New to the commercial real estate world? You’re in the right place. Let’s cover some of the most basic CRE lease terminology, what each CRE term means and how the right CRE software makes learning them easier than ever.
Base Rent
The amount the tenant must pay at a minimum for their space, before any operating expenses or additions. Keeping track of base rent for all tenants is important with eyes on profit margins.
Escalation
Inflation and rising rental rates are part of the industry, but landlords can account for this by requiring base rent escalations periodically. There are unique provisions to the different types of escalations, which include amount, percent and indexes.
Lease Clause
An addendum to a lease. Examples include sublease clauses (tenant leases unused space to another tenant), exclusive right (gives rights to tenant to be sole business in the property selling a certain product or service) and rent escalation (explains how much a rent will increase). CRE pros should be aware of all lease clauses and can track them with the right CRE software.
Lease Structures
There are terms that define the structure of the lease itself and can be dependent on several factors, such as the type of business, how many tenants you have and the property type. Examples include triple net (NNN; tenant pays base rent with three nets), full-service gross (FSG, landlord incurs all expenses) and modified gross (tenant pays base rent with some of the operating expenses).
Lease Term
The length of the lease, which can be short term or long term. Make sure you’re aware of FASB regulations and how lease terms have changed recently. CRE lease management software is a great way to keep track of lease terms and stay updated.
Operating Expenses
The cost for owning and operating a building. This is often passed on to the tenant, but not always. It depends on the lease structure, as mentioned above. Expense stops are another area of operating expenses that’s important to consider.
Shells
Vanilla shell (aka warm shell), cold dark shell and second generation are all types of commercial real estate delivery conditions. Basically, commercial spaces can be delivered in a variety of conditions. Some are ready to move in, others are needing an investment into repairs and/or remodels. These all impact cost and the return on your investment.
Square Feet
Most know this term, but there’s a difference between rentable square feet and usable square feet. Usable square feet is how much space the tenant will actually use to conduct business, as opposed to rentable square feet, which includes things like common areas and other factors.
If you’re interested in seeing how Quarem can help with organizing, reporting on and evaluating your leases, request a demo today.
