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Once, even mid-sized companies had large corporate real estate departments that handled lease negotiation, site selection and property management. Today, many companies choose to run leaner and, instead, put responsibility for managing their commercial real estate on anyone from a COO, CFO or even, in some cases, the human resources department. If you're a part-time CRE manager, here are some terms that might not be familiar, but that you should know.
Because commercial real estate
documents like leases and purchase
agreements are frequently
complicated, many people choose to
start the process of negotiating a
deal with a letter of intent, or LOI.
LOIs are short documents that spell
out deal points and get used to draft
1. Letter of Intent
When you rent a space, the area inside its walls is called the
usable square footage. You will usually also have to pay for
your share of the ﬂoor's common areas -- like hallways and
bathrooms. The combination of the two is called your rentable
2. Rentable vs. Usable Sq. Ft.
Load, or core, factors are ways to express how much
common area space you have to pay for. If you have a 5,000
square foot usable space and also have to pay for 600
square feet of common area, you would have a 12 percent
load factor, since 5,600 divided by 5,000 is 1.12, or 12
3. Load Factors
Load vs. Loss Factor
Leases have language that makes their rate go up
periodically, frequently to keep pace with inﬂation. These
increases are referred to as rent escalations and are common
in commercial real estate. Rent can escalate by either a
dollar amount or by percentage.
If a base rent of $28 escalates by $0.50 after the ﬁrst year, it
would be $28.50 on year two. If the escalation was 3%, the
year two cost would be $28.84.
4. Rent Escalations
When you lease new space, you
typically need to have it customized
for your needs. Those
customizations are referred to as
tenant improvements and you can
frequently get the landlord to pay
some or all of their cost.
5. Tenant Improvements
When you sign a full service gross lease, you pay a set
amount that includes both your rent and the costs of
managing your space, such as utilities, repairs, taxes and
6. Full Service Gross Leases
In a triple net lease, you pay rent for your space and you pay
your share of the building's operating expenses. Typically,
triple net rents are less than gross rents, but that does not
take into account the additional expense that you will have to
7. Triple Net Leases
Learn More about Lease Types
The extra money that you pay along with your triple net rent
to cover operating expenses is referred to as CAM charges.
CAM stands for common area maintenance or management.
8. CAM / Common Area Maintenance
One of the most favorable terms
that you can have your
commercial real estate broker
negotiate for on your behalf is an
option to renew. Options let you
stay in your space beyond the
end of your lease without you
having to commit up front.
9. Options to Renew
On the other hand, if a space ceases to meet your
company's commercial real estate strategy, you might need
to move out of it early. Having an assignment and subletting
clause in your lease lets you either step away by assigning
your lease to someone else or ﬁnd a sub-tenant to sub-lease
the space from you. In a sublet, they pay you rent and you
turn around and make your lease payments.
10. Assignment and Subletting
When Subleasing Your Space is a Good Idea
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