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Leasing commercial real estate final (owners 1.5) copy

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Victor Henry, MSA

Victor Henry has experience in insurance, real estate, and as a tenant representative in Central Texas. He outlines an ideal process for businesses to plan a location which includes business planning, narrowing a search, negotiating a lease, and preparing the space. Key factors to consider include price, placement near customers and employees, and proximity to other businesses. The document discusses property types, classes of properties, square footage calculations, lease quoting methods including triple net expenses, and key lease terms.

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A Tenants Perspective 1
Presenter Victor L. Henry holds Insurance and Real Estate licenses in the state of Texas. Victor has worked in the Insurance industry since 2001 and as a Real Estate agent since 2006. He currently works with KW Commercial Real Estate as a Tenant Representative in the Central Texas region. Victor also serves as the Economic Development Ambassador for the Capital City African-American Chamber of Commerce. Victor was raised in Port Arthur, Texas and graduated from Abraham Lincoln High School. He earned an athletic scholarship to Rice University where and was a member of the football team. Victor graduated in 1993 with a B.A. in Political Science and a B.A. in Human Performance and Sports Sciences. He earned his Masters of Accountancy degree through the University of Phoenix in 2012. Victor relocated to the Austin area in July 08. Victor has been on local and internet radio broadcasts discussing a variety of topics including business and social issues. He is a presenter with various business development organizations. Victor has represented a variety of businesses with their tenant leasing needs. 2
Ideal Process PLAN LOCATE NEGOTIATE MOVE-IN Business Narrowing Getting the best Preparing the Planning Search rate and lease space for your Demographics Self locate terms possible business use: Market Analysis Use of agent Construction/ Competitive build-out Analysis Space planning Budget Moving assistance Craigs List Knowledge/skill/ Resources Business Loop Net Network of B2B experience of Development CoStar* service providers negotiators Organizations Xceligent* Market Familiarity 3
Your Business Location Helps establish your business presence Biggest fixed expense most businesses have Lease rates and terms are locked for the entirety of the agreement 4
Commercial Real Estate Property used for business Includes shopping centers, office buildings, hotels, medical or educational buildings, and vacant land that will eventually be built upon and used for business purposes. Commonly designated by zoning 5
Commercial Lease An agreement whereby the owner (i.e., landlord) of real property gives the right of possession to another (i.e., tenant/lessee) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent). Contractual agreement Not standard (as with residential) 6
Austin Market Over 75 million square feet Market areas (12) Central Business District Central East Far Northeast Far Northwest North Northeast Northwest South Southeast Southwest West Central 7
Factors to Consider PRICE PLACEMENT PEOPLE Where should my Where are my potential What can I afford? customers? business be located? Where are my potential What is in its employees? proximity? How close is my office from home? 8
Property Types Retail - Properties used exclusively to market and sell consumer goods and services. Office - A commercial property type used to maintain or occupy professional or business offices. Such properties typically house management and staff operations. The term office can refer to whole buildings, floors, parts of floors, and office parks. Office space that can be used for a variety of purposes is sometimes referred to as generic office space. Flex (Light industrial) - Space that is flexible in terms of what it can be used for (for example, space that could be utilized for industrial or office activities). Also see cross-over (office use) demand. Heavy industrial - Commercial properties that are used for the purposes large scale of production, manufacturing, or distribution of goods or products. 9
Specifics by type Retail Consumer demographics Traffic flow Office Building class Triple net or Full service Light industrial (Flex Space) Ramp type (grade level, semi) Electrical (220 amp, 3 phase) Ceiling height 10
Classes of Properties Class refers to the quality of property according to the following guidelines: Class A: Landmark quality, high-rise building with prime central business district location. Generally concrete and steel construction, modern architecture, business/support amenities, strong identifiable location/access. Cost $$$ Class B: Renovated and in good locations. Newer building are smaller in size, wood frame construction, and/or in non- prime location. Class C: Older, not renovated building of any size in average to fair condition in non-prime location. 11
First Quiz 12
Square Footage Demising Walls: The walls that separate one tenant from another or from common areas (your space). Usable Square Footage: The area contained within the demising walls of the tenants space. Same as demised space. Rentable Square Footage: The Usable Square Footage plus the tenants pro rata share of the building common areas (Core factor), such as lobbies, public corridors and restrooms. Total price. Rentable Sq. Ft. = Usable Sq. Ft. + Core Factor 13
Lease Quoting Method Base Rate - The minimum rent due to the landlord. Typically fixed per lease agreement The amount upon which annual increases are calculated Triple Net (NNN) Landlord common area maintenance (CAM) charges paid by the tenant for the upkeep of areas designated for use and benefit of all tenants. Tenants pro rata share of estimated annual expenses Common in shopping centers Includes items such as parking lot maintenance, snow removal, and landlord utilities Also referred to as a Net Lease Full Service (FS)/Gross Lease - A lease in which the stated rent includes base rate and Triple Net as a single rate. Common in office buildings. Modified Gross (MG) A lease in which the stated rate includes all landlord operating expenses except defined tenant cost, such as tenant electricity. Mostly Industrial. 14
Lease Quote Example Quoted $12 sq. ft./yr. = $1 sq. ft./ month 1) Determine lease type: Full Service Triple Net 2) If Triple Net, determine expense rate NNN of $6 sq. ft/yr = $0.50 sq. ft./month In this example, Full Service: Lease Rate = $12 sq. ft./ yr OR $1 sq. ft./month Triple Net: Lease Rate = $18 sq. ft./yr OR $1.50 sq. ft./month 15
Triple Net (NNN) Landlord operating expenses passed on to tenant Include taxes, insurance, and common area maintenance Estimated at the start of the year (usually Jan. 31st) Can change based on actual expenses incurred by landlord Tenant has a provision to review and dispute these costs at tenants expense 16
Lease Term/Options Market rates based on location and building class Contractual Terms: o Use landlord defines what can and cannot be done in space o Business hours landlord can stipulate days/hours of operation o Parking ratios landlord can specific parking allocation based on leased sq. ft. (stated as per 1000 sq. ft. ratio) o Re-measure sq. ft. lease restricts re-measuring; tenant assumes space sq. ft. as quoted o HVAC tenant is responsible and accepts unit on an as is basis unless otherwise stipulated in lease agreement 17
Second Quiz 18
Agents (Representation) Residential Sellers Buyers Locators Commercial Landlord Reps Tenant Reps In-house Employees May not be licensed agents Work for the benefit of their employer 19
Information About Brokerage Services IABS Form disclosure required by the Texas Real Estate Commission. Does not obligate you to anything With the exception of open houses, every real estate agent licensed in Texas is required to present you with a copy of this form on your first meaningful contact with that agent. If an agent youre interviewing doesnt show you this form then dont hire them. 20
IABS cont. The first paragraph of the Info About Brokerage Service document sums up the three different types of representation: Sellers Agent Buyers Agent Intermediary Representation only apply when there is a signed agreement 21
IABS cont. If you havent signed an agreement, then you dont have an agent working for OR representing you When there is no signed agreement, dont communicate anything to an agent which you would not freely disclose to the other party (that agent may be working on behalf of the party with whom you are negotiating) An agent can assist you in creating a contract or lease, without your signing an exclusive representation agreement with that agent All agents are required to make all parties aware of pertinent facts regarding the property such as square footage 22
Third Quiz 23
What you can do Research the market and your building Talk to the current and/or past tenants Check on zoning, occupancy, and signage laws and restrictions Demographic study Market survey of similar or ancillary businesses 24
Conclusion Understanding the basics of commercial leasing will help better position tenants for success in the negotiating process. This presentation should help you better understand language and terms commonly using by landlords and brokers. Having this knowledge will help level the playing field in the complex world of commercial leasing. 25
Victor L. Henry, MSA KW Commercial 512-587-9409 CommercialAgent@KWCommercial.com 26

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Leasing commercial real estate final (owners 1.5) copy

  • 2. Presenter Victor L. Henry holds Insurance and Real Estate licenses in the state of Texas. Victor has worked in the Insurance industry since 2001 and as a Real Estate agent since 2006. He currently works with KW Commercial Real Estate as a Tenant Representative in the Central Texas region. Victor also serves as the Economic Development Ambassador for the Capital City African-American Chamber of Commerce. Victor was raised in Port Arthur, Texas and graduated from Abraham Lincoln High School. He earned an athletic scholarship to Rice University where and was a member of the football team. Victor graduated in 1993 with a B.A. in Political Science and a B.A. in Human Performance and Sports Sciences. He earned his Masters of Accountancy degree through the University of Phoenix in 2012. Victor relocated to the Austin area in July 08. Victor has been on local and internet radio broadcasts discussing a variety of topics including business and social issues. He is a presenter with various business development organizations. Victor has represented a variety of businesses with their tenant leasing needs. 2
  • 3. Ideal Process PLAN LOCATE NEGOTIATE MOVE-IN Business Narrowing Getting the best Preparing the Planning Search rate and lease space for your Demographics Self locate terms possible business use: Market Analysis Use of agent Construction/ Competitive build-out Analysis Space planning Budget Moving assistance Craigs List Knowledge/skill/ Resources Business Loop Net Network of B2B experience of Development CoStar* service providers negotiators Organizations Xceligent* Market Familiarity 3
  • 4. Your Business Location Helps establish your business presence Biggest fixed expense most businesses have Lease rates and terms are locked for the entirety of the agreement 4
  • 5. Commercial Real Estate Property used for business Includes shopping centers, office buildings, hotels, medical or educational buildings, and vacant land that will eventually be built upon and used for business purposes. Commonly designated by zoning 5
  • 6. Commercial Lease An agreement whereby the owner (i.e., landlord) of real property gives the right of possession to another (i.e., tenant/lessee) for a specified period of time (i.e., term) and for a specified consideration (i.e., rent). Contractual agreement Not standard (as with residential) 6
  • 7. Austin Market Over 75 million square feet Market areas (12) Central Business District Central East Far Northeast Far Northwest North Northeast Northwest South Southeast Southwest West Central 7
  • 8. Factors to Consider PRICE PLACEMENT PEOPLE Where should my Where are my potential What can I afford? customers? business be located? Where are my potential What is in its employees? proximity? How close is my office from home? 8
  • 9. Property Types Retail - Properties used exclusively to market and sell consumer goods and services. Office - A commercial property type used to maintain or occupy professional or business offices. Such properties typically house management and staff operations. The term office can refer to whole buildings, floors, parts of floors, and office parks. Office space that can be used for a variety of purposes is sometimes referred to as generic office space. Flex (Light industrial) - Space that is flexible in terms of what it can be used for (for example, space that could be utilized for industrial or office activities). Also see cross-over (office use) demand. Heavy industrial - Commercial properties that are used for the purposes large scale of production, manufacturing, or distribution of goods or products. 9
  • 10. Specifics by type Retail Consumer demographics Traffic flow Office Building class Triple net or Full service Light industrial (Flex Space) Ramp type (grade level, semi) Electrical (220 amp, 3 phase) Ceiling height 10
  • 11. Classes of Properties Class refers to the quality of property according to the following guidelines: Class A: Landmark quality, high-rise building with prime central business district location. Generally concrete and steel construction, modern architecture, business/support amenities, strong identifiable location/access. Cost $$$ Class B: Renovated and in good locations. Newer building are smaller in size, wood frame construction, and/or in non- prime location. Class C: Older, not renovated building of any size in average to fair condition in non-prime location. 11
  • 13. Square Footage Demising Walls: The walls that separate one tenant from another or from common areas (your space). Usable Square Footage: The area contained within the demising walls of the tenants space. Same as demised space. Rentable Square Footage: The Usable Square Footage plus the tenants pro rata share of the building common areas (Core factor), such as lobbies, public corridors and restrooms. Total price. Rentable Sq. Ft. = Usable Sq. Ft. + Core Factor 13
  • 14. Lease Quoting Method Base Rate - The minimum rent due to the landlord. Typically fixed per lease agreement The amount upon which annual increases are calculated Triple Net (NNN) Landlord common area maintenance (CAM) charges paid by the tenant for the upkeep of areas designated for use and benefit of all tenants. Tenants pro rata share of estimated annual expenses Common in shopping centers Includes items such as parking lot maintenance, snow removal, and landlord utilities Also referred to as a Net Lease Full Service (FS)/Gross Lease - A lease in which the stated rent includes base rate and Triple Net as a single rate. Common in office buildings. Modified Gross (MG) A lease in which the stated rate includes all landlord operating expenses except defined tenant cost, such as tenant electricity. Mostly Industrial. 14
  • 15. Lease Quote Example Quoted $12 sq. ft./yr. = $1 sq. ft./ month 1) Determine lease type: Full Service Triple Net 2) If Triple Net, determine expense rate NNN of $6 sq. ft/yr = $0.50 sq. ft./month In this example, Full Service: Lease Rate = $12 sq. ft./ yr OR $1 sq. ft./month Triple Net: Lease Rate = $18 sq. ft./yr OR $1.50 sq. ft./month 15
  • 16. Triple Net (NNN) Landlord operating expenses passed on to tenant Include taxes, insurance, and common area maintenance Estimated at the start of the year (usually Jan. 31st) Can change based on actual expenses incurred by landlord Tenant has a provision to review and dispute these costs at tenants expense 16
  • 17. Lease Term/Options Market rates based on location and building class Contractual Terms: o Use landlord defines what can and cannot be done in space o Business hours landlord can stipulate days/hours of operation o Parking ratios landlord can specific parking allocation based on leased sq. ft. (stated as per 1000 sq. ft. ratio) o Re-measure sq. ft. lease restricts re-measuring; tenant assumes space sq. ft. as quoted o HVAC tenant is responsible and accepts unit on an as is basis unless otherwise stipulated in lease agreement 17
  • 19. Agents (Representation) Residential Sellers Buyers Locators Commercial Landlord Reps Tenant Reps In-house Employees May not be licensed agents Work for the benefit of their employer 19
  • 20. Information About Brokerage Services IABS Form disclosure required by the Texas Real Estate Commission. Does not obligate you to anything With the exception of open houses, every real estate agent licensed in Texas is required to present you with a copy of this form on your first meaningful contact with that agent. If an agent youre interviewing doesnt show you this form then dont hire them. 20
  • 21. IABS cont. The first paragraph of the Info About Brokerage Service document sums up the three different types of representation: Sellers Agent Buyers Agent Intermediary Representation only apply when there is a signed agreement 21
  • 22. IABS cont. If you havent signed an agreement, then you dont have an agent working for OR representing you When there is no signed agreement, dont communicate anything to an agent which you would not freely disclose to the other party (that agent may be working on behalf of the party with whom you are negotiating) An agent can assist you in creating a contract or lease, without your signing an exclusive representation agreement with that agent All agents are required to make all parties aware of pertinent facts regarding the property such as square footage 22
  • 24. What you can do Research the market and your building Talk to the current and/or past tenants Check on zoning, occupancy, and signage laws and restrictions Demographic study Market survey of similar or ancillary businesses 24
  • 25. Conclusion Understanding the basics of commercial leasing will help better position tenants for success in the negotiating process. This presentation should help you better understand language and terms commonly using by landlords and brokers. Having this knowledge will help level the playing field in the complex world of commercial leasing. 25
  • 26. Victor L. Henry, MSA KW Commercial 512-587-9409 CommercialAgent@KWCommercial.com 26

Editor's Notes

  1. For equal sq. ft. Triple Net Lease types ARE NOT always more expensive than full service. When comparing rates between landlords,