14 Tips to Leasing Your Commercial Property

Getting your commercial property leased is the most important thing that you can do if you own commercial real estate.  Here are the things you need to do to get your property leased:

1.    Make sure the space is ready to show and that it shows effectively.  Clean up the space itself as well as the overall property to show it in its best light.  Stage the vacant unit if needed. Staging the vacant unit can mean putting in office furniture if it is an office space or if it is a retail space you might go ahead and put a neutral color carpet into the space and and fix up the front windows as well as have some of the other tenants put some merchandise in the window along with a sign about their store and where they are located in the Center, especially if the vacant unit is a highly visible space. Help your other tenants by getting them some good exposure.

2.      If it is unlikely that you will find a tenant that can utilize the existing improvements, then take them out and put the space in a “vanilla shell” condition. (Definition of “Vanilla Shell”: Landlord provides the space with walls ready for paint, concrete slab floors, drop ceilings, lighting, air conditioning and heating, electrical panels, bathroom and electrical outlets per code in the walls. Does not include floor covering, wall covering, or any additional interior walls or improvements.)

3.    Put a professional leasing sign in the space and on the property. The leasing sign in or on the space should include your companies name, phone number, website and email address at a minimum. The property leasing sign should have the company name and phone number highly visible and should be a wood or weather proofed sign. Check with the local authorities to find out the maximum exterior sign that you can put on the property. Also, you might check to see if you can put a sign on the exterior of the building with the company name and phone number.

4.    Put a professional flyer together outlining the merits of the space and the property. The flyers should be on good stock paper with a picture of the asset and vacant space, a description of the real estate outlining the other tenants in the property, a map showing the location of the asset as well as the address of the property, a brief description of the vacancy, demographic information on the area surrounding the real estate, all of your contact information, traffic counts if a retail center, other tenants in the area around the premises as well as the highlights of the area and I always suggest putting in the asking rents and other charges, because I want the potential client to know what to expect before contacting me.

5.    Distribute the flyer to potential tenants and to the brokerage community.  You may want to put some of the flyers in a folder at the front of the property and/or by the front door of the vacant unit(s). Distribution can include email, direct mail, as well as direct contact by dropping a flyer off at a potential tenants current location or stopping by a brokers office and dropping off flyers.

6.    Advertise the vacancy on the internet through LoopNet, CoStar, Catalyst, eProperty, Craigslist or any one of the other many internet sites as well as local and regional publications.

7.    Attend local and national trade shows where you can talk to potential tenants and brokers in the area.

8.    Put a lock box on the property for ease of showings.

9.    Prepare a “Financial and Credit” form that potential tenants must fill out and return to you. Be sure that if you are going to run a credit check that you get their written permission. Do not be afraid to ask for this information upfront as you to have a good idea of your risk. Bad or no credit does not mean that you won’t lease space to them, but it lets you know about the risk you are taking.

10.    Always immediately return phone calls about the property. It is hard enough for a potential client to pick up the phone and call you, however making them wait a day or two for you to return their call makes them think that you don’t care or respect them.

11.    Qualify prospects over the phone prior to setting appointments to show the property.  Asking questions about their experience, the business that they want to put into the space, their financing and when they want to open their business will help you determine if they are, in fact, a prospective tenant for your property.

12.    Be on time for showings and ask qualifying questions as you tour a potential client through the space.

13.    Have a lease agreement that is acceptable in the community and know how to negotiate the points in the lease.

14.    Saying the right things and following up with prospects is key to leasing your property.

If you feel that you can’t do the above, contact a local commercial real estate broker who can provide you with these services.

As I say throughout my blogs, if I may be of assistance with your real estate questions please contact me.  My way of giving back is to give away my knowledge.  Thank you for reviewing this blog.

Commercial Rental Rates and Expenses|Who Pays for What?

There are a number of factors that comprise commercial rental rates and several customary ways to quote rents, which can make it difficult to understand what people mean when they are discussing leasing rates.

Normally, the rate quoted reflects the amount of rent you pay per square foot. Generally square foot prices are quoted on a monthly basis; however, there are markets such as San Francisco that are quoted on an annual basis. For example, a $36.00 per square foot annual rate is equal to $3.00 per square foot when expressed as a monthly rate. While this is simple math, it can come as a bit of a shock when you hear a rate quoted for one space as $3.00 per square foot and another as $36.00.

Urban office leasing is generally quoted as an annual rate, while industrial and retail rates are typically stated as monthly rates.

Also important to note is that real estate brokers commonly refer to annual square footage rates while tenants frequently prefer to look at rates on a monthly basis. This difference may occur because each uses the rate differently. Tenants commonly look at their expenses from a monthly expense perspective, while agents deal in leasing agreements in annual terms.

Another thing to note is how square footage is defined. It can be quoted to you on a rentable or useable basis. If you see it on a useable basis that means that the square footage is the actual square footage in your space. If you see it on a rentable basis, it usually means that there is a load factor involved and your square footage includes your portion of the load factor.

The load factor is the multiplier applied to a tenant’s useable space that accounts for the tenant’s proportionate share of the common areas (restrooms, lobbies, stairwells, mechanical rooms, etc.). Rentable basis is useable square footage plus the load factor. You may also see the load factor referred to as the add-on factor.

Aside from different rental rate terms, there are key attributes associated with each square footage rate.

These attributes are most commonly referred to as: Full Service Gross, Industrial Gross (or Single Net), Double Net and Triple Net (or Absolute Net).

All of these except the Full Service Gross rent may have Common Area Maintenance (CAM) charges added on.

On property fact sheets you may see these written as; FSG, IG, N, NN, NNN, CAM. These traits determine who pays the utilities, janitorial and other building services (elevators, common hall lights, etc.) and are key factors in determining the true asking rate.

A Triple Net Lease (NNN) means that the tenant pays for all expenses on the property. The three nets (NNN) refer to Real Estate Taxes, Insurance and Common Area Maintenance. In addition to the NNN costs, the tenant pays for his own utilities and janitorial. The Landlord is not responsible for any costs associated with the property, except for possibly some structural and original construction issues.

A Double Net Lease (NN) means that the tenant pays for the real estate taxes and insurance on the property and the Landlord pays for the common area maintenance. Utilities and janitorial are negotiated items with the lease being your guide. The Landlord typically is responsible for structural and original construction issues.

A Net Lease (N) means that the tenant pays for the real estate taxes and the Landlord pays for the insurance and common area maintenance. The other costs are the responsibilities of the parties similar to the NN lease.

Another lease that you might run into is where the tenant pays the increase in expenses over a base year. The expenses can be all of the expenses of the property or may be some of the expenses of the property. The lease will spell out the responsibilities of the parties.

Retail tenants may also be subject to a percentage rent that requires the tenant to pay a percentage of the gross sales after deducting the minimum rent. The formula is gross sales times percentage rate less minimum rent equals the amount of percentage rent due. Example – Gross Sales are $1,000,000, Percentage Rate is 7% and minimum rent is $60,000 per year. $1,000,000 times 7% equals $70,000, minus minimum rent of $60,000 equals percentage rent owed of $10,000 ($70,000 minus $60,000). You may also see this quoted as 7% of sales over a natural break even point. To calculate the break even point you divide the minimum rent ($60,000) by the percentage rate of 7% giving you a break even point of $857,143. This means that if you do a gross volume less than $857,143 you will not owe any percentage rent, but if you do a volume greater than $857,143 you will owe some percentage rent equal to 7% of any amount over the break even point.

Rental rates, in essence, are affected by countless elements, including:

• lease term (duration)
• size of the property
• storage
• views
• proximity to certain locations
• current market/economy.

Typically, items that will help to lower your rental rate include longer lease terms, good credit history, previous experience, larger size property, inferior location within a market or a particular property, lower level of a high rise building and a down real estate market. Typically, things that will increase a rental rate include improving market conditions, short term leases, bad credit, little or no experience, smaller properties, superior locations in the market or a particular property and higher floors of a high rise building.

Once a lease is executed, the rental rate is fixed for the lease term, however be sure to take into account the increases in the expenses that you are responsible for paying.

As you can see there are several factors you need to take into account prior to looking for a location in the market. If you have any questions or I may be of assistance in any way please feel free to contact me. Always remember that my way of giving back is to give away my knowledge. Thank you for reviewing this article.