Depending on your situation, buying and leasing both have appealing attributes. Other than the capital requirements needed to purchase, buying and leasing a property typically allow a user similar rights to use the property. A tenant usually assumes all rights associated with the use of the property – short of making physical changes to the property without permission of the property owner. Purchasing a property normally requires a larger initial capital outlay whereas leasing requires less capital investment for the tenant. Federal income tax treatment of leases and purchases also vary greatly. The decision to buy or lease should involve consulting an accountant and carefully assessing one’s short term and long- term objectives.
Typically, lease rates are stated in terms of annual cost per square foot(psf) of space leased. Example: $15 psf lease rate for 5,000 sf of space will equal $75,000 ($15 x 5,000sf) per year in rent or $6,250 per month ($75,000/ 12).
Section 1031 of the U.S. Federal Tax Code allows for gains derived from the sale of real estate (and some other property types) to be deferred by purchasing a “like-kind’ property. The rules surrounding such transactions are very specific and must be followed to qualify. The exchange essentially folds the capital gain from the sale of a property into the basis of a new property – effectively deferring the tax consequences of that sale until the new property is sold at a future date. Always consult with a CPA or other tax professional before considering a 1031 Exchange.
Commercial lease agreements typically come in one of two varieties: “triple net” leases and “gross” leases. A triple net lease is a lease in which the lessee pays rent to the lessor, as well as all taxes, insurance, and maintenance expenses that arise from the use of the property.
Many business owners choose to lease space in which to operate their business. . The terms that make up a commercial lease are largely the product of negotiation between the landlord, the tenant, their agents and their attorneys.
In the typical triple net lease, the lessee pays a fixed amount of base rent each month as well as an “additional rent” payment which constitutes an estimated amount for taxes, insurance and maintenance expenses (also called CAM or common area maintenance expenses). At the end of the lease year, the estimated amounts are compared to actual expenses incurred and an adjustment is made depending upon whether the tenant paid too much or too little through its monthly payments.
By contrast, a “gross” lease is a property lease in which the landlord agrees to pay all expenses which are normally associated with ownership, such as utilities, repairs, insurance, and (sometimes) taxes. The tenant pays a fixed amount each month, and nothing more. A landlord involved with a gross lease has likely factored in the various expenses when agreeing to accept a fixed monthly payment.
Whether a lease is “triple net” or “gross” is important in terms of what terms and provisions are included within the lease agreement. Hence, consultation with a knowledgeable attorney is a must.
NOTE: the information contained herein is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation.
Owner, Occupier, Investor, Local Business or Global Corporation – – No matter who you are in the world of commercial real estate, the challenges remain the same. How do you keep current on a seemingly endless flow of information, market research and forecasts? When listing your properties, how do you best utilize changing Web tools and industry technologies? Who do you trust to bring you clients that are interested in YOUR properties?
If you’re searching for answers, consider this: with over 100 years in the industry, the Coldwell Banker Commercial (CBC) organization is the preeminent name in commercial real estate, boasting the single largest domestic footprint in the industry, and the greatest concentration of EXPERIENCED talent anywhere.
Sure, experience and size count. But the CBC organization offers something no one else can. We can provide you with market information that will support your key decision making process and decisions. No waiting on answers or permission from headquarters. We are just a team of dedicated professionals backed by a global-recognized name, representing your interests in every turn .Our professionals are driven to find you the best property. They are experts in their commercial real estate markets and take pride in their knowledge.
Coldwell Banker Commercial is a commercial real estate company that has over 3,000 professionals worldwide. This group of talented professionals are experts in their local markets and can help you with your real estate search. Whether you are looking for property for sale or lease your local CBC agent can find you the commercial property you need. We also have a variety of different property types available so whether you are looking to lease business property or find a retail space for sale, we have the property you are looking for.
WE ARE ENTREPRENEURIAL
We are a commercial real estate company with over 3,000 real estate professionals, and we are continuing to grow our commercial real estate influence around the world. It is our goal to become the leader in the commercial real estate.
WE ARE MASTERFUL
Our team of professionals has the unique skills to help you find the perfect commercial property in your area. Our professional’s masterful skills will help get you the property of your dreams.
WE ARE PRINCIPLED
We are dedicated to finding the right commercial property solution for your business. Whether you are looking for commercial land, warehouses, or retail space our team is dedicated to finding you the right solution.
WE ARE DRIVEN
Our professionals are driven to find you the best property. They are experts in their commercial real estate markets and take pride in their knowledge.
We have the drive, the passion, and the instinct to find our customers the perfect commercial property. We are approximately 200 independently owned commercial real estate agencies combined into one powerhouse commercial real estate company. We have a wide reach in the commercial real estate industry and have a large variety of commercial properties to choose from. Get in touch with your local professional and search for commercial real estate today!
Our core values are:
To be committed to you – we are “all in”
To be accountable
Show integrity at all times
Our purpose is very sound, clear and strong: “We help manage your risks and improve your bottom line!”
Consumer Price Index (or CPI) is an index generated by the Bureau of Labor Statistics (BLS) that measures “the prices paid by urban consumers for a representative basket of goods and services.”
The BLS doesn’t only publish one CPI either. There are several different indices based on the following factors:
Location (national average vs. regional index)
Type of consumer (all urban consumers vs. wage earners and clerical workers)
Goods and services included (all items vs. specifically defined goods and services)
Base index period (i.e., the starting point for measurement of the index, stated as 100.0)
So, why is CPI is important for Commercial Real Estate? It turns out, CPI is used by some commercial real estate leases in an attempt to fairly increase (or decrease) the rent required to be paid by a tenant to correspond with changes in national or regional inflation.
Most commonly Index in Use:
“CPI-U, All Urban Consumers, U.S. City Average, 1982/84=100”
It should be noted that:
Not all leases with CPI increases bump each lease year
Some leases may have calendar year or mid-term increases
Some leases may have caps or floors on the CPI increase
The amount of CPI adjustment is unknown at lease commencement so it is often disregarded in the calculation of leasing commissions.
It’s important to remember that the majority of recently executed leases are getting away from CPI unless they are government leases and are using fixed rent steps (i.e., 2% , 3% or more / year or $0.50/$0.75sf/year) as opposed to CPI adjustments, thereby reducing the amount of time needed to determine the rent adjustment.
Depending on the type of commercial contract purchase that is made, will usually dictate the amount of time one needs for inspections. Typically, inspections are performed during the due diligent period of the contract. The due diligent period is typically at the beginning of the contract and is the time period where earnest deposits are refundable if the inspections desired by the purchaser uncover problems that are unacceptable to the buyer. Other ways to protect your deposits during the contract period would be to simply make your deal subject to a satisfactory inspection. A time period would be needed as well for this. Example inspections may include termite, electrical, plumbing or structural inspections on existing buildings, reviewing zoning or land use needs for a particular use, or a phase one or two environmental inspection. These inspections may be needed not only for the purchaser, but if financing, the lender may require these inspections to be made.
Any number of inspections may be required by a purchaser to satisfy his needs for use prior to closing the transaction. Land purchases or purchases for development usually require the most time for inspections. These inspections may include land planning, density needs, wetland studies, topographical, tree, geotechnical surveys to be performed prior to engineering of the development of a commercial or residential subdivision. Once these inspections are completed and engineering of the project has been performed, one may then look for city or jurisdictional approval.
Typically, in a contract transaction, inspections for a purchase are granted within the time period to close, whereas, permitting of a purchase is usually not within the contract closing period. The thought process being, the seller should only be responsible for conveying when was contracted for, not for getting it done.
In the State of Florida, all commercial leases and any residential agreements for rent six months or less are subject to state and local sales tax. In our area of Volusia County, the state sales tax at this time is 5.8% and the county tax is .5% for a total of 6.3% on the total lease monies collected by the landlord. In recent years, the Florida legislature has adjusted the amount of sales tax to be collected. It is the landlord’s responsibility to collect the sales tax and report to the state each month. Depending on the amount collected determines how often the sales reports must be made.
In the case of short term residential agreements less than six months, some areas also collect a resort tax in addition to the sales taxes.
In many commercial leases we see today, a tenant may ask for the landlord to provide some tenant improvements (TI). These tenant improvements may be in the form of new carpet or paint or both, it could be adding or removing of walls, or anything the tenant deems necessary to make his occupancy more desirable for his use during the term of his lease. The cost of these tenant improvements may be paid for entirely by the landlord in exchange for additional rent and longer lease terms or lease renewals. They also may be shared by both tenant and landlord or paid entirely by the tenant. Usually the length of the lease or rate determines the amount negotiated by landlord and tenant.
A real estate broker is typically not a real estate attorney. Retaining an attorney is always advised but is at the discretion of the buyer or seller.
The purpose of a due diligence investigation is to enable the buyer to discover as much as possible about the property before he or she is obligated to buy it. This includes discovering information that the seller may not want the buyer to know or perhaps information of which the seller isn’t even aware.
In today’s market there is typically commercial financing available. The type of loan will depend on the type of property and the strength of the borrower. Examples of different types of commercial loans:
Conventional \ Traditional Loan: 10% to 25% down, 7 to 30 year loan term
SBA loan: Usually best suited for the owner occupied purchase. The SBA 7a can also include working capital.
Hard money loan: private money loan with higher interest rate and usually shorter term
Bridge Loan: A temporary loan