What Distinguishes a Commercial Lease from Residential Lease Beyond Residency?

 June 20, 2017

By  Guy Gray

So maybe you’re a successful residential property landlord. Perhaps you have one, several or even a dozen or more units, all happily chugging along and generating residual income. Maybe you’ve heard that commercial real estate has potentially bigger returns. You might feel confident with your chances at dipping a toe into the big leagues. I mean, you’ve done well thus far and understand the ins and outs of a basic lease. What can go wrong, right?

If the above sounds familiar, you aren’t alone. Delving into the CRE field seems like the logical next step in building a diversified portfolio of rental properties for many owners and property managers. The overwhelming majority of these folks also believe, much like you, that other than a few lease terms and a bedroom, bathroom, garage or two, residential real estate is interchangeable with its commercial cousin. To find out why CRE is a much different animal from residential property management, and how Quarem Lease Administration software can help bridge the knowledge and experience gaps, read on.

A Different Type of Clientele

For starters, your tenants (aka potential clients) will be a much different group of individuals in CRE than they would be with residential. If you thought settling disputes over the use of the laundry facilities was bad, wait until you’ve had to play mediator over which parking spots belong to who in a complex. Quarem Access and Vantage solutions can help simplify the property management of CRE. Quarem has built its products with the needs and concerns of CRE tenants and owners in mind and can help pinpoint where your focus should be. Also, Quarem’s intuitive design helps make compiling lease provisions and then looking up individual clauses on a whim to supply tenants information, or even settle those pesky parking disputes.

About that Lease

Speaking about lease terms, it turns out that commercial leases aren’t very similar to their residential counterparts after all. There are also a wider variety of types of leases that cover everything from profit contingencies to variations in lease terms. Tenants in commercial properties also tend to pay their own maintenance and repairs either as a monthly addition to rent or by contracting out the services themselves. CRE tenants are typically businesses with clients of their own and individual renters will want more control over the day-to-day appearance and upkeep of the property to be sure it matches with the overall corporate theme.

While monitoring who pays what can get tricky when using traditional spreadsheets or databases, Quarem allows CRE professionals to track this data easily. With Quarem, you can view maintenance schedules and even manage construction or property modernization projects, across your entire portfolio. CRE leases may be more complicated, but Quarem makes sure your life won’t be.

Market Trends and Portfolio Impact

Perhaps one of the most important areas landlords need to learn to monitor when transitioning from residential to commercial property management is the impact of the financial and business markets on your unit price and occupancy rate. Regardless of any loop-de-loops or shenanigans taking place in the stock markets, people will always need a place to lay their head for the night. Residential real estate is still subject to price swings, but these changes and occupancy rates tend to be more stable.

Businesses occupying commercial structures tend to be more linked to the fluctuations in the economy. From employment rates to wall street, spending at your CRE properties by individual consumers directly affects your tenants’ ability to pay a monthly rent. Changing trends in neighborhood demographics also mean that previously successful businesses can face issues in a hurry, making it difficult to make timely rent payments. Quarem’s lease administration software allows CRE property managers to track on-time payment rates across their portfolio, allowing you to head off potential problem tenants earlier and with less long-term impact on your property and bottom line.

As a residential property owner, there are obvious hurdle and learning curves when looking to diversify with an entry into the CRE game. Experienced CRE professionals rely on Quarem’s lease administration software solutions to help give them a leg up in their existing portfolio. It only makes sense that entry-level professionals would also capitalize on Quarem’s critical tools.

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About the author 

Guy Gray

Guy Gray serves as Chief Operating Officer overseeing our technology and client services teams. He is responsible for guiding Quarem application development, networking and security, as well as new client implementations.

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