Back to School: Commercial Real Estate Terms Every Business Owner Should Learn

As thousands of students return to school this week, business owners should also consider heading back to class to learn these common commercial real estate terms.
Understanding common terms and making real estate decisions that support and drive your business strategy is key to your success. Commercial real estate can be complex so find a brokerage firm that will help you transform your real estate needs into a strategic advantage.

LOI (Letter of Intent). Either a binding or non-binding agreement between landlord and tenant indicating their intent to move forward with lease negotiations and outlines the basic terms of a transaction.

USF (Usable Square Footage). The literal space you can occupy in a commercial rental property.

RSF (Rentable Square Footage). The total usable square footage in addition to the shared spaces such as hallways, lobbies, and restrooms.

CAM (Common Area Maintenance). In addition to the rent, and depending on the lease, the tenant would pay landlord for CAM. CAM includes anything from landscaping, maintenance and repairs, janitorial services, utilities, snow removal, etc.

Full-Service Lease or Gross Lease. Landlord pays for property costs such as utilities, taxes, and maintenance. Generally, this type of lease is used in multi-floor, multi-tenant office buildings, because all the tenants use the building’s utilities in the same way.

Net Leases. There are three types of net leases: single net, double net, and triple net. The difference between each is the amount of “nets” that are excluded with the base rent.

  1. Single Net (also referred to as Industrial Gross Lease or Modified Gross Lease). The base rent includes taxes, insurance, and CAM, but excludes utilities. Utilities are paid directly by tenant.
  2. Double Net. The base rent includes taxes and insurance. It excludes CAM and utilities. CAM and utilities are paid directly by tenant.
  3. NNN or Triple N (Triple Net Lease). The most common net lease. The base rent excludes all three “nets.” The tenant pays the base rent and separately reimburses the landlord for taxes and CAM and contracts directly for utilities.TI Allowance (Tenant Improvement Allowance) – Customized space configured to meet the needs of the specific tenant. Allowance given by landlord to tenant and incorporated into the lease agreement.

FF&E (Furniture, Fixtures & Equipment). Moveable furniture, fixtures or other equipment that are not attached to the building structure or utilities. FF&E are assets that depreciate over time.

Transactional Brokerage Approach. Commoditized process and creates little to no value for most businesses. Consists of higher costs, less flexibility, and negatively impacts business growth and wealth creation. Price/fee is the dominant decision point.

The Strategic Real Estate Advantage™. Unlike the transactional approach to real estate, this advantage connects and integrates your business strategy with your real estate and leads to better cost and capital utilization, increased cash flow flexibility, enhanced growth, and greater wealth creation.

Unfortunately, most commercial real estate deals are completed through the transactional brokerage approach. Hiring a brokerage firm that integrates your business strategy with your business real estate will lead to better results.

Let Verity Commercial help you by using The Strategic Real Estate Advantage™