I Want To Lease A Commercial Property I Own But Don’t Understand The Various Types Of Leases?

  1. Gross Lease (Full-Service Lease)
      • Definition: The landlord covers most or all operating expenses, such as property taxes, insurance, and maintenance.
      • Key Features:
        • Tenants pay a fixed rent amount.
        • Common in office buildings or multi-tenant commercial spaces.
      • Pros: Simplicity for the tenant; predictable costs.
      • Cons: Landlord bears the risk of fluctuating expenses.
  2. Net Lease
    Net leases shift more financial responsibility to the tenant. There are three main types:

    • Single Net Lease (N Lease):
      • Tenant pays rent + property taxes.
      • Landlord covers insurance and maintenance.
    • Double Net Lease (NN Lease):
      • Tenant pays rent + property taxes + insurance.
      • Landlord covers maintenance costs.
    • Triple Net Lease (NNN Lease):
      • Tenant pays rent + property taxes + insurance + maintenance.
      • Common for retail or standalone commercial properties.
      • Pros: Reduces landlord’s financial burden; predictable revenue.
      • Cons: Higher costs and risk for the tenant.
  3. Modified Gross Lease
    • Definition: A hybrid between gross and net leases. Tenant and landlord split certain expenses, often negotiated case by case.
    • Key Features:
      • Tenants typically pay rent and utilities.
      • Landlord covers taxes, insurance, and structural maintenance.
    • Pros: Flexibility for both parties.
    • Cons: Requires clear agreement to avoid disputes.
  4. Percentage Lease
    • Definition: Tenant pays a base rent plus a percentage of their gross sales.
    • Key Features:
      • Common in retail spaces, particularly malls.
      • Percentage rate often applies after a sales threshold.
    • Pros: Aligns landlord’s revenue with tenant’s success.
    • Cons: Variable income for the landlord.
  5. Ground Lease
    • Definition: Tenant leases the land and builds their own improvements, which revert to the landlord at the lease’s end.
    • Key Features:
      • Long-term (often 50-99 years).
      • Common for commercial developments.
    • Pros: Provides steady, passive income; retains ownership of land.
    • Cons: Limited use during the lease term.
  6. Short-Term or Month-to-Month Lease
    • Definition: Flexible agreements that renew monthly.
    • Key Features:
      • More common for residential or small commercial spaces.
      • Easy to end or adjust terms.
    • Pros: Flexibility.
    • Cons: Less stable income for the landlord.

Choosing the Right Structure

  • Consider the property type: Residential, retail, office, industrial, or land?
  • Factor in responsibility levels: How much risk or expense are you willing to manage?
  • Assess market norms: Certain lease types are more common in specific industries or areas.

Regardless of the profile of the property and your desired financial goals, we always recommend seeking advice from a Reliant Partners advisor to determine an opinion of value and the potential market demand for the subject property. We also highly recommend utilizing a real estate attorney to draft any agreements.

What Is Mixed-use Development & How Does It Benefit My Community?

Mixed-use development refers to an urban or suburban design strategy where multiple types of uses—such as residential, commercial, cultural, institutional, and recreational—are combined within a single building, neighborhood, or area. The goal is to create vibrant, walkable, and sustainable communities by integrating various activities and amenities in close proximity. These developments can take the form of vertical (e.g., a building with retail/commercial on the ground floor and apartments, condominiums or occasionally an element of office or co-working space above) or horizontal (e.g., a neighborhood where different uses are distributed across the space).

Benefits to a Community

  1. Enhanced Walkability
    • Mixed-use developments reduce the need for car travel by placing homes, workplaces, shops, and recreational facilities within walking distance. This promotes active lifestyles and reduces traffic congestion.
  2. Economic Vitality
    • These developments attract diverse businesses, from retail shops to restaurants, increasing job opportunities and tax revenues. Vibrant mixed-use areas often become economic hubs.
  3. Efficient Use of Space
    • By combining multiple uses in a compact layout, mixed-use developments make efficient use of limited land, which is especially important in urban areas.
  4. Environmental Benefits
    • Mixed-use designs encourage public transit use, biking, and walking, which reduce carbon emissions. Additionally, they can minimize urban sprawl by focusing growth in concentrated areas.
  5. Social Interaction and Community Building
    • The close proximity of homes, shops, and public spaces fosters a sense of community, increasing opportunities for interaction among residents and visitors.
  6. Diverse Housing Options
    • Mixed-use developments often include a range of housing types, from affordable units to luxury apartments, making communities more inclusive and accommodating to various income levels.
  7. Improved Quality of Life
    • Access to amenities such as parks, restaurants, and cultural venues within the same area enhances the quality of life for residents. Convenience and a sense of place are significant draws.
  8. Increased Property Values
    • Properties within mixed-use developments tend to maintain or increase in value due to their convenience and desirability.
  9. Resilience and Adaptability
    • These developments are less vulnerable to economic downturns since they house a mix of uses. For example, if the retail sector struggles, residential or office spaces can balance the impact.
  10. Public Safety
    • The “eyes on the street” effect from having active uses at different times of the day increases natural surveillance, which can deter crime and improve safety.

In summary, mixed-use development promotes sustainable, inclusive, and vibrant communities that are well-suited for modern urban living. Reliant Partners has vast knowledge and brokerage experience within this sector, and we have worked with the best and brightest developers in the Indianapolis metro market. If you’re curious about being a tenant in a mixed-use development, reach out today and let’s chat!

 

Making the Right Choice as a Company Owner: Lease Renewal, Relocation, or Ownership?

A Broker’s Expert Guidance for Your Business

As the lease for your office space nears expiration, you’re faced with a pivotal decision: should you renew the lease, relocate to a new office, or explore the potential of owning your space? This isn’t just about signing a piece of paper—it’s a critical business decision that can significantly impact your company’s future growth, financial health, and employee satisfaction. Navigating this process can be daunting, but the good news is that you don’t have to do it alone. Reliant Partners can provide the insight, guidance, and market knowledge needed to make the best decision for your business.

Why Work with Reliant Partners?

RP offers specialized expertise in helping businesses like yours analyze and weigh the benefits and drawbacks of lease renewals, relocations, or ownership. With deep market knowledge, negotiation skills, and strategic advice, we can help you:

  1. Evaluate the Current Market: By using up-to-the-minute data on commercial real estate trends, pricing, and availability, we can help you compare your current lease terms with market rates, providing clarity on whether it’s more advantageous to renew or look for alternative options. Additionally, we can forecast trends to anticipate future market conditions that could influence your decision to lease or buy.
  2. Assess Your Current Space: Does your current office meet the evolving needs of your business? RP will work with you to analyze your space utilization, employee growth projections, and operational requirements. If your company has expanded significantly since the original lease was signed, a relocation to a larger or more efficient space might be necessary. If not, negotiating improved lease terms for your existing space could save you time and money.
  3. Evaluate Leasing vs. Owning: Many businesses are drawn to the idea of ownership but deciding whether to lease or buy is a complex financial equation. RP can help you understand the true cost of ownership, including upfront capital requirements, long-term financial commitments, maintenance responsibilities, and potential tax advantages. On the other hand, we can also show you the flexibility leasing offers, especially in terms of scaling your business and avoiding the burden of property management. By providing detailed financial comparisons, Reliant Partners will help you make an informed decision that aligns with your company’s financial goals.
  4. Maximize Negotiation Power: When it comes to negotiating with landlords or property owners, RP’s knowledge and expertise can significantly improve the terms of your lease or purchase agreement. We have experience negotiating everything from rent abatement and tenant improvement allowances to early termination rights and renewal options. Our familiarity with standard practices in your specific market can give you a strong advantage in securing a deal that works best for your business.
  5. Streamline the Process: Relocating or purchasing a new office involves time-consuming tasks like site visits, legal reviews, and contract negotiations. RP can manage these logistics, allowing your leadership team to focus on running the business. We’ll coordinate with landlords, contractors, and attorneys, ensuring that every aspect of the transaction goes smoothly.

Lease Renewal: A Smart Decision or Missed Opportunity?

Renewing your current lease can be a smart move if your office space continues to meet your needs and the terms are favorable. However, it’s crucial not to fall into the trap of simply accepting a renewal without thorough analysis. An experienced broker like Reliant can assess whether you’re getting the best possible terms, taking into account not only rental rates but also factors like flexibility, future growth needs, and potential improvements to the space.

Our market insight can also help you understand if other tenants in your area are receiving better terms, giving you leverage in negotiations. Additionally, if there are any clauses in the original lease that no longer serve your business, such as restrictive exit terms or limits on modifications to the space, we will advocate for changes that align with your current and future business goals.

Relocation: Finding the Right Fit for Your Future

If you’ve outgrown your current office or the market presents more appealing options, relocation might be the best course of action. RP will guide you through the search for a new location that meets all of your operational and cultural needs. We’ll factor in considerations like proximity to clients, access to talent, employee commute times, and office amenities that enhance productivity and company culture.

Relocating also provides an opportunity to design a more efficient and collaborative workspace from the ground up. We can work with architects and interior designers to plan a space that not only accommodates your team but also reflects your brand and mission.

The Appeal of Ownership: Building Long-Term Equity

If your company is in a strong financial position and expects stable or growing office space needs, buying a property could be a wise investment. Ownership allows you to build long-term equity and provides stability in terms of costs, as you won’t be subject to the unpredictability of rising lease rates. Additionally, you’ll have more control over how the space is used and the freedom to customize it without landlord restrictions.

However, the process of purchasing commercial property is more complex than signing a lease, requiring careful financial analysis and due diligence. Reliant has lots of experience with this and will guide you through the purchase process, from evaluating potential properties to securing financing and conducting inspections. We’ll ensure you avoid common pitfalls and make a sound investment that aligns with your business objectives.

Conclusion: Tailored Solutions for Your Business Needs

Deciding whether to renew your lease, relocate, or purchase office space is a pivotal decision that requires careful consideration. Reliant Partners will provide the comprehensive advice and market intelligence you need to make the right choice for your business. With our support, you’ll not only secure the best possible terms but also set the stage for your company’s continued growth and success.

Whether your company chooses to stay, move, or buy, partnering with Reliant Partners ensures you’re making a well-informed decision that reflects both your current needs and long-term goals. Don’t navigate this complex process alone; let us provide the expertise and insight to help you make the best move for your business.

Unlocking the True Potential of Your Land: Why You Should Use an Experienced Broker with Development Expertise

As a landowner, deciding to sell your property is a major step that can have a significant financial impact. Whether your land is agricultural, residential, or ripe for commercial development – selling land isn’t as straightforward as listing it on the market. Maximizing its value requires a comprehensive strategy, market insight, and the ability to navigate the complexities of zoning, permits, and buyer negotiations. That’s where an experienced broker—especially one with development expertise—comes into play.

Reliant Partners has experience in land brokerage, and we understand both the real estate and developmental aspects of listing land. Working with us can be a game changer in securing top dollar for your land, and here’s why:

1. Expert Pricing Strategy: Setting the Right Price from the Start

A common mistake landowners make is overpricing or underpricing their land. This can lead to long listing times or leaving money on the table. Reliant Partners understands the factors that influence land values—zoning regulations, local market conditions, potential land use, and upcoming infrastructure projects. We can provide a well-researched, data-driven valuation based on the future potential of the property, not just its current state.

Our insight into development trends, paired with knowledge of buyer demand, ensures you price your land competitively while maximizing its true potential.

2. Navigating Zoning and Land Use Regulations

Selling land isn’t just about location—it’s about what can be done with that location. Zoning laws and land-use regulations significantly affect the value of a property. With our background in land development, we have the expertise to assess whether a parcel can be rezoned for higher value uses (e.g., from agricultural to commercial or residential), or help potential buyers see possibilities they might not have considered.

This knowledge gives you a huge advantage. If rezoning or subdividing is required to increase the value, we can guide you through the necessary steps, potentially increasing the marketability and price of the land.

3. Marketing to the Right Buyers

Land is a specialized asset, and the buyer pool is often different from traditional residential or commercial real estate transactions. Reliant Partners understands this and can tailor our marketing efforts accordingly. With our development experience, we know what developers, investors, and builders are looking for and we can market your property directly to those who recognize its development potential, ensuring it gets in front of the right decision-makers.

We’ll highlight features that appeal to developers, such as proximity to utilities, infrastructure improvements, or potential for future growth in the area. This targeted approach leads to faster sales and higher offers.

4. Negotiation Expertise: Getting the Best Deal

The sale of land often involves complicated negotiations, especially if the buyer intends to develop it. There may be contingencies based on rezoning, permitting, or environmental studies. At Reliant Partners, we understand the ins and outs of land development, and have the expertise to handle these negotiations skillfully.

We can help you navigate offers that involve complex terms or extended timelines, ensuring that you don’t get locked into a bad deal. Our understanding of development timelines and hurdles allows us to advocate effectively on your behalf, minimizing risks and securing favorable terms.

5. Access to an Extensive Network

When selling land, the right connections can make all the difference. Reliant Partners has experience in land development and has extensive networks of developers, investors, surveyors, engineers, and other key players in the real estate and construction industries. We can tap into this network to bring interested parties to the table, or expedite processes that may otherwise drag on, such as obtaining permits or assessments.

These connections are especially valuable when a buyer has development plans but needs guidance through local bureaucracy or construction processes. By leveraging our network, we can help move the transaction along smoothly and quickly.

6. Maximizing Value Through Land Preparation

Sometimes, land needs a little preparation to become more attractive to buyers. This could include obtaining soil reports, environmental studies, or even preliminary approval for development plans. Reliant Partners is well versed in this type of thing, and we know exactly what steps can add value and which are unnecessary.

We can guide you in preparing your land in a way that speaks directly to developers’ needs—whether it’s dividing large parcels, understanding the utility infrastructure, or ensuring proper access points for construction. These steps can make the land more attractive to serious buyers and boost its sale price.

7. Reducing Risk and Legal Pitfalls

Land transactions are filled with potential legal challenges, including easements, boundary disputes, and environmental regulations. Reliant Partners has the experience to foresee and mitigate these risks before they become deal-breaking issues.

We can ensure all necessary disclosures are made and that the land is properly marketed in compliance with local laws. Having a broker who understands the legal complexities reduces the chances of post-sale disputes, saving you time, money, and stress.

8. Saving Time and Hassle

Selling land on your own can be time-consuming and overwhelming, especially if you’re unfamiliar with the technicalities involved in zoning, planning, and negotiating with buyers. Reliant Partners will handle everything for you—researching the market, creating a marketing plan, screening buyers, managing negotiations, and navigating the legalities. Our knowledge allows you to sell your land efficiently without the headaches of a DIY approach.

Conclusion: Maximize Your Land’s Potential with the Right Broker

Selling land can be far more complex than selling a home, particularly when development potential is in play. By engaging a broker with both real estate and development expertise, you ensure that every angle is considered—whether it’s maximizing the value through rezoning, marketing to the right buyers, or negotiating the best deal.

Reliant Partners will not only help you get top dollar for your property, but also make the process smooth and stress-free. If you’re serious about selling your land, partnering with an experienced broker like Reliant Partners with development expertise is one of the smartest moves you can make.

I Own a Commercial Building – is It Time to Sell?

Deciding whether to sell a commercial real estate building involves several factors that should be carefully evaluated:

  1. Market Conditions: Consider the current state of the real estate market. Are property values in your area rising, stable, or declining? A strong market might indicate a good time to sell, while a weak market might suggest waiting for better conditions.
  2. Financial Objectives: Evaluate your financial goals and whether selling aligns with them. Selling can provide liquidity and potential profit, but consider factors like tax implications, reinvestment opportunities, and your overall financial strategy.
  3. Property Performance: Assess the performance of your commercial property. Are occupancy rates high? Are rental incomes stable or increasing? A well-performing property might attract higher offers and make selling more attractive.
  4. Future Prospects: Consider the future prospects of your property and the surrounding area. Are there upcoming developments or infrastructure projects that could positively or negatively impact the property value?
  5. Personal Circumstances: Evaluate your personal circumstances and long-term plans. Selling might be beneficial if it helps you achieve personal or retirement goals, or if you want to diversify your investments.
  6. Market Demand: Understand the demand for commercial real estate in your area. Are there buyers actively looking for properties like yours? A strong demand can make selling easier and potentially more profitable.
  7. Investment Alternatives: Consider alternative investments and their potential returns compared to holding onto your property. Assess whether the current market offers better opportunities elsewhere.
  8. Tax Implications: Consult with a tax advisor to understand the tax consequences of selling your commercial property. Capital gains taxes and depreciation recapture can significantly impact your net proceeds.

To make an informed decision, it’s advisable to consult with a real estate professional such as a Reliant Partners broker in conjunction with your accountant or financial advisor. RP has plenty of experience brokering the sale and purchase of commercial buildings. We can provide market insights, valuation assessments, and help you weigh the pros and cons based on your specific situation and objectives. We provide an initial evaluation of your building/the market and outline the Reliant Partners marketing process.

With over 25 years of experience and a long-term relationship focus we aren’t shy advising a client to hold an asset and recommending a better time to sell.

How Do I Determine the Value of My Property – Which Valuation Approach is the Best?

There are three primary types of valuation approaches utilized to determine the property value of commercial properties. Each approach has merit for specific situations with the pros and cons outlined below.

  1. Income Approach:
    • Pros:
      • Utilizes the income generated by the property as the primary factor in determining its value, making it especially relevant for income-producing properties such as office buildings, retail centers, and apartment complexes.
      • Considers future income potential, which can be particularly useful for properties with varying lease terms or development opportunities.
      • Takes into account market trends and investor expectations regarding returns on investment or cap rates.
    • Cons:
      • Requires accurate and reliable data on rental incomes, operating expenses, and market capitalization rates.
      • Sensitivity to changes in market conditions and rent levels, which can impact valuation significantly.
      • Valuation may be subjective, as it heavily relies on assumptions about future income streams and market conditions.
  1. Sales Comparison Approach:
    • Pros:
      • Utilizes comparable sales data of similar properties in the market to determine the subject property’s value, making it straightforward and intuitive.
      • Provides a benchmark by which potential buyers and sellers can gauge the property’s market value.
      • Suitable for properties with a significant number of comparable transactions in the market.
      • Tends to represent the most common approach for valuation and often used for owner-occupant properties.
    • Cons:
      • Relies heavily on the availability of accurate and recent comparable sales data, which may not always be readily available depending on the geographic market or property type.
      • Requires adjustments to be made for differences between the subject property and the comparable properties, which can be subjective and may vary between appraisers.
      • Less suitable for unique or specialized properties that lack comparable sales data.
  1. Cost Approach:
    • Pros:
      • Values the property based on the cost of reproducing or replacing it, adjusted for depreciation, making it particularly useful for new or relatively new properties.
      • Provides a baseline value for the property, especially when market conditions are volatile or when there are limited comparable sales data.
      • Offers insights into the cost of land and improvements, which can be beneficial for insurance purposes.
    • Cons:
      • Does not directly consider the income generated by the property or prevailing market conditions, which may result in inaccuracies, particularly for income-producing properties.
      • Relies on accurate estimates of construction costs, depreciation, and land values, which can vary over time and across regions.
      • May undervalue properties with unique or specialized features that cannot be easily replicated.

Realizing each approach has its strengths and weaknesses, the choice of valuation method often depends on factors such as the property type, market conditions, and the availability of relevant data. In practice, appraisers may use a combination of these approaches to arrive at a comprehensive and reliable valuation while a broker primarily uses the Sales Comp Approach and may rely more heavily on properties in closer proximity to the subject property.

Also, it must be noted appraisals are required when bank financing is involved and appraisers tend to have knowledge of the contracted sales price, which provides a safeguard for the bank. A Broker Opinion of Value utilizing a market driven Sales Comp Approach removes any bias tied to a contracted sales price or a past appraisal.

To learn more about the Commercial Property Valuation process and our firsthand experience of the pros and cons feel free to contact Reliant Partners.

Why Should I Hire a Broker & Who Pays the Commission?

Hiring a Commercial Real Estate (CRE) broker to represent a tenant or landlord can offer several advantages. Here are some reasons why businesses or investors often choose to work with a CRE broker when leasing commercial space:

  1. Market Knowledge: CRE brokers have in-depth knowledge of the local real estate market. They can provide insights into current market trends, rental rates, and available properties, helping tenants and landlords make informed decisions.
  2. Negotiation Expertise: Brokers are skilled negotiators who can work on behalf of tenants or landlords to secure favorable lease terms. They can negotiate on aspects such as rental rates, lease duration, tenant improvements, and other important provisions.
  3. Time and Efficiency: Searching for and securing commercial real estate as well as monitoring available, competitive properties can be a time-consuming process. A broker can streamline the process by identifying suitable properties, scheduling viewings, and managing the paperwork, allowing tenants and landlords to focus on their core business activities.
  4. Access to a Network: Brokers often have established relationships in the commercial real estate market whether it be active tenants in the market, property owners or comparable market knowledge of “deals in the market.” This network can be valuable in uncovering off-market opportunities and accessing a broader range of available properties.
  5. Customized Solutions: A CRE broker can tailor their services to the specific needs and requirements of the tenant or landlord. They can help identify properties that align with the tenant’s business goals or advise landlords on the right tenant fit and ensure that the lease terms meet a client’s needs.
  6. Understanding of Lease Terms: Commercial leases can be complex, with various clauses and legalities. A broker can help tenants and landlords understand the terms of the lease, including any potential pitfalls or advantageous provisions. They negotiate various business aspects of the lease, including rent, lease duration, renewal options, modifications, or improvements to the property (including who will bear the cost) and any special provisions (e.g., subleasing, expansion, contractions, or early termination).
  7. Cost Savings: While it might seem counterintuitive, collaborating with a broker can lead to cost savings. Brokers can leverage their market knowledge, process efficiency and negotiation skills to secure favorable terms and save parties money in the long run. They clarify all additional lease costs related to base rent, maintenance, utilities, property taxes and common area fees. Additionally, they ensure you fully understand how these costs are calculated and negotiate to limit any unexpected expenses.
  8. Risk Mitigation: Brokers can help tenants navigate potential risks associated with leasing commercial space. They can advise on issues such as zoning regulations, environmental concerns, and other factors that may impact the suitability of a property.
  9. Experience and Expertise: Commercial real estate transactions can be complicated, and having a professional with experience in the field can be invaluable. Brokers bring a level of expertise that can guide tenants through the entire leasing process.
  10. Communication: Successful negotiation is about finding a balance that meets both the tenant’s and landlord’s needs. Clear communication and a well-researched approach can significantly improve your chances of securing a favorable lease agreement.

While a broker’s role and the payment of commissions should be disclosed upfront, it is common for brokers to negotiate leases in a competitive marketplace and generally the commission is paid by the landlord. Rather than embark on searching for properties and negotiating a lease yourself it is wise to reach out to a broker first. They can explain the negotiating process, their value and how they are paid.

In summary, hiring a CRE broker to represent a tenant or landlord can provide numerous benefits, including market knowledge, negotiation expertise, time savings, access to a network and personalized solutions tailored to meet their needs. Feel free to reach out to Reliant Partners if you have questions or interest.

Understanding NNN Operating Expenses: Can I Negotiate a Cap or Limit My Exposure?

In a commercial lease, NNN operating expenses, also known as Triple Net expenses, refer to the additional costs that tenants are responsible for on top of their base rent. The term “NNN” stands for “Net, Net, Net,” indicating that the tenant is responsible for the following three types of expenses:

  1. Property Taxes (Net): This includes the tenant’s share of property taxes assessed on the commercial property. In Indiana, property taxes are paid in arrears. This means the assessed value is the prior year for taxes paid the following year (e.g., 2023 Property Taxes Payable in 2024). The landlord calculates the total property taxes for the entire property, and each tenant contributes a portion based on the proportionate size or value of their leased space.
  2. Property Insurance (Net): Tenants are required to contribute to the cost of insurance coverage for the commercial property. This typically includes insurance for the building’s structure, common areas, and sometimes liability insurance. As with property taxes, the tenant’s share is determined by the size or value of their leased space.
  3. Common Area Maintenance (Net): Common Area Maintenance (CAM) expenses cover the costs associated with maintaining and repairing common areas shared by multiple tenants, such as parking lots, hallways, landscaping, and other communal spaces. Tenants pay a proportionate share of these expenses based on the size or percentage of the total leased space they occupy.

When a lease includes NNN expenses, it means that the tenant is responsible for these extra costs in addition to their base rent. This type of lease structure is common in commercial real estate and is often seen in retail, office, and industrial leases. It allows landlords to pass on the operational costs of the property to tenants, providing them with a predictable income stream, while requiring tenants to cover the ongoing expenses associated with property ownership. It is important for tenants to carefully review and understand the NNN provisions in their lease agreements, as these expenses can significantly impact the overall cost of occupancy.

Negotiating caps on NNN (Triple Net) operating expenses is possible, but it depends on the terms of the lease agreement and the willingness of both parties to negotiate. Negotiating caps can be a way to limit the tenant’s exposure to unpredictable increases in operating expenses.

Here are some steps you can consider:

  1. Research Market Standards: Research market standards for NNN leases in your location and industry. Knowing what is typical in your market can help you make informed proposals during negotiations.
  2. Identify Specific Expenses: Identify specific operating expenses that you want to cap. This could include property taxes, insurance premiums, or maintenance costs. Being specific about the expenses you want to cap can make negotiations more focused.
  3. Prepare a Proposal: Draft a proposal that outlines the caps you are seeking and the reasons behind them. For example, you might argue that capping property tax increases can provide stability for the tenant and make it easier to budget.
  4. Negotiate with the Landlord: Initiate discussions with the landlord or their representative. Present your proposal, explaining the benefits of having caps on certain operating expenses. Be open to compromise and negotiation to find a mutually agreeable solution.
  5. Consider Lease Renewal or Amendment: If you are renewing the lease or negotiating an amendment, this may be an opportune time to discuss changes to the terms, including caps on operating expenses.
  6. Consult Legal and Real Estate Professionals: Before finalizing any negotiations, consider consulting legal and real estate professionals to ensure that the proposed changes align with local laws and regulations and protect your interests.

Remember that successful negotiation often involves compromise, so be prepared to find common ground with the landlord. Additionally, the negotiation process may vary depending on local real estate market conditions and the specific dynamics between the parties involved. Lastly always seek the guidance of an experienced CRE broker like Reliant Partners.

CRE Investing: Owner-occupant Commercial Investors vs. Third-party Commercial Investors

Commercial real estate investment is a multifaceted domain that attracts a diverse range of investors. Owner-occupant commercial investors and third-party commercial investors represent two distinct approaches to navigating the complex landscape of commercial properties. Reliant Partners has learned firsthand that understanding the differences between these two types of investors is crucial for anyone seeking to delve into the world of commercial real estate.

Owner-Occupant Commercial Investors:

  1. Primary Purpose:
  • Owner-occupant commercial investors, like Reliant Partners, are typically businesses or entrepreneurs who purchase commercial properties with the intention of using them for their own operations. This may include office spaces (like 59th & College or the current 146th Street office), retail outlets, or manufacturing facilities.
  • The primary purpose of such investments is to provide a physical space for the investor’s business operations (e.g., 5594 E. 146th Street), to ensure greater control over the property and to have the ability to tailor it to specific needs.
  1. Financial Motivations:
  • While financial returns are a consideration for owner-occupant investors, their primary focus is often on the operational benefits of owning the property, such as cost stability, control over the space, and long-term strategic advantages (including wealth accumulation).
  1. Decision-Making Factors:
  • Decision-making for owner-occupant investors is heavily influenced by operational requirements. Factors such as location, space configuration, and suitability for business activities take precedence over traditional investment metrics like capitalization rates, which was the case for the Reliant Partners office building on 146th.
  1. Tax Implications:
  • Owner-occupant investors may benefit from tax advantages, including potential deductions for mortgage interest and property depreciation. Tax considerations are often intertwined with the overall financial strategy of the business along with long-term wealth creation.

Third-Party Commercial Investors:

  1. Primary Purpose:
  • Third-party commercial investors (like 59th & College LLC), on the other hand, are individuals or entities whose primary goal is generating profit through property appreciation, rental income, or a combination of both. Their investments are not tied to personal use but focused on the financial performance of the property, which is the case for Reliant Partners’ first development project at 5915 N. College Avenue.
  1. Financial Motivations:
  • The key driver for third-party commercial investors is financial gain. They analyze potential returns based on factors like rental yield, property appreciation, and market trends. Profitability is the central consideration in their decision-making process and can be measured from cash flow and/or upon a sale of the property.
  1. Decision-Making Factors:
  • Traditional investment metrics, such as return on investment (ROI), capitalization rates, and market demand, heavily influence the decision-making process for third-party commercial investors. They prioritize properties with high potential for appreciation and steady rental income.
  1. Tax Implications:
  • Tax strategies for third-party investors are centered around maximizing returns and minimizing liabilities. Deductions for property management expenses, mortgage interest, and depreciation are crucial elements of their tax planning, which is Reliant Partners’ role as the property and asset manager of 5594 E. 146th Street.

In summary, the divide between owner-occupant commercial investors and third-party commercial investors lies in their primary objectives and decision-making criteria. While owner-occupants focus on operational needs and long-term strategic advantages, third-party investors prioritize financial returns and adhere to traditional investment metrics. Reliant deals with both perspectives as we are an owner-occupant in our 146th Street building with investment partners and participate as a third-party investor in other commercial properties.

Both approaches have their merits and drawbacks, and understanding these differences is essential for anyone navigating the intricate landscape of commercial real estate investment. Feel free to reach out to arrange a meeting and/or tour of any of our CRE investments to further discuss how Reliant Partners may be a resource to achieve your investment goals.