Every industry has its own jargon, and commercial real estate is no different. From ‘Escalations’ to ‘Tenant Improvements’ to ‘Broker Opinion of Value’, it can all seem like a confusing foreign language for those who are new to the business. Below are the top ten commercial real estate terms you’re likely to encounter. The following list can be a handy reference for new agents, clients or anyone who’s curious about the industry.
Letter of Intent aka ‘LOI’
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 an LOI. LOI’s are short documents that spell out the main deal points and are used to draft legal documents once an agreement has been made.
Rentable Square Feet aka ‘RSF’ vs. Usable Square Footage
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 as well, like hallways and bathrooms. The combination of the two is called your rentable square footage.
Load Factors
Load, or core, factors are ways to express how much common area space you have to pay for. If you have 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 percent more.
Rent Escalations
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.
Tenant Improvements aka ‘TI’s’
When you lease a 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.
Full Service Gross Leases aka ‘FSG’
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 property management.
Triple Net Leases aka ‘NNN’
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 bear, such as setting up your own utilities. Triple net rental rates typically don’t include a tenant’s share of taxes and insurance that would have other have been included in a Full Service Gross rate. It’s not uncommon for a landlord to seek reimbursement for some of these expenses through separate billing to a tenant.
Common Area Maintenance aka ‘CAM’
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.
Renewal Options
One of the most favorable terms that a commercial real estate broker can negotiate on behalf of a tenant is an option to renew. Options let you stay in your space beyond the end of your lease, based on pre-negotiated terms, without you having to commit up front.
Broker Opinion of Value aka ‘BOV’
This is an analysis provided by a real estate broker to assist a buyer or seller in making decisions about the listing price of commercial real estate or a suitable bid for purchase. A fee may or may not be charged for this.
Although the number of commercial real estate terms can seem endless, the above list contains common terms that you will inevitably encounter within your day to day activities whether you are a new/newer agent or experienced agent.
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