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25 Additional Essential Terms to Know When Buying or Leasing Commercial Real Estate (Part Two)

Continuing from our previous list, here are 25 additional terms that are crucial for anyone involved in buying, leasing, or managing commercial real estate. Having a thorough understanding of these terms will further enhance your knowledge and help you navigate the complexities of the industry. This is part two of our essential glossary for commercial real estate, building on the foundation we established in the first part.

  1. Lease Agreement: A contract between a landlord and tenant outlining the terms and conditions of the rental arrangement.
  2. Capital Expenditures (CapEx): Funds used by a property owner to acquire, upgrade, and maintain physical assets such as buildings and equipment.
  3. Rentable Square Footage: The total square footage of a property that can be rented to tenants, including common areas.
  4. Usable Square Footage: The actual square footage within a tenant’s space that they can use exclusively, excluding common areas.
  5. Fair Market Rent: The rental rate that a property could command in an open market based on current conditions.
  6. Lease Escalation Clause: A provision in a lease that allows for periodic increases in rent, often tied to inflation or operating expenses.
  7. Base Rent: The initial rent amount agreed upon in a lease before any additional charges or escalations.
  8. Rent Concession: An incentive offered by landlords to attract tenants, such as a period of free rent or reduced rent.
  9. Right of First Refusal (ROFR): A tenant’s right to match any offer the landlord receives for the space before it is leased or sold to another party.
  10. Gross Income: The total income generated by a property before any expenses are deducted.
  11. Effective Rent: The actual rental rate after accounting for concessions, free rent periods, and other incentives.
  12. Co-tenancy Clause: A provision in a lease that allows a tenant to reduce rent or terminate the lease if key tenants vacate the property.
  13. Turnkey Property: A property that is fully operational and ready for immediate use by the buyer or tenant.
  14. Exit Strategy: A plan for how an investor will sell or exit their investment in a property, typically aiming to maximize returns.
  15. Vacancy Rate: The percentage of all available rental units that are unoccupied at a given time.
  16. Load Factor: A calculation used to determine a tenant’s share of common area maintenance costs, based on the ratio of common areas to rentable space.
  17. Debt Yield: A measure of the risk associated with a loan, calculated by dividing the net operating income by the loan amount.
  18. Sale-Leaseback: A transaction where a property owner sells the property and then leases it back from the buyer, freeing up capital while retaining use of the property.
  19. CAM Reconciliation: The annual process of comparing estimated common area maintenance costs to actual expenses and adjusting tenant charges accordingly.
  20. Master Lease: A lease agreement that covers multiple properties or units, often used by large tenants with multiple locations.
  21. Subordination, Non-Disturbance, and Attornment (SNDA): An agreement that ensures a tenant’s lease will remain in effect if the property is sold or foreclosed.
  22. Pro Forma: A financial statement that projects the future performance of a property, often used to assess the viability of an investment.
  23. Concessions: Discounts or benefits offered by landlords to attract or retain tenants, such as reduced rent or property upgrades.
  24. Ground Lease: A long-term lease agreement for land, often used for developments where the tenant builds and owns the improvements.
  25. Percentage Rent: A lease agreement where the tenant pays a base rent plus a percentage of their gross sales, commonly used in retail leases.

With these additional terms in your commercial real estate vocabulary, you’ll be even better equipped to navigate the industry and make informed decisions. Whether you’re buying, leasing, or managing properties, understanding these concepts is key to your success. For expert guidance and support, don’t hesitate to reach out to The Bill Gladstone Group. We’re here to help you every step of the way in your commercial real estate journey.