Tuesday, October 18, 2011

Inaugural Blog Post - Intro to Leasing

Welcome to our inaugural blog post! We hope to tackle a wide range of subjects encompassing all aspects of commercial real estate, as our blog title clearly indicates. Although we have lots of posts to follow in the weeks and months ahead concerning real estate investing - we felt it was high time someone tackled the area of leasing.

With that said, here is the first entry of ourleasing series...

Leasing commercial premises, be it office,retail or industrial space, requires a level of market expertise which is essential for any prospective tenant. Unlike data which is much more readily available on property sales (either through MLS or Real Track), determining actual lease rates is a very challenging task. Relying on leases reported through MLS or like sources, can be misleading as they do not include improvement allowances, rent free periods, or any other inducements that may apply. These all serve to reduce the 'net effective rent' and obviously the cost to the tenant.

In analyzing any market, that is existing or second generation space, you need to consider the cost per foot on an 'as is' basis - both the rent and operating costs (which we will touch on in a blog post coming soon). That then gives you a common ground for comparison, and then you consider what are the additional requirements needed to make the space work for your business. Do you need an improvement allowance to finish the space to your specs, or can you negotiate a reasonable rent-free period to do some minor renovating on your own? Either way, you need it to be 'turn-key' for your operation when you take possession.

Commercial realtors with strong leasing backgrounds can not only put together the market surveys your require, but can negotiate the other terms which are necessary to make the economics of the deal work to your advantage.

In our upcoming posts on leasing, some of our topics will include: lease documentation, lease terms/base rates and capping mechanisms for operating costs.

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