Commercial Real Estate Brokers in Evansville & the Tri-State

Archive for April, 2018

Know Your Class and Find Your Perfect Space Faster

Posted by admin
As you search for the perfect office space, you may see an office building listed as Class A or Class B. Knowing what these classes represent can narrow your search criteria, make it easier to communicate with your broker, and speed up the process. According to the Building Owners and Managers Association (BOMA) these classes represent a subjective quality rating of buildings which indicates the ability of each building to compete for similar types of tenants. The assessment of a class incorporates a mixture of factors including rent, building finishes, system standards and efficiency, building amenities, location/accessibility and market perception.

Class A is defined as the most prestigious buildings competing for premier office users with rents above average for the area. Buildings have high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence. These are typically built within the last 15 years, are professionally managed, and in the downtown business district. Class B is defined as buildings competing for a wide range of users with rents in the average range for the area. Building finishes are fair to good for the area. Building finishes are fair to good for the area and systems are adequate, but the building does not compete with Class A at the same price. Class B buildings are often found in suburban office parks. Class C is defined as buildings competing for tenants requiring functional space at rents below the average for the area. These buildings are most often more than 20 years old and need renovation both inside and out. These spaces are often attractive for a new businesses that need to maintain lower overhead. Building amenities include services within a building that are helpful to either office workers or office tenants and whose presence is a convenience within a building or building complex. Examples include food facilities, copying services, express mail collection, or physical fitness centers. The term also includes such issues as the quality of materials, hardware and finishes; the architectural design and detailing; and elevator system performance. These Classes depend on context to a large extent. Evansville’s Class A spaces may be considered Class B in larger cities, particularly those having a large inflex of new construction. Don’t be scared away from a Class C building.  Like fixer-upper houses, there is fixer-upper office space!  We can help you find the space, the designers and the contractors.

Commercial Leases: Avoid the Hidden Expenses That Can Burn You

Posted by admin
For many of our clients, renting an apartment is the only experience they have with rental property before they begin their search for commercial lease space. Apartment leases are usually “modified gross” leases, meaning the tenant pays the stated monthly rent plus utilities, and the landlord picks up all other expenses associated with the space. Commercial leases are different.  The landlord typically seeks to have the tenant pay the stated rent plus all associated expenses, while the tenant wants the landlord to pick up these expenses. Obviously, the parties interests are NOT aligned.  But, with a bit of negotiation, we can usually satisfy even the most diametrically opposed tenant and landlord.  Know the options and work with  an experienced real estate broker so you don’t get burned!  With that said, let’s explore the most common types of commercial leases:

NNN or Triple Net Lease:  In a NNN Lease,  the landlord “nets out” or passes the operating costs on to the tenant.  The NNNs usually stand for insurance on the building, real estate taxes, and common area maintenance (janitorial service, trash removal, landscaping, snow removal, and upkeep of lobbies, elevators and monument signs).  Each tenant pays its proportionate share of these expenses. In other words, if you lease 28% of a building, you would pay 28% of the NNN expenses, in addition to the “base rent”. (The tenant typically also pays for its utilities.) The NNN lease protects the landlord from unexpected expenses by shifting that risk to the tenant. Consequently, the tenant may try to limit its upside exposure to a certain percentage.

The Gross Lease: The “Gross Lease” is the tenant’s dream deal. The tenant pays a flat amount each month.  The landlord pays all NNN expenses associated with the property.

Modified Gross: A “Modified Gross” lease entails the tenant paying the “base rent” plus some of the landlord’s operating costs. These leases are often the product of negotiations that started with a gross or NNN lease.

Percentage of Rents: With a “Percentage Lease,” the tenant pays “base rent” plus a percentage based on monthly sales volumes. Percentage leases are commonly executed in retail malls. In return, landlords often accept a greater financial burden such as paying for tenant build-out costs.

Always Spell Out Who is Responsible for Repairs: Regardless of the type of lease being used, be sure to spell out which party is responsible for what  in terms of repairs and replacements. Repairs can represent a significant expense and outlay of time and energy.  A common allocation is that the tenant makes repairs to the interior walls and fixtures, and performs annual maintenance of the HVAC system; while the landlord is responsible for the exterior walls/roof of the building, and the replacing building systems such as HVAC and plumbing. Each party should agree to take care of its responsibilities in a timely manner, and include penalties for failure to do so.

CRE Insights Blog

Posted by admin
Welcome to the new CRE Insights blog page. Please check back in the near future for all sorts of great new information.