It happens to many residential agents. A long-time client is now interested in leasing commercial real estate. That’s why it pays to have a general understanding of what’s involved.
Let’s take five minutes to talk about triple net leases so you understand the concept if you are working with a commercial client. Plus, we’ll touch on how important it is to have a base knowledge of commercial leasing to serve your clients better.
Office, industrial, retail, and restaurant space landlords offer lease space on a triple net basis. That means that the tenants will have enhanced control and transparency over expenditures. Basically, the term refers to how the tenants will pay for their expenses, such as utilities, maintenance, taxes and insurance, based on the amount of space leased.
Triple net leases can be in a multi or single-tenant building. In a single-tenant building, the tenant is responsible for operational and capital expenses like the HVAC system, parking lot and roof. In multi-tenant property, tenants are not likely to be responsible for capital expenses. A triple net lease reduces the risk of a commercial lease.
I find that residential agents who only do a little bit of commercial, I call them resi-mmercial agents, misunderstand that there is just one monthly gross rental number that their tenant will pay. Instead, it’s broken down and split up. Now that you know what a triple net lease is, it’s essential to understand how to calculate it. First, you must know the base rent, and that figure is separate from all other expenses. All other charges, such as utilities and taxes, are pass-through charges. Some of these charges are fixed and the landlord doesn’t have control over the increases, such as real estate taxes and insurance. Other costs, such as common area maintenance, can be negotiated and capped. Always ask the landlord to give you a breakdown of the operating expenses so your tenant can figure out the complete cost. For example, it may cost $25 a square foot for the base rent and an additional $11.50 a square foot for the expenses for the triple net.
Because these concepts can be confusing, sometimes passing the client on to a commercial agent and earning a referral is the way to go. However, more and more residential agents are interested in learning about commercial. Even if you don’t plan to specialize in retail or other commercial products, you might want to take a few classes to have a base knowledge.
As with any commercial transaction, the more you know, the better you can serve your clients. Most local associations offer classes on commercial leases.
Retail is one of the largest categories of the triple net. The International Council of Shopping Centers offers training and resources to help real estate agents understand that asset class.
On a national level, the National Association of Industrial Office Parks is an excellent source of training and information. Want to take your knowledge to another level? Get your Certified Commercial Investment Member, or CCIM designation.
Whether you refer out commercial transactions or want to dabble in commercial leases, take the time to understand some of the basic terms. It will pay huge dividends when you have a satisfied customer. https://youtu.be/tjUoUDFr298
By: Jennifer Forbes