Pickett Sprouse Commercial Real Estate’s Post

Unlock the Power of Leasehold Improvements 🔑💼 I’m Ray, an commercial real estate advisor that works with owners and tenants of commercial real estate. Are you planning to renovate a commercial space for lease? Are you a landlord trying to figure out what may be some advantages to offering tenant improvement allowances? Do you need a little help understanding leasehold improvements? Leasehold improvements are essential for businesses 🏢 leasing commercial real estate. These are the customized renovations 🛠️ and alterations made to a leased space to suit the tenant's specific needs. While tenants typically pay for these improvements, landlords may provide an allowance to cover some or all of the costs. 🤝 Negotiating the terms is crucial during the lease agreement process. The types of improvements can vary widely - painting, new flooring, office buildouts, lighting, plumbing, and essentially, any permanent changes made to adapt the property to the tenant's needs qualify as leasehold improvements. 🎨🚰🛋️ From an accounting standpoint, these improvements are capital expenditures that tenants can depreciate over the shorter of the lease term or the improvements' useful life, usually 15-20 years. 📊 This provides valuable tax benefits. 💰 As landlords aim to maximize the useful life while tenants want to customize the space, the economics can be complex. 🤔 Finding the right balance is key during lease negotiations. 🤝 Contact me if you want to learn more. https://lnkd.in/gq8j-SuQ https://lnkd.in/gH5ht7Q8 #CommercialRealEstate #LeaseImprovements #TenantImprovements #PropertyManagement #CRETips #TaxBenefits #SpaceDesign #LeasingStrategy #BusinessGrowth #PropertyInvestment #RealEstateTrends #CommercialLease #CREInsights #SpaceOptimization #LeaseNegotiations

Date: 4/03/2024 Session: CEO's LECTURE (Monday Consultancy meeting). *Theme: Understanding Residential & Commercial Property Documents* A rental agreement is a document that acts as a contract between The landlord and tenant, definingthe terms of the tenancy. Most residential rentalagreements are short-term agreements, such asmonth-to-month tenancies, while lease agreements are usually for longer rental periods,such as six months, a year, or more. Commercial property documents: Most commercial rental agreements are long -term agreements, such as from a year to more years tenancies as it applies. Starting point : The Letter of Intent: The nonbinding letter of intent will be prepared and signed by both parties. 1. Construction and design 2. Demised premises 3. Expansion 4. Base rental rate 5. Tenant Improvements 6. Operating expenses 7. Parking 8. Signage 9. Hours of operation 10. Security 11. Qualifying conditions REPLY To The letter of Intent : Comments on draft tenancy LeasePursuant to my client’s request, I have prepared comments to the draft lease you submitted. It must have early resolution of these issues in order to facilitate a move-in In this Time is of the essence. The following memo identifies questions and concerns in the order in which they appear in the draft lease and sent to both parties to execute . 1. The parties 2. Building and premises 3. Use of the premises 4. Term 5. Additional rent and base rent 6. Quiet enjoyment of the premises 7. Assignment or sublet 8. Inspection and repair of the premises 9. Damage to premises 10. Eminent domain 11. Legal requirements 12. Tenant's obligation 13. Landlord's obligation 14. Default by tenant notice 15. Default by landlord 16. Subordination, Estoppel certificate and non-disturbance 17. Parking 18. Option to renew upon 3 months notice 19. Recording the lease 20. Management of the property 21. Holding over upon termination of the initial lease term 22. Option for addition space 23. Consents for any consent required under the lease 24. Tenant's improvement 25. Letter of credit

When selling a commercial property, at first it seems like a daunting task (so many variables at play) but if you break it down into 2 main components, it becomes easier. I like to look at 2 things in a building - let’s say you’re listing an apartment building: 1. Financials: - Rent rolls & building expenses (utilities, etc). As well as any other ongoing maintenance contracts the building has (landscaping, etc etc). Very important stuff. 2. Physical Components: - How is the physical structure of the building? Plumbing, HVAC, roof, common areas, etc. Are they in need of repair? Last updates? Looking at these 2 components - albeit not small components - you’ll have covered 80% of your due diligence when representing a seller. The other 20%? Could be tenant issues, parking related matters, etc. I call these the “soft costs” of the building. Due diligence with the seller is always warranted. Happy Friday. #commercialrealestate #gtarealestate #brokerage #cdnecon #torontorealestate #apartmentbuildingsales #retailplazas

5 critical lease clauses (ignoring these will impact your bottom line) 1. Rent Escalation Clause → Allows your landlord to increase rent annually → Often tied to a fixed percentage or the Consumer Price Index (CPI) ↪ TIP: Negotiate a cap on the annual increase to keep costs predictable 2. Common Area Maintenance (CAM) Fees → Fees to cover the maintenance of shared spaces  → Upkeep of lobbies, building security, parking lot care, etc. → CAM fees can fluctuate and significantly increase your expenses ↪ TIP: Request a cap on CAM increases or a detailed breakdown of fees to challenge extra charges 3. Renewal Clause → Outlines terms for lease renewal, including rent increases → If you don’t review carefully, you could get locked into an unfavorable lease ↪ TIP: Negotiate the right to renew at a fair market rate and include conditions for renegotiation   4. Sublease and Assignment Clause → Restricts your ability to sublet or transfer your lease → Can limit flexibility if your business needs change ↪ TIP: Seek terms that allow for subleasing or assignment with reasonable conditions for landlord approval 5. Early Termination Clause → Penalties for leaving your lease early can be quite severe ↪ TIP: Negotiate terms that offer flexibility, like a break clause with reasonable notice and penalties  … Find these tips helpful? Follow me for more #CommercialRealEstate tips and tap the bell (🔔) so you never miss a post! … #LeaseRenewal #CRE #RentEscalation #CharlesPeacock #CommercialLeasing

A successful lease negotiation requires a thorough understanding of the market trends and the priorities of the tenant. It's important to strike a balance between tenant improvements, concessions, and rental rates to meet the tenant's needs while ensuring profitability for the commercial property owner. The lease terms must be tailored to meet both the tenant's and property owner's needs while clearly defining who is responsible for what. Depending on the sector of commercial real estate, the lease structure may vary significantly, with different expectations for maintenance and cost requirements. For example, most industrial properties use a triple net lease, which leaves the responsibility of building maintenance on the tenant, while shopping mall and office owners often contribute to tenant fit-out costs. Lease lengths also vary greatly between sectors. Seeking professional guidance from lawyer is crucial to ensure a solid lease agreement that protects the interests of the property owner while meeting the tenant's business requirements.

We understand how important it is to get the pre-construction process right. One of the first steps? A comprehensive site review. We coordinate with leasing agents, landlords, and clients to identify any site conditions that might impact design, budget, or schedule. It’s all about laying the groundwork for a successful build. #PreConstruction #SiteReview #AttentionToDetail

For those who need a reminder of the relevant principles when it comes to landlords' approval of tenant alterations, head straight to this recent article by my colleagues Harriet Durn and Helena Taynton. It covers two recent cases on these principles, as well as offering some top takeaways... https://lnkd.in/gYmm-SDp

Having been involved in a process advisory role for the sale of assets and working with a real estate client recently, I’ve come across several commonly used terms in the industry that are essential to understand: 1. Carpet Area, Built-up Area, Super Built-up Area: Carpet area refers to the actual usable space, built-up area includes walls and balconies, and super built-up area factors in common spaces like lobbies and corridors. 2. Mutation: The legal process of updating property ownership in municipal records after a sale or inheritance. 3. Freehold vs Leasehold: Freehold gives full ownership, while leasehold grants rights for a limited period. The conveyance deed and sale deed help clarify the nature of ownership. 4. FAR (Floor Area Ratio) & FSI (Floor Space Index): These terms dictate how much construction can occur on a plot of land and are vital for project planning 5. Allotment and Transfer of Unit: Ensuring proper documentation and process in these steps is essential for transferring ownership rights smoothly. 6. Title Deed: A vital legal document proving ownership of the property. 7. Circle Rate & Stamp Duty: Circle rates guide property valuations, while stamp duty is a tax paid to register property transactions. 8. Floor Plan: An essential document showing the layout of the property, crucial for decision-making. 9. Occupancy & Completion Certificate: Completion certificates verify that a building is ready, while occupancy certificates authorize residents to move in. 10. Conveyance Deed: This document legally transfers ownership of the property from the seller to the buyer. From my experience, understanding these fundamentals greatly enhances transparency and efficiency in real estate transactions. Link to know more general terms: https://lnkd.in/gxNzkMAV #RealEstate #SalesProcess #Experience #GeneralTerms #ProcessAdvisory

It's always funny to me that the term "cap rate" is often tossed around without sufficient context, rendering it nearly meaningless on its own. Cap rates must always be qualified to provide any real insight. Don’t let your peers tell you they bought something for a 7% cap without additional details. Was the cap rate based on in-place collections, in-place concessions, in-place vacancy, and what expenses were included or excluded? Without this specificity, the term is ambiguous and more often than not misleading. I recently heard someone claim they purchased a building coming off construction at 0% occupancy at a 6.5% cap rate. No, the cap rate is effectively 0%—there’s no income. What they should have said was that it was a pro forma 6.5% cap, expected upon stabilization based on these assumptions...

"One of the most important aspects of any commercial lease is how it apportions responsibility for maintenance and repair of the leased premises, including the roof. Although there’s an infinite number of possible arrangements, tenants are generally expected to contribute to the costs of roof maintenance and minor repairs, while landlords retain financial responsibility for major repairs, replacement, and capital improvements. Of course, landlords and tenants can agree to shift these fundamental responsibilities as they see fit. But to do so requires clear language. Standard lease provisions requiring tenants to pay for keeping the roof “in good repair” may not be enough to pass along roof replacement and improvement costs to tenants."