5 Commercial Real Estate FAQs

We’ve compiled five frequently asked questions that we hear in our industry, in an effort to provide you with a little more insight into commercial real estate.

Common FAQs for Commercial Real Estate Newbies

As you review these frequently asked questions, keep in mind that you can always speak with us to learn more. We will work with you to figure out what the best commercial real estate action plan is for you – whether you’re looking for available space to rent for your business, or if you’re looking to invest in commercial real estate properties. Here are some of the questions we often get that you may be looking for answers to, as well.

What kind of properties are considered to be “Commercial”?

The term “commercial” related to property types typically refers to real estate property that is used for business activities (for example: retail, office, or industrial properties) or to generate a profit (example: multifamily properties or development land). The designation of a property as a “commercial property” impacts financing options and often has tax implications.

I’m interested in leasing commercial space. What is a Letter of Intent?

(LOI) A letter of intent (LOI) is an agreement made between you, as the lessee, and the lessor and any other parties prior to the actual agreement, such as a lease, is finalized. While LOIs may not be legally binding, provisions of them can be -- for example, non-disclosure and exclusivity agreements. LOIs are meant to protect both parties in the transaction until the transaction is executed.

What kind of leases should I need to be familiar with when evaluating commercial space?

The most common types of commercial property leases are shown below. Each lease type requires different requirements for the landlord and tenant.

In a Full Service (FLSV), or gross lease, the rent is all-inclusive. Tenants can expect the landlord to pay for expenses which are associated with the property (for example, taxes, insurance and maintenance). Janitorial and utilities services are included in Full Service leases.

In a Net Lease, the landlord charges a lower base rent for the commercial space, plus some or all of the “typical” costs which include operations or maintenance expenses, which the landlord pays. Tenant expenses in these leases may include real estate taxes, property insurance, and common area maintenance items (CAMs) and which include: janitorial services, property management fees, sewer, water, trash collection, landscaping, parking lots, fire sprinklers and commonly shared area or service fees.

I need space that is designed specifically for my business and haven’t been able to locate the right fit. Do I have any options?

A Build-to-suit building is designed and tailored for a specific tenant, often because the tenant is unable to find suitable space in the speculative market. A build-to-suit project is usually contracted with a developer who owns and operates the completed facility which is then occupied by the tenant. Generally, a build-to-suit project becomes a single-tenant building upon completion.

What can I expect a commercial property management company to offer?

You can expect your commercial property company to assist with developing an operating budget, negotiating vendor contracts, setting-up utilities and inspecting the property for deferred maintenance. A good property manager will address tenant issues quickly, retain quality tenants and maintain/grow each property’s value. A commercial property manager should provide preferred pricing on services like landscaping, HVAC and property insurance.