GENERAL COMMERCIAL REAL ESTATE TERMS
Amendment – A change to the existing content of a contract. For example, a lease amendment is a modification of the original lease.
Amenity – A feature of commercial space that enhances its usefulness and value. It can be onsite such as a restaurant, exercise club or concierge within an office building, or offsite, such as proximity to shopping, dining, and specific businesses.
Asking Rental Rate – The base rental rate quoted by a landlord for commercial space available for lease.
Available Space – How much space (square feet) is available in the building to lease.
Base Rent – A set amount used as a minimum rent in a lease.
Building Classifications - There are three classes of office buildings: A, B and C. Class A buildings are high-end office spaces that are new, well-maintained high rises with quality amenities in prime location. Landlords command premium rents in these office spaces. Class B buildings are average in nature with lesser amenities and tend to be no more than four stories tall. They may have once been Class A, but wear and tear downgraded their classification and lessened their market value. Class C buildings are usually more than twenty years old and in need of major repairs. Locations are less desirable and rents are much lower, but with renovation, they can be upgraded to Class B.
Broker Opinion of Value (BOV) – This is a proposal to the owner of a building stating what the value of the asset is.
CAP Rate (Capitalization Rate) - This number is found by dividing the net operating income (NOI) by the sales price of the property. This results in the return rate on a real estate investors.
CAM (Common Area Maintenance) - This is the amount of additional rent charged to the tenant, in addition to the base rent, to maintain the common areas of the property shared by the tenants and from which all tenants benefit.
Contiguous Space – Multiple suites/spaces within the same building on the same floor that can be combined and rented to a single tenant.
Demising Walls – The partition walls that separate one tenant’s space from another or from the building’s common area, such as a public corridor.
Dual Agency – The term for when an agent represents both sides – the landlord and the tenant – in a transaction. This relationship is typically governed by state law and regulation, requiring full disclosure in writing by the agent to all parties to the transaction.
Due Diligence – The process of investigation performed by the parties to a property transaction to verify the material facts about the transaction’s physical, financial, and legal details.
Flex Space – An industrial building designed to be used in a variety of ways (most often you’ll hear it to describe a space with both an office and warehouse component).
Full Service Gross (FSG) – Rental rate that includes all property operating expenses and real estate taxes for the year.
Landlord Representation - The leasing agent. They represent the best interest of the owner or landlord and are responsible for obtaining the highest amount of rent with the lease amount of expense or risk. A landlord rep is authorized to negotiate with the tenant or tenant rep on behalf of the landlord, to secure a rental agreement that details rental costs, security deposits, tenant improvement allowances and other concessions.
Lease – The right to occupy space in real property in return for money paid to the property owner (landlord) by a tenant pursuant to a contract (lease agreement).
Letter of Intent (LOI) - Written document that solidifies the tenant’s commitment to rent the space. This comes before signing the lease agreement and typically summarizes the terms of the lease including the negotiations, concessions, and timeframes agreed to.
Listing Agreement – Contact between landlord or seller and an agent (listing agent/broker) to sell or lease the property.
Modified Gross Rent – A rental rate that includes only certain services provided by landlord. The tenant is usually responsible for cost of utilities and janitorial services.
Occupancy Rate – Amount of space physically occupied by the total amount of space.
Offering Memorandum (OM) – A sales package containing comprehensive property and related information, typically prepared by the listing agent when marketing larger investment properties and distributed to select buyers and agents (usually after they sign a confidentiality agreement).
Operating Expenses – Expenses associated with the operation of a standard office building, including by not limited to: utilities, janitorial service, consumable supplies, taxes, insurance, maintenance and repair, etc.
Owner-Occupant – When the owner of a property physically occupies it.
Parking Ratio – The number of parking spaces available per 1,000 SF of leasable area.
Right of First Refusal - ROFR gives the tenant the ability to accept or decline any additional space that the landlord has available to rent. Therefore, the landlord would be required to offer the tenant with a ROFR clause included in their lease.
Rentable Building Area (RBA) – Size of overall building.
Rent Abatement - A reduction or elimination of rent payments for a specified period of time, usually granted by the landlord as an inducement to the tenant to enter into or renew a lease.
Safety Deposit – A deposit of money by a tenant with a landlord to secure the tenant’s performance under a lease.
Signage – The tenant’s name or logo placed on a property’s exterior.
Space Plan – A graphic representation of a tenant’s space requirements, showing wall and door locations, room sized, and possibly some furniture or equipment layouts.
Tenant Improvements – Improvements to commercial space to meet the needs of the tenants. They may be new improvements or remodeling and may be paid for by the landlord, tenant, or shared.
TI (Tenant Improvement) Allowance - The amount that the landlord will spend for the tenant to build out their space.
Tenant Representation - Represents the tenant instead of the landlord. They help identify office space needs and negotiate with the landlord or landlord rep.
Triple Net Lease (NNN) – Rent in which the tenant agrees to pay a share of the landlord’s operating expenses and real estate taxes for the building proportionate to the amount of space the tenant occupies.
Usable Square Feet - (USF) is the actual space you can occupy in a commercial rental property. Non-exclusive spaces such as lobbies, restrooms, stairways, hallways and storage rooms are not included in USF.
Use Type – Each of the three major commercial property types – office, industrial and retail – is comprised of multiple use types. Offices can be multi-tenant, single tenant, governmental or medical. Industrial buildings can be manufacturing, warehouse/distribution or other. Retail properties can be shopping centers, freestanding, street front or strip retail.
Vacancy Rate – The percentage or total space that is unoccupied at a given time.