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Commercial Leases

LEASE VS. OWN

Lease vs. Own

LEASE VS. OWN
Many business owners dream of owning their own industrial or office building rather than lease space and pay rent to a third party landlord.
One should consider both the costs and benefits of commercial property ownership to understand if it’s the right financial and operational move for the individual owner (what ever form of ownership it may be) and the company occupying all or part of the property.
Potential Benefits of Ownership:

Better control of building operating expenses
Potential property value appreciation creating more personal wealth
Principal reduction on the loan via rent payments from the tenant
Tax benefits such as depreciation
An excellent marketing tool (the bldg.) demonstrating the success of an organization
May be less expensive than leasing space in today’s market

Potential Costs and Risks of Ownership:

Generally less flexibility to expand or contract space size
Requires equity up front: 10%-25% down payment
Responsible for ALL building maintenance (roofs, parking lot, HVAC, etc.)
Could lose value during a market downturn
A default on the loan may result in foreclosure by the lender

If you are interested in a more thorough review and recommendation on Own vs Lease feel free to call Paramount Real Estate Corporation.  We have decades of experience leasing, acquiring and disposing of commercial real estate properties.
Written By: Phil Simonet, Principal | Paramount Real Estate Corp | TCN Worldwide

SUBLEASING IN TODAY’S MARKETPLACE

Subleasing in Today's Marketplace

SUBLEASING IN TODAY’S MARKETPLACE
Subleasing in today’s market is commonplace.  There are a variety of reasons why firms sublease their excess space.  However, for those who intend to sublease, some caution is appropriate.

Make sure to check on the credit and payment history of the firm subleasing the space, particularly if they will pay any part of the gross rent due and payable to the Prime Landlord.
Carefully read and understand the tenant obligations under the Prime Lease.  This is often an attached exhibit to the sublease document.  The Subtenant’s obligation is to comply with the terms of the Prime Lease.
Make sure to receive the Prime Landlord’s formal approval, in writing.  Sometimes this is as simple as a signed consent note on the signature page of the sublease document.  On the other hand, the consent form can be several pages.  If the Prime Landlord’s consent in the Prime Lease is something other than “reasonable,” make sure to understand what the “other” stipulations are.
If modifications are made to the space, understand the obligations in respect to the lease.  Removing modifications may be a requirement upon termination of the sublease.
Make sure the life safety and exiting requirements meet local codes.  Often times, a space carved from a larger space does not meet the proper exiting requirements, which may mean extra costs.https://paramountre.com/agent/phil-simonet/

For more information on subleasing space, reach out to our experts:
Phil Simonet, Principal | John Young, CCIM, Vice President | Nancy Powell, Vice President | Jeffrey Swanson, Associate | Joseph Schultz, Associate | Jack Buttenhoff, Associate

Successful Commercial Leasing = Understanding Your Rent

Successful Commercial Leasing=Understanding Your Rent

Successful Commercial Leasing = Understanding Your Rent
by Bob Johnston | Vice President Sales & Leasing

THE TERMINOLOGY OF RENT

Successful commercial leasing is all about understanding your rent.  Most commercial leasing today are “net leases.”  Meaning that the tenant pays a “base rent” which is “net rent”, or separate from, the operating costs and real estate taxes for the property.  The operating costs are then passed on to the tenant as a separate cost.  Equaling a total rent cost and what many then refer to as “gross rent.”
Even this varies, however, from property to property. For example, often times in retail and industrial properties, tenants pay for their use of electricity and gas as well as janitorial services.  In addition, sometimes the tenant, at its expense, must contract for local trash pick-up.  These separately contracted costs are not part of the ordinary operating expenses.  On the other hand, office leases typically are “full service” leases.  In other words, there are generally no extra charges.  Other than perhaps charges for extraordinary use of services such as air conditioning or cleaning, etc.
It is critical that a tenant understand the complete picture and know what the total rent will be. Also, it is critical that the tenant understand what expenses make up operating costs.  Then understand what costs are reasonable and legitimate.  It is obviously to the landlord’s advantage to get the tenant to pay as much of the total operating budget as possible.  This is even more critical in mixed-use projects.  Mixed use is where landlords tend to shift maintenance costs for the residences to the office component.  Thus, the office tenant contribution is actually more than what it should be.  I once audited the landlord of a very large mixed-use project in Chicago.  I found over $100,000 wrongfully allocated to the tenant even though the lease prohibited their doing so.

WHAT SHOULD NOT BE INCLUDED IN RENT?
Here are some suggestions as to what to eliminate from the landlord’s menu.  The list is obviously not exhaustive, but rather illustrative of some of the costs landlords attempt to pass on to tenants:

Leasing commissions, space planning expenses with architects/interior designers, or even attorney costs associated with a lease negotiation or existing tenant dispute.
Costs associated with the construction of tenant improvements, either with new tenant relocations or existing tenant renovations and remodeling.
Costs associated with the entity of landlord, particularly as it relates to partnership/ownership issues or the selling or refinancing the property.
Many large landlords have affiliates or interests in affiliate companies, so it is important to ensure that the contracted vendor costs are no more than what an unrelated third party vendor might charge.
Be careful about the expenses for salaries, benefits, etc. that go into “management fees.”  Executive salaries, or any allocation of those salaries, should not be part of the operating costs for the building.
Capital improvements are not, by accounting standards, expense items.  Although, landlords can routinely pass on the amortized cost of the improvement as an operating expense.
Make certain that in a retail environment, the tenant’s pro-rata share of operating expenses is calculated over the entire leasable area of the property.  Rather than only on the space currently leased and occupied.

Proper due diligence and understanding of the components of a building’s operating budget are critical to a tenant’s successful occupancy, financial stability and long-term enjoyment of the space.

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