Posted by: Dave Simonsen
Industrial Specialist
775 336 4667
Dave has more than 21 years experience as a commercial real estate broker. Dave exclusively works with industrial tenants, buyers, developers, landlords and land owners. He has represented companies such as AT&T, Barnes & Noble, Converse, DHL Worldwide, Delta Industries, Hawco Development, Lucent Technologies, IBM, Hopkins Distribution, Nextel, NEC, Sherwin-Williams Company, and UPS.
~10 Leasing Insights ~
Broker tips to better deals
NNN vs. Gross Leases:
Every building has operating expenses, and one way or another they get passed along to the tenant. These include property taxes, owner’s insurance and common area maintenance to name a few. Landlords (LLs) have a choice as to how they will get reimbursed for those expenses by a tenant. One is a Gross Lease – the tenant doesn’t see any of the expenses because they are included in the negotiated rent. The other is a NNN Lease where the tenant pays a “base rate” plus “additional rent” for these expenses. The LL prepares a budget at the beginning of the year, the tenant pays a fraction of the budgeted amount each month and the difference is reconciled at the end of the year – the tenant sees everything.
BROKER INSIGHT: Gross leases are nice for tenants who want to know for sure what their payment will be with no uncertainty. However, this certainty may come at a cost. LLs typically build in a premium over the actual operating expenses because they know they will pay for any increases or unusual expenses. If an expense actually goes down (something that does happen on occasion), the tenant doesn’t share in the savings. If you recognize some variation in operating expenses will occur each year, and you can accommodate that fact in your internal budgeting, NNN leases will typically cost you less over time.
~10 Leasing Insights ~
Broker tips to better deals
Tip # 1
NNN vs. Gross Leases:
Every building has operating expenses, and one way or another they get passed along to the tenant. These include property taxes, owner’s insurance and common area maintenance to name a few. Landlords (LLs) have a choice as to how they will get reimbursed for those expenses by a tenant. One is a Gross Lease – the tenant doesn’t see any of the expenses because they are included in the negotiated rent. The other is a NNN Lease where the tenant pays a “base rate” plus “additional rent” for these expenses. The LL prepares a budget at the beginning of the year, the tenant pays a fraction of the budgeted amount each month and the difference is reconciled at the end of the year – the tenant sees everything.
BROKER INSIGHT: Gross leases are nice for tenants who want to know for sure what their payment will be with no uncertainty. However, this certainty may come at a cost. LLs typically build in a premium over the actual operating expenses because they know they will pay for any increases or unusual expenses. If an expense actually goes down (something that does happen on occasion), the tenant doesn’t share in the savings. If you recognize some variation in operating expenses will occur each year, and you can accommodate that fact in your internal budgeting, NNN leases will typically cost you less over time.
Next Week.... Fixed Rate Options
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