxes, insurance, maintenance, utilities, and janitorial services. The tenant pays a pre-determined lease rate each month without worrying about any additional pass-through expenses for operating costs. As a result, a full service lease is ideal for tenants who prefer simplicity. This option is especially beneficial for medical office tenants, who can focus solely on their business while the landlord handles all the maintenance. Furthermore, monthly rent typically increases by only 3% to 4% per year, although this is negotiable.
Benefits of Triple Net (NNN) Leases
The key benefit of a Triple Net Lease is the potential savings. If expenses such as insurance, taxes, or CAM charges decrease, those savings are passed on to the tenant. However, there’s also a downside. If expenses increase, the tenant will bear the burden of those rising costs.
By understanding the ins and outs of Triple Net and other commercial real estate terms, tenants can make informed decisions that suit their financial and operational needs.
Need assistance with your 1031 Exchange or DST? We’ve got you covered!
We’ve prepared a comprehensive, free e-book designed to guide you in achieving your long-term business goals or acquiring that dream property you’ve been eyeing.
Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.
Stay informed with the latest in Commercial Real Estate strategies designed to enhance your income property investment results by bookmarking www.leveragedcre.com. Let us help you stay ahead in the market!
by Prince Licaylicay | Apr 23, 2020 | All Articles, Buying
Lease vs Purchase, it’s a decision most business owners are faced with, and one hat isn’t easy. With rents going up and interest rates continuing to post rates that are at or near historic lows, the balance might seem to have shifted to the latter option in the lease vs. purchase decision. However, leasing remains a strong option for many companies.
Reasons to Purchase vs Lease
The purchase side of the lease vs purchase equation usually comes into play when your company’s needs are fixed and predictable for the long term. If you know what you need now and it won’t change for at least a decade or two, purchasing can be a good option. It gives you total control over your space and a great deal of certainty over what you can do with it since, after all, you own the space.
Purchasing also gives you a chance to participate in the potential appreciation of the property. For many businesses and most locations, the downsides of purchasing and of tying up capital are more than the benefits that come from the appreciation. However, if your business is one where appreciated property can form an exit strategy or if you are in a position to control highly valuable property, purchasing may be a wiser option.
The Benefits of Lease vs Purchase
Many of American’s most successful companies come down on the leasing side of the purchase vs. lease decision for a multitude of reasons. Leasing is typically more flexible, less capital intensive and offers more options.
The flexibility benefits of leasing are very simple. While it’s technically true that buildings can be sold on the market, the usual case is that finding a buyer for a vacant building — especially at a good price — can take months or years. With a lease, though, you can move out whenever your lease expires. If a building needs work, you can leave that work for the landlord as well.If you have your lease written with extension options, you can choose to automatically renew it, taking flexibility away from your landlord.
Leasing helps to conserve capital in three ways. First, moving into a leased property usually requires a lower initial investment than purchasing a building, simply because rent and security deposits are usually less than loan costs and down payments. Second, lease payments may be cheaper than mortgage payments. Third, while the accounting of leases is shifting, leases are still treated differently than building purchases when it comes to principles of building your business’s balance sheet.
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Apr 22, 2020 | All Articles, Buying, Investing, Leasing
Here are some tips on finding the right contractor for your project from our friends at Belmontez Construction. Always, always, always work with a licensed & insured General Contractor. Having a licensed contractor benefits both the client & the General Contractor. A licensed contractor offers liability insurance to protect the client & the project. Now don’t get us wrong, just because a contractor has a license & insurance does not necessarily mean they are the right fit for you.
You need to TRUST your contractor and have open communication to ensure all your questions are being answered to your expectations. Don’t forget about the office staff also. The office staff are also key players & work behind the scenes to ensure the project runs smoothly, varying from the coordinating of the project, proper accounting & supervision.
What to Ask When Finding the Right Contractor for Your Project
- State license number… verify the license is active & in good standing with no outstanding or open claims
- Ask how long in business
- A Certificate of Insurance
- List of references
- Guarantee of work
Those are some key items to keep you safe!
Download Our Brochure Here (PDF)
For most construction projects City permits are required
Why you ask? Permits are in place to protect the client and ensure all workmanship is done in accordance to building codes. With all that being said, Belmontez Construction is here to help you with your next business venture! Give us a call and Remember, The Road To Success Is Always Under Construction!
Belmontez Construction
9299 W Olive Ave #505, Peoria AZ 85345
Website: www.belmontez.net
Office: 623.466.9596
Owner: Agustin Belmontez
623.330.3323 | a@belmontez.net
Sales: Jim Zapien
623.230.9189 | field@belmontez.net
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Apr 20, 2020 | All Articles, Leasing
Are you a commercial tenant struggling to pay rent and need to know your options? Attached is an article showing 5 proven ways to reduce your rent expenses during crisis events like COVID-19.
Click the PDF Link below to get access to the FREE Email Templates…
Download Printable Article (PDF) >>
(1) Rent Deferment
This is when a landlord allows tenant to skip paying an entire or partial amount of the rent due. Your landlord may ask for the following:
• Updated financials: P & L, Balance Sheet, etc
• Something showing financial impact from COVID-19
• Explanation letter of what will happen if the deferment does not take place
(2) Renegotiation (Blend-and-Extend)
When a landlord lowers your monthly rent by you signing a longer lease and amortizing the rent difference over the new term of the lease
(3) Substitution of Premises
When a landlord allows you to move to a different space in their portfolio that is smaller or lower priced than the current one you are occupying
(4) Relocation
If you are on a month-to-month lease or your landlord will allow you to break your lease early, you can relocate to a more affordable property
(5) Sublease
If you have excess space, you can hire a broker like myself to find you a subtenant to rent a portion of your space. This helps you generate more income and lower your rental expense. We can also help you sublease your entire space.
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on how to get started investing in commercial real estate? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
by Prince Licaylicay | Apr 16, 2020 | All Articles, Exchanges (1031 & DST), Investing
The IRS has extended the deadlines for 1031 tax deferred exchanges. On April 9, 2020, the IRS issued Notice 2020-23 which provides that taxpayers have until July 15th, 2020 to perform all Specified Time-Sensitive Actions, that are due to be performed on or after April 1st and before July 15th, 2020.
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Accordingly, for taxpayers currently in the midst of a 1031 exchange transaction, if either your 45th-day or 180th-day falls between April 1st and July 15th, that date will now be extended until July 15th.
Exchangers that will benefit from an extension of the 45-day deadline are those that closed, or will close, on their relinquished property between February 16th and May 31st.
Exchangers that will benefit from an extension of the 180-day deadline are those that closed on their relinquished property between October 4th, 2019 and January 17th, 2020.
If you believe Notice 2020-23 applies to your situation and impacts your deadlines for 1031 exchanges, please be sure to review this Notice with your CPA or other tax advisor for further guidance. This Notice may be reviewed at the IRS website HERE.
Even after outlining all the information above, investing in CRE can still seem daunting. That’s why the Leveraged CRE Investment Team at Commercial Properties, Inc. is here to help you achieve your investment goals. Contact us at (480) 330-8897 or send us an email at request@leveragedcre.com.
Need help on your 1031 Exchange? We got you covered! We prepared a free e-book that will serve as your guide to achieve your long-term business goals or obtain that property you’ve always been dreaming of!
Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
Bookmark www.leveragedcre.com to learn more about the Commercial Real Estate market and keep informed of relevant real estate strategies designed to maximize your income property investment results. Connect and follow Phill on Social Media at sm.leveragedcre.com/smplatform. #LeveragedCRE
