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Terms to Look For in Your Commercial Lease Agreement

commercial lease agreement

A commercial lease agreement can be an intimidating document, especially for those who don’t work with real estate on a regular basis. Reading your entire lease carefully is vital to ensuring that you’re getting the best deal when you’re renting commercial office space; however, some terms and clauses are of particular importance and should be considered with the utmost of care.

6 terms to look for in a commercial lease agreement

Rent and Common Area Maintenance

The last thing you want is to end up with is a surprise when it comes time to make your first month’s rent payment. Take the time to carefully read the rent terms. Are there any fees in addition to your rent? When is the rent due and how must it be paid? What are the penalties for late payments? How much is the common area maintenance and what specifically does it cover? Consider all of this plus what isn’t included in your lease before you sign.

Right of First Refusal

When you find the perfect office space, you want to make sure that you have the chance to stay there when your lease is up. The right of first refusal clause says that your landlord must give you a chance to say that you don’t want to renew your lease before they make the property available to other prospective tenants.

Definition of the Premises

This part of your lease tells you exactly what you’re renting. Make sure that the entire office space’s square footage is correctly stated in the lease. If the landlord promised you use of shared facilities, such as restrooms in a corridor, a shared reception area or a shared break room or cafeteria, these spaces should also be mentioned here. Don’t leave anything as a mere promise. Make sure it’s spelled out in writing under the definition of the premises.

Subleasing and Assignment

If your business needs change and you no longer need all or part of your office space, this clause gives you the ability to sublease your space or assign it to another tenant to reduce your monthly costs. The future is unpredictable, so it’s worth it to fight to have liberal subleasing and assignment rights included in the language.

Use and Exclusives Clause

Does the lease have any stipulations on what kind of businesses can hold office space in the building? If so, is there any possibility that the defined acceptable uses may limit your future endeavors? You don’t want to find yourself unable to expand into a new field, niche or industry due to your restrictive lease. On the flip side, is there any language that protects you from having a competitor move in across the call? Depending on your line of business, an exclusives clause may be necessary to protect your interests.

Maintenance Clause

What happens when something goes wrong with your office space? Who is responsible for handling the cost of the maintenance and who is required to make arrangements to have repairs or maintenance done? Make sure the responsibilities are clearly defined to save yourself future headaches


Investing In Commercial Real Estate?

Looking to invest in Arizona Commercial Real Estate? At ICRE Investment Group, we work with commercial investors, property owners, companies, banks, and commercial loan servicers seeking the highest quality of services in the greater Phoenix, Scottsdale, Mesa and Tempe Arizona regions. Contact us for more information.

Tenant Improvement Projects – Things to Remember

Tenant Improvement Projects - Things to Remember

Planning tenant improvement projects used to be simple — design rows of private offices with cubicles in front and don’t forget a storage room and reception area. Modern offices are much more variable. While the key to a successful project is to customize it extensively to your needs, there are still a few rules of thumb that can make any project better.

5 Tips to Planning Tenant Improvement Projects

Don’t Forget the Wires

Your users have spoken, and they love wireless devices. However, the more wireless devices that you have, the more you bump up against two basic problems:
 
1. Wireless devices need wires for power.
 
2. Wireless spectrum for both wi-fi and cellular data is limited.
 
The solution to these problems is easy. Provide as many traditional connections as you can. Power outlets allow your workers to stay juiced up, and adding traditional network wiring back into your tenant improvement projects can solve the bandwidth problem. While not every device will get plugged in, giving fat data pipes to shared equipment like printers, scanners and servers and to power users who have significant network utilization will make those devices work better. It’ll also also keep them off of the wireless network, conserving bandwidth for others.
 
Recycle When Possible

Many companies try to do their tenant improvement projects in a green fashion. However, many recycled materials cost the same or more than newly manufactured projects. If you’d like to go green and save green, reuse what is already in the space. Ceiling tiles, modern lighting fixtures, doors and the like from the previous tenant are frequently in good enough shape to be reused, saving you from both paying for removal and from purchasing new materials.
 
Be Open to Being Closed

Like many companies, you probably are considering an open floor plan build-out. An open tenant improvement plan is more flexible, less expensive to build and can bring productivity benefits. However, while you might want to keep your workspaces flexible and open, don’t forget to create defined spaces that will help make your workplace yours. This could include small meeting rooms, in-suite cafes, or any other closed areas that can both define spaces and define the groups that are using them.
 
Leverage LED Lighting

Advances LED lighting fixtures have two obvious benefits — they consume less power than other technologies and they are longer lasting, necessitating less maintenance over time. However, the newest LED bulbs have an additional benefit — the ability to change colors. Studies are starting to show that fixtures that mimic the shifting color of natural light over the course of the day have positive impacts on both employee health and productivity.
 
Look Up…. Once.

In a tenant improvement project, even a few dollars per square foot can make a difference. One way to save money and create cooler, more flexible space is to eliminate the traditional acoustic tile ceiling. Open ceiling offices aren’t just industrial-chic, though. The higher space feels larger, while the open space means that your maintenance team has one less thing to clean while having easier access to lighting, HVAC and wiring systems that run along the ceiling for repairs and retrofits.


Investing In Commercial Real Estate?

Looking to invest in Arizona Commercial Real Estate? At ICRE Investment Group, we work with commercial investors, property owners, companies, banks, and commercial loan servicers seeking the highest quality of services in the greater Phoenix, Scottsdale, Mesa and Tempe Arizona regions. Contact us for more information.

Understanding Cap Rate in Commercial Real Estate

Understanding Cap Rate in Commercial Real Estate

Let’s examine what a cap rate is and how it allows investors to evaluate their rate of return. There are many ways to value real estate. It consists of appraising the land and building, comparing comparable properties, or calculating the value based on the rents being generated.

The later method is where the capitalization rate (or “cap rate”) comes into play. The cap rate (expressed as the ratio of the property’s net income to its purchase price) allows investors to compare properties by evaluating a rate of return on the investment made in the property. By examining the actual income (or rent) that the property generates and then deducting operating expenses (not including debt costs), the investor arrives at a property-level net operating income (or NOI). Once you determine the NOI, you simply divide that by the cost of the property or the price you are buying or selling the subject building for.

Calculating Cap Rate

Calculating Cap Rate

While this method of valuation may appear simple, the use of the tool can be extremely valuable. Also, it’s important to mention that a Cap Rate does not show the full picture of the investment. It’s a only a snapshot of the first year’s returns and should not be treated as the only factor to consider.  In general, a lower cap rate indicates there is less risk associated with the investment (due to a stronger tenant, such as a national chain or increased demand) and a higher cap rates can be associated with higher risk alternatives.

Real estate investors rely upon a variety of types information when negotiating for income producing properties – for instance, the desirability of the property’s current location and/or any prospective changes in the neighborhood are two common factors.

Looking for more information on cap rates? Click HERE to be forwarded to a Wiki How article with great simple diagrams – enjoy. 


Investing In Commercial Real Estate?

Looking to invest in Arizona Commercial Real Estate? At ICRE Investment Group, we work with commercial investors, property owners, companies, banks, and commercial loan servicers seeking the highest quality of services in the greater Phoenix, Scottsdale, Mesa and Tempe Arizona regions. Contact us for more information.

My Commercial Property Won’t Sell, Why?

Commercial Property Won't Sell

Your commercial property won’t sell, you listed your building up for sale and it simply didn’t sell. The first thing to do is to take a step back and analyze the situation. Try to assess what factors led to your property not selling. Below are the top four reasons why properties tend to languish on the market 

Commercial Property Won’t Sell? Consider These Factors

(1) Is My Commercial Property Overpriced?

Overpricing your property is usually the number one reason it did not sell. The price of your property should be competitively priced with other buildings in your area which have similar features. Your real estate broker will help you establish the best price based on the competition.

Price reductions can be an issue in the pricing game. Many owners set an asking price above the market with the idea they will reduce the price as time goes on. However, doing this can mean being passed over by real buyers who end up purchasing comparable properties as the right price. By the time you reduce the price to where it should be, you & rsquo;ve lost access to the first round of buyers. You can counter this by making your price reduction extremely competitive.

Properly pricing your property is as much an art as a skill and your commercial real estate broker will help you assess the competition and help you establish an asking price that will get the property sold.

(2) What is the Condition of the Property

All of the cosmetic things, such as paint, landscaping, window coverings and flooring should be in good shape and the building should be spotless inside and out. It’s amazing how most buyers refuse to see through superficial, cosmetic shortcomings. And making these cosmetic improvements is relatively inexpensive. To get the building sold, make a small investment in
Landscaping Make sure lawn is in good shape and trees and shrubs neat and trimmed. Make sure walkways are clear. If you don’t have the time to do it, pay someone.
Exterior Make sure there is no chipping paint, dirty windows, or clutter. Most importantly, remember that most buyers will notice the condition of the front door when they walk in.
Interior Make sure the carpets are clean and attractive, the walls painted (if it needs it) and clean (no smudges.), the break room clutter-free and the windows are spotless. Also, remove excess furniture since excess furniture makes rooms appear much smaller. Make sure all clutter is off the floor and organized. And finally, make sure the smell of the building is appealing.

(3) Was Your Property Aggressively Marketed?

Another primary reason your commercial property won’t sell is a simple lack of exposure. In a very hot market, a listing in services like CoStar/LoopNet alone should generate an adequate number of buyers. However, if your market is anything less than red-hot, your building needs aggressive marketing.

Many buyers work with a commercial real estate broker. Your broker will make sure your property is exposed to the active buyer & rsquo;s brokers in your area through listing services, emails, phone calls and open houses. Also, most active brokers have a strong network of other brokers and buyers and can introduce your property directly.

(4) Did You Hire The Right Commercial Real Estate Agent? 

Like any profession, there are very effective and ineffective commercial real estate brokers. Many commercial real estate brokers work hard and employ strong marketing techniques. They have a strong network and access to buyers. Many work hard to get your building sold. However, many do not. Did your broker simply place the building in CoStar/LoopNet/Xceligent? Or, did she or he inform their network of buyers about your property? How about presenting your property at sales meetings both at her or his office and other company offices? Did she or he promote your property with email announcements, brochures, banners, and signage to showcase your property?

Ask yourself, was your broker passionate about selling your property? If not, now is the time to find the broker who will get your building sold.


Investing In Commercial Real Estate?

Looking to invest in Arizona Commercial Real Estate? At ICRE Investment Group, we work with commercial investors, property owners, companies, banks, and commercial loan servicers seeking the highest quality of services in the greater Phoenix, Scottsdale, Mesa and Tempe Arizona regions. Contact us for more information.