COMMERCIAL LEASING 101 Cheryl W. Hamm, CCIM, GRI

Realistic or Unrealistic?

Richmond Rental Rates

Richmond Map SOUTHWEST QUADRANT SOUTHEAST QUADRANT NORTHEAST QUADRANT NORTHWEST QUADRANT

Source: Thalhimer Office

Source: Thalhimer Industrial

Source: Thalhimer Retail

Lease Terminology

Types of Leases Net Leases Industrial Gross Leases Full Service Leases

Single Net Lease Who is responsible for what? Tenant: Base rent Plus an operating expense such as janitorial, electric or property taxes Personal property and liability insurance which once in place must show the Landlord as additionally insured Personal property taxes Phone Internet services Landlord: All other operating expenses of the property What type of property would use this? Small Multi-Tenanted Office with separate utility metering

Double Net Lease (NN) Who is responsible for what? Tenant: Base rent Two other operating expenses such as janitorial and electric or the property taxes and property insurance. Personal property and liability insurance which once in place must show the Landlord as additionally insured Personal property taxes Phone Internet services Landlord: All other operating expenses of the property What type of property would use this? Multi-Tenanted Office Buildings (usually small) with separate utility metering

Triple Net Lease (NNN) Who is responsible for what? Tenant: Base rent Property taxes Property insurance Pro-rata share of common area maintenance (CAM) which can include common area landscaping, utilities, snow removal, repairs, etc. Personal property and liability insurance which once in place must show the Landlord as additionally insured Personal Property Taxes Janitorial services Utilities Phone Internet

Triple Net Lease (NNN) (cont.) Landlord: Property Management What type of property would use this? Single Tenant Office Buildings Retail

Industrial Gross Lease Who is responsible for what? Tenant: Base rent Utilities Janitorial Interior property repairs (HVAC, water heater, lights, walls, floors, windows) Pro-rata share of the common area maintenance Personal property and liability insurance which once in place must show the Landlord as additionally insured Personal property taxes Phone Internet services Pro-rata share of any increase in property taxes and building insurance after the 1st year of the lease

Industrial Gross Lease (cont.) Who is responsible for what? (cont.) Landlord: Base year property taxes and building insurance and exterior roof and structure What type of property would use this? Warehouses Flex/Office Space

Full Service Lease Who is responsible for what? Tenant: Base rent Personal property and liability insurance which once in place must show the Landlord as additionally insured Personal property taxes Phone Internet services Could be made responsible for pro-rata share of any increase in base operating expenses over a base year or expense stop

Full Service Lease (cont.) Who is responsible for what? (cont.) Landlord: Building taxes Building insurance Maintenance Utilities What type of property would use this: Multi-tenanted Office Buildings

Important Definitions: Pro-Rata Share –Calculated on a square footage basis. –Tenant’s SF divided by Total Building SF = Tenant’s pro-rata share Base Year –Calculated on a calendar year basis or the first 12 months of tenant’s occupancy –The base operating expense account is the floor over which any increases in operating expenses will be passed on to the tenants

Important Definitions : Expense Stop –Preferred method for expense calculation by a Landlord –Allows Landlord to estimate the approximate expenses the building will incur and the tenant is responsible for payment of his pro-rata share of actual operating expenses over the estimated expense stop. –Be careful – has led to fraudulent estimates of expenses in the past and unexpectedly high operating expense pass-throughs to tenants

Important Definitions : Percentage of Sales –Used in retail leases –Landlord would receive a percent of the gross sales of the business after reaching an established dollar volume of business –Infrequently used in leases for smaller retail establishments

Important Definitions: Tenant Improvements (TI) –Work that is required to make space inhabitable for your use –Amount covered by owner is dependent on lease term –Tenant could be made responsible for any and all of the cost of improvements –The cost can be paid two ways: At time of completion of work (Cash or Business Loan) Amortized over the term of the lease and added to the monthly rent

Expectations of Landlord for Tenant Business Plan in place 2 years tax returns and/or Financial Statement prepared by accountant Financial wherewithal to pay the rent for at least 12 months Personal Guarantee (Guarantor of Lease)

Allow plenty of time for identifying property, negotiating, and ratifying lease, and completion of tenant improvements This could take anywhere from 3 months to 9 months, start to finish! Tenant Expectations

Questions??