2,500 sq. ft. in Antioch, CA
We have another unit available at the project in Antioch, CA. Check out our ±2,500 sq. ft. space light industrial space for lease.
Call Peter at 925-385-8798.
Hiring an Agent for a Lease Renewal
Recently, I have been negotiating on behalf of two clients that are in the midst of a lease renewal for commercial space. My clients, the tenants in both cases, had leases that were set to renew at fair market value. This means that the tenants would need to determine the fair market value of their property and successfully negotiate the new rate.
There are at least two problems with this. First, the landlord is likely to have a better handle on what lease rates are in the current market if they have more than one property or more than one tenant. Second, most landlords believe that rent always goes up.
Often times this puts the tenant in a position of weakness when negotiating the lease renewal. Landlords love this!
San Francisco Giants Closing Pitcher – Sergio Romo. Photo: “Sergio Romo” by SD Dirk
The Closer – The Tenant’s Agent
In baseball, a closing pitcher is called in at the end of the game to get the final outs and preserve the lead in a game. Hiring an agent to handle the negotiations helps to rebalance the negotiation process and keep the tenant ahead in the negotiations. A tenant’s agent works much like a closing pitcher in baseball, coming in at the right time in the game to make sure that the tenant gets the most fair deal available.
A good commercial agent will know what is going on in the local market and what current market rents are. This negates the landlord’s advantage of having more market knowledge than the tenant.
In situations where rents have actually decreased, a commercial agent can provide additional leverage by showing the tenant alternative space that may be available for a lower lease rate. While the tenant may not want to move, an alternative location may provide significant financial savings that do not justify staying.
The availability of more affordable space can provide a significant bargaining chip with a current landlord to provide a renewal at a significantly lower rent.
What are some questions that you might have regarding hiring an agent to represent you in the negotiation of a lease renewal?
Photo Credit: “Sergio Romo” by SD Dirk used by permission.
Landlords: What would you do to get a tenant?
Question for you landlords: What would you do to get a tenant?
According to the Wall St. Journal article Offices Get Roughed Up to Lure Start-Up Tenants landlords in the hot San Francisco office market are willing to “rough up” their buildings to appeal to high tech tenants. Landlords are tearing out drop ceilings to expose mechanical components, sandblasting walls, and exposing wood panels.
High tech firms are seeking space that has an industrial and open layout. The article reports that these changes aren’t cheap and come with the risk that the trend among tenants might change.
Tell me landlords, What would you do to attract a tenant? Would you follow the pattern of these landlords?
Commercial Lease Types
Most business owners and entrepreneurs want to find the best location for their business. This could be an office, a warehouse, or a storefront depending on the type of business. The language and terminology related to real estate leases can be confusing and overwhelming. Below is a list of the various commercial lease types and what they mean to both the landlord and tenant.
Triple Net Lease or NNN Lease
A triple net lease can also be referenced as a net, net, net (NNN) lease. This lease type is often found in leases for large office buildings, large industrial buildings, and in retail or storefront buildings.
In this lease structure the tenant pays a base rental rate. The base rent will be clearly delineated over the life of the lease. Often times the base rent will escalate at an agreed upon percentage rate or based upon inflation and linked to the Consumer Price Index (CPI).
As well as the base rental rate the tenant will pay the net expenses. The net expenses are taxes, insurance, and maintenance costs. These fees can be included in common area maintenance fees or CAM charges. These expenses are in addition to the base rental rate.
Landlord
A landlord generally likes this lease structure because it places some of the future price risk on the tenant. Taxes, insurance, and utility costs are, generally, going to increase over time. The expenses that could potentially damage a landlord’s income, are passed on to the tenant and help the landlord to plan future income.
Tenant
The tenant is taking on the additional risk of taxes, insurance, and maintenance with a triple net lease. In exchange for this risk, they will often be given a lower base rental rate. A commercial tenant may not be able to avoid this type of commercial lease. When comparing a triple net lease to a gross lease all triple net expenses need to be included.
Gross Lease
When all of the expenses associated with a property are included in the base rental rate of a commercial lease, you most likely have a Full Service Gross Lease. These expenses include real estate property taxes, property insurance, utilities, maintenance, and janitorial. Some office leases, retail leases and industrial leases are gross leases.
Landlord
A commercial lease structured in this manner places the risk of expense growth upon the landlord. The landlord is responsible for any increase in the price of insurance, property taxes, or utilities. A landlord may choose this lease because the rental market demands it, the tenant leases the entire building, or the property only has one utility meter and the landlord cannot accurately divide utility costs.
Tenant
A commercial gross lease relieves the tenant of the risk of price inflation. As well, it simplifies the lease rate as the tenant will only be quoted a base rental rate that includes all expenses for the property.
Combination Leases
Most commercial leases are a combination of a net lease and a gross lease. In other words, the tenant pays some of the expenses and the landlord pays some of the expenses.
Industrial Gross Lease
In an industrial gross lease the tenant pays a base rental rate and their share of the common area expenses. The landlord will pay the property taxes and insurance costs in the first year or base year. In subsequent years, any property taxes or insurance costs above the base year amount are the responsibility of the tenant.
Modified Gross Lease
A modified gross lease is similar to a full service gross lease except that one or more item may be the responsibility of the tenant. In a modified gross lease a tenant may be responsible for their own utilities, janitorial, or maintenance costs depending on the scenario.
Procuring a commercial lease for your business can be challenging. If you would like assistance with this process, please call today at (925) 385-8798 to see if we can assist you.
