Buying vs. Leasing Commercial Real Estate: The Pros and Cons

Buying vs. Leasing Commercial Real Estate: The Pros and Cons

Buying vs. Leasing Commercial Real Estate: The Pros and Cons

Which is better, buying or leasing? As a business owner, you need to consider various factors before deciding which approach will work for you. Generally, your decision comes down to the amount of money you will be spending or saving. But figuring out where those savings come from is the tricky part. You must consider many things, including the stage of your business, monthly payments, financing options, and cash flow. This article will discuss the factors you need to consider before leasing or buying a building.

 

Monthly payments vs. cashflow

Before you decide to lease or buy a building for a business, consider how much money the business brings in compared to your projected monthly payments. You’ll want to avoid overstretching your budget or else you’ll risk facing negative consequences due to default payments. You need to follow through with your monthly payments without crippling your business operations, so the option you go for should reflect the status of your finances. Leasing can sometimes be cheaper than ownership, so although you’re not building equity with a lease, you’re keeping costs as low as possible.

 

Building maintenance

Landlords and property managers will have specific terms for their leasing and buying clients regarding maintenance. The monthly payment for maintenance depends on the lease agreement you sign before moving in. Since a buyer is a building owner, buying clients have no option but to pay for regular maintenance costs out of pocket. Before you buy a building, consider whether you can pay the monthly bank payment plus maintenance fees. Otherwise, consider a lease.

 

Equipment usage

A tenant can often use fixtures and appliances in a commercial building but can’t take the equipment with them when they finish the term of the lease. Even when a landlord installs equipment to enable the client to do business smoothly, the equipment remains the property of the building owners. If you foresee your business moving in the short term, consider buying necessary equipment or purchasing the building outright.

 

Mobility

Whether your business grows or shrinks, it is important to ensure that the agreement you have meets the future needs of your business. Does your current space allow your business to expand and grow in the future? And in case all does not go well, are you at liberty to degrade without facing penalties? A lease will give you more flexibility if your business is in a period of rapid growth.

 

Long-term savings

Compare the savings you are going to make leasing versus buying. Ask your commercial real estate agent to show you multiple properties for sale or lease. Try to figure out the average price for both options and use that information to make an informed decision. Depending on the option you go for, you could save on the initial down payment, recurrent monthly rent payments, lease payments, tax deductions, and liability insurance.

 

The pros and cons of buying commercial property

Check out the advantages and disadvantages of buying a building:

 

It is an extra source of income

You can start earning rental income immediately when you become a commercial building owner. If you are not using all the space available, you can rent it out to other business owners and make extra income from the monthly rent payments.

 

You have more control of the building

As a commercial building owner, you have more control over what happens inside. You set the rules and can make key decisions about how you use the space. A landlord can’t restrict you from running your business how you want because you have the final say, as long as it is compliant with the state laws.

 

The premise’s value keeps going up

The good news is that, for the most part, property values appreciate. The longer you remain a landowner, the more money you make. If you decide to lease part of your property to other businesses, you can revise your lease terms and increase rents according to the lease agreement you have with the tenants. You can also decide to sell the building later and earn a profit to buy a new one at a better location.

 

The equipment in the building is permanently yours

All the fixtures you install in the building for your tenants or business will be permanently yours. They could add value to the building and even bring you more money.

 

Disadvantages of buying instead of leasing:

 

You must pay the down payment

If you are buying an office or commercial building, you need first to make a down payment. Just like auto loans, these down payments usually range from 15%-30% of the building’s entire purchase price, especially if you want a loan to finance it. This money can be a lot for a small or growing business, making it almost impossible to own if your margins are thin.

 

You could lose your capital trying to own the building

You may be forced to use business capital to make a down payment for the building. Most business owners will take out a loan to finance the purchase. However, you may stretch yourself too much to meet these debt obligations, and this can impact your available credit when you go to purchase future items.

 

Other costs

Buying a building, just like buying a car, adds to your monthly costs. Since you are the new building owner, you must meet all other obligations such as liability insurance and property insurance. You must incur all charges to protect your tenants from accidents, damage, and natural disasters. To lower monthly payments for the building’s maintenance, you may have to pass on some monthly costs to other tenants. Even though the property value keeps rising, you will need to regularly maintain the building after every few years to maintain its curb appeal.

 

The pros and cons of leasing

Check out the advantages of leasing:

 

Fixed monthly payments make it easy to plan your financial future

You will receive the payment terms before moving in when you sign a lease document. Your monthly rent payment remains fixed during the lease term so that you can plan for your business expenditure early on.


More liquidity

Your business does not have to make a huge down payment when leasing. As a tenant, you only need to pay the agreed-upon rent and a refundable security deposit, then move in. The low monthly payments leave you with disposable income for business operations.

 

It is easy to qualify for a lease

Most leases don’t have as stringent requirements when compared to buying. As long as you comply with the state laws and meet the lease terms, you are good to go.

Disadvantages of leasing

 

Lease payments do not qualify you as an owner

You still won’t qualify as an owner after many years of paying the monthly rent and renewing the lease agreement. Even if you pay as much money as the price of the building, you will move out one day and leave it behind along with your entire investment.

 

You have no control over tenancy agreement restrictions

Tenancy agreements are drafted by the landlord or property managers. These agreements often put restrictions on various business operations and space usage. Tenancy agreements can restrict you from multiple activities and alterations. This lack of freedom could severely impact your business.

 

Higher monthly payments

In the long run, rent payments are costly. You will find that in 10 or 20 years’ time, you have paid enough rent to own that building – but it still belongs to another person. In addition, at the end of the lease term, you will pay the wear and tear charges from your security rent deposit. Also, early termination is very costly and can eat into your profits.

 

Looking for business properties in West Virginia? Call us now for a free consultation

It’s not easy to decide whether to buy or lease a commercial property in West Virginia. You need financial planning advice to make the right decision for your business. Depending on the stage of growth you are in and the amount of disposable income you have, the real estate experts at The PM Company can help you find the ideal property for you. We have properties available across West Virginia and can grow with you whether your goal is to lease or buy. Call 1-304-485-8000 today for a free consultation.

paper and pen lease agreement

What financials are needed for a commercial lease?

What financials do I need to obtain a commercial lease?

So your business has outgrown the garage and you’re ready to move into a newer, larger, more formal space. Congratulations, you’ve accomplished what most small businesses only dream of doing. The hardest work has been done, but you still have to find a building or office to lease, and, undoubtedly, you have questions. Do I need to submit financials in order to apply? What is the landlord looking for? What additional documentation should I have ready to present?

 

As commercial real estate experts, the PM Company has helped numerous small businesses navigate this next step. Whether you’re applying for a lease in the Mid-Ohio Valley or somewhere else around the country, follow these guidelines to improve your chances of leasing the building you want.

 

What is requested in a conventional lease application?

Before leasing a space, you may be asked a series of questions that demonstrate your reliability in paying the lease rate. You may be asked to provide information about the following aspects of your business:

  • your business history 
  • a description of the services and/or products you provide
  • references that signify your financial stability
  • past/current/anticipated revenues
  • assets that could be used as collateral
  • liabilities the company may have, and references from a financial institution 

 

What financial statements should you prepare?

Much in the same way you would approach a bank for a business loan, you will likely be asked to provide the landlord with some sort of financial documentation for your business. That documentation may include: 

 

  • prior tax returns for past 2-3 years
  • personal or business financial reports (this depends on how you are securing the financial obligation to pay the lease rate)
  • business balance sheet
  • profit and loss statements
  • bank statements for the past 2-3 months 

 

In some instances, you may be asked to provide a copy of your business filing with the state (includes business use type) and your articles of incorporation. 

 

Why are financials so important?

Your finances demonstrate your business’s ability to make regular lease payments. The equity required for construction and maintenance on a commercial property is typically much more financially intensive than a residential property, and, as a result, can greatly affect a business’s cash flow and financial stability. Landlords like to see a comprehensive picture of your ability to meet the terms of the lease. 

 

In reviewing your application for a lease, landlords may consider:

  • The type of business you run 
  • The potential effects competing businesses may have on your revenues
  • The past and current size of your business
  • The business’s growth trajectory, its profitability, and any other factors that could pose risks to the landlord. 

 

What if the landlord is asking for additional documentation?

Lease application requirements may vary by landlord. In cases where there are multiple businesses in a shared facility with high-value clientele, the due diligence requests may become more extensive. Business bank statements, personal financial statements, copies of your business plan, and even a certificate of good standing from a lending agency could be necessary to gain entry. This shouldn’t give you alarm, however. Securing a spot in a prime location may pay dividends down the road. You can enjoy greater confidence as a lessee because your neighbors and fellow tenants care as much about their location and reputation as you do. 

 

Why do the requirements vary so much?

Based on your location, the business community makeup, and local commercial vacancy rates, additional requirements can differ greatly. In regions where vacancy rates are high and tenants are harder to find, the application requirements could be as simple as providing the aforementioned financials and verification of income. Following a simple credit or background check, your lease could be approved rather quickly. 

 

Should you find yourself in a market where vacancy rates are low and landlords have more discretion on who they admit, you may be asked to provide more documentation. In these cases, you should be prepared to provide additional financial documentation that exceeds the last 2 to 3 years of financial documents for your business. Be prepared to disclose any shared partner equity, other grantors you have worked with, business or financial institution references, or even personal credit scores. 

 

While the prospect of obtaining in a commercial lease may sound daunting, you’ve likely already done everything necessary to set your business up in a phenomenal space. The hard work of building a business and achieving a level of scalability that demands a move likely ensures you have what it takes to lease your dream space so your business can be all that you want it to be. 

 

If you are looking for a commercial space where your business can grow, the trusted professionals at the PM Company (PMC) are here to assist. PMC has been serving the Mid-Ohio Valley, specializing in commercial real estate and property management, for over 35 years. For more information visit call us at 304.485.8000.

man and woman considering an item

Don’t Get Surprised by These Common Expenses When Leasing a Retail Space

Don’t Get Surprised by These Common Expenses When Leasing a Retail Space

When beginning your search for the right retail space, rent is not the only cost to consider. While it is a primary driver in your decision-making, understanding ancillary fees, build-out costs, and furnishing expenses can alter your budget and timeline when moving into a retail space. Factoring these additional expenses into your budget as early as possible will help you understand the full costs of operating in a new space. This will make your commercial real estate journey easy and stress-free.

 

Build out costs

A retail space will rarely meet every single one of your needs without some customization. Just as your business is unique and the opportunity it presents is one of a kind, many retail spaces are also unique and not one-size-fits-all.

 

Some spaces will offer a clean white space with an HVAC system but little to no furnishings. Other retail spaces will come with previously installed items. Knowing what your business needs to thrive will allow you to narrow down potential locations and find the right space for you. Consider what amenities are necessary for the interior build-out and what amenities you need when the business is up and running. 

 

Making a list of “must-haves” will give you a better understanding of what lease rate you can afford. Any extra items will need to be paid for on top of the lease itself. Some common build-out costs include shared walls, printers, shelving, and storage spaces. Your lease agent will also want to know your expected build-out projects since they’re considering the timeframe for occupancy. For many businesses, managing the build-out while also paying rent can be perilous. However, many retail leasing outfits specialize in mitigating tenant improvement costs and lease payments. Ask questions during the leasing process and work with a lessor to explain your needs. 

 

Utility costs

Just as you do for your own home, you have to pay the electric, water, gas, etc. in a leased retail space. When creating your lease budget, you should include the estimated monthly utility service cost. In a multi-tenant leased space, it’s common for leases to share common utility costs (e.g. those related to parking lot lighting, landscape management, etc). These expenses are handled in various ways, the 2 most common being Triple Net Expenses (NNN) and Modified Gross. 

 

Ultimately, you as a business owner should know what type of utility consumption your business needs in order to support operations. Your unique business needs should factor heavily into the location you chose. Can the location support your business’s utility demands? Whether you are running a nail salon or a Bitcoin mining operation, you will want to understand your anticipated water, sewer, electric, gas utility consumption in order to determine which space is right for your business. 

 

Triple Net lease fees, CAM fees, and Tenant improvement costs

 Not every retail lease is a Triple Net or NNN lease, but it is the most common lease in the market. In this lease, the property owner passes on the taxes, insurance, and maintenance fees to the tenant. This is important to understand as a tenant because it clarifies what you are responsible for and what the landlord is offering. 

 

These costs are typically passed on to the tenant because the rates themselves vary by the type of business present in the space. From property taxes, liability insurance, to common area maintenance (CAM) fees, these expenses are divided up based on the renter’s space allocation, usage rates, and other negotiated terms. Businesses who are considering leasing space in an office park or business center need to factor these types of costs into their price estimation for leased space. 

 

Unlike a stand-alone warehouse, a single home zoned for business, or another mixed-use facility, the lease rate in a business park or office building has the expectation that tenants will pay a prorated portion of the combined costs for upkeep and maintenance. As a business, you should consider what your business demands and negotiate terms that work for both parties. An open dialog with a leasing agent will help get you and your business into a building that meets your operational and financial needs. 

 

Furnishings, Fixtures, and Technology Needs 

Whether you are a high-end boutique, a new restaurant startup, or a pet toy company with a hundred or more employees, the interior needs of your retail space may matter as much as the facade when it comes to the success of your business. You should know upon entering a space what you can afford to purchase when it comes to computers, desks, lobby amenities, displays, kitchen equipment, etc. Because these items are necessary for you to open your business, it’s important to budget for these items from the outset. 

 

Factoring in purchase costs,  build-out costs, and base rent will be important in setting a move-in and opening day timeline. You will want your business to be in good form when you open your doors to the public, so working out the details on interior pieces and technology during the build-out process will save you valuable time and energy as you prepare to open the doors. 

 

Working with the right team to help you navigate the market

If you read this article and feel stressed or overwhelmed, know that you’re not on your own. All of these costs and considerations are part of any commercial lease process. Most businesses wrestle with these same questions at the outset, and leasing professionals are well accustomed to business owners who are considering their first move out of the garage into a brick and mortar space. 

 

The trusted team at The PM Company will help you crystallize your vision, find a space that fits your business, and leverage your unique value proposition to the market looking for your services. Engaging with a real estate professional early in your search will deliver the most value and return on your investment.

Community Rallies behind Local Charities through Spirit of Giving Fund

In 2007, Pat Minnite Sr. started the Spirit of Giving Fund to support local charities and nonprofit organizations around the holidays. The community has enthusiastically joined in the charitable efforts to give back to the organizations that make a difference in the Mid-Ohio Valley.

Tenants, business associates, vendors, and friends of The PM Company (PMC) raised $61,000 to be given to selected local charities. For 2021, PMC matched up to $60,000 donated to the Fund. Thanks to the community’s generous support, a total of $121,000 will be evenly distributed to thirteen area charities.

These charities were selected through an application process by representatives of the PMC. The Spirit of Giving Fund is managed by the Parkersburg Area Community Foundation (PACF), which will distribute the funds accordingly. Each charity listed below will receive $9,300 to support their work within the community:

  • Amputee Center Inc
  • Belpre Area Ministries
  • Bethel Church Equipping Center Inc
  • BrAva
  • Camden-Clark Foundation Inc.
  • Consumer Credit Counseling Service of the MOV Support Fund in Honor of Harold “Jim” Applebaum, a fund of the PACF
  • FaithLink
  • High on Hope Ministries
  • House to Home
  • Kellys Closet MOV Inc
  • O’Neill Senior Center Inc
  • Thrive
  • Women’s Care Center, Inc.

“The PM Company family greatly appreciates the support of this collective effort, and we are proud and happy to know the impact this will make on the needs of our community,” said Karmyn Conley, PMC Managing Partner. “The impact of this community’s giving has been profound, and PMC looks forward to sharing another successful Spirit of Giving with the community.”

“The Pat Minnite family and The PM Company and its associates have a longstanding and generous tradition of supporting the needs of the communities in which they do business,” said Judy Sjostedt Ritchie, PACF Executive Director. “We applaud their leadership in philanthropy and thank The PM Company and their associates for their generous partnership for the benefit of our area.”

Applications to receive support from the Spirit of Giving Fund are accepted annually with a deadline in August. Applying organizations must be a recognized 501(C)(3) nonprofit serving the vulnerable and underserved populations in Wood County, WV, and/or Washington County, OH, where the PMC primarily does business. A new application process, in partnership with the PACF, will be incorporated for the 2022 campaign and will launch Spring 2022. More information is available at www.thepmcompany.com/spirit-of-giving.

Parkersburg aerial

Commercial buildings for rent in Parkersburg WV

Commercial Buildings for Rent in Parkersburg West Virginia  

Whether you are looking for a storefront in downtown Parkersburg just a few steps from the historic Juliana Street or an industrial space that’s a short drive from the US Highway 50 and Interstate 77 interchange, Parkersburg commercial lease options are plentiful. Being one of the largest cities in West Virginia and home to several industries, Parkersburg has a selection of spaces that would make a great home for your business. 

 

Class B and C Office Space

Like in much of the U.S, office space availability in Parkersburg hit unexpected highs as a result of the COVID-19 lockdowns. Businesses who retooled during the pandemic began allowing employees to work remotely and found that renting a large office was unnecessary. What has emerged in the wake of the pandemic is a commercial and retailer renter’s market with many new class A,B, and C spaces becoming available for the first time in decades.

 

In Parkersburg, a number of class B office spaces have shown up for rent recently. Some are located in the downtown core along Market Street, 7th street and 29th street while other office opportunities have popped up on Murdoch Avenue, and Garfield Avenue along key transit thoroughfares. The downtown properties all come within close distance of the municipal parking garage, and have walkability and bikeability scores that are significantly higher than other areas within the region. Additionally, the downtown office spaces are within walking distance of great restaurants like Cham’s Lebanese Cuisine and the Blennerhassett Restaurant the Lounge as well as several bars and breweries like The Parkersburg Brewing Company and The Cocktail Bar. Additionally, hotels such as the Blennerhassett Hotel and the TownePlace Suites by Marriott Parkersburg are also within walking distance, allowing clients the ease of visiting without significant extra travel burdens. 

 

While some may like the tight quarters of downtown office space, many businesses prefer more convenience for their patrons and employees, with office spaces that have ample parking and easier access. The PM Company has well-maintained office buildings located in the heart of Vienna, WV, right by the Grand Central Mall, Wal-Mart, and a variety of other big box stores. These newer buildings provide the ideal atmosphere for professional service businesses and our property management team keeps the buildings in excellent working order. 

 

Retail, Neighborhood Business, and Downtown Storefronts

Just as the office space absorption rate changed drastically over the last two years, so too did the retail lease market. As businesses altered their models and took advantage of e-commerce, local retail spaces became available. In Parkersburg several retail spaces came to market, some in a connected strip mall, others in a multi-story downtown space, and a few in stand-alone buildings with attached parking. This is great news for business owners looking to rent commercial buildings in Parkersburg, West Virginia. 

 

While not as common as spaces in shopping centers or other dedicated retail complexes, stand alone homes now converted into retail spaces within neighborhoods can still be found in Parkersburg. The coveted neighborhood business designation is one of a bygone era, usually given to corner stores and neighborhood markets. However, many art studios, office supply stores, hardware or electronics repair shops, nail salons, hair styling studios, bookstores, bakeries, and sidewalk cafes and bistros operate out of uniquely-zoned residential homes. In Parkersburg you can still find some of these neighborhood business locations for rent, giving you the ability to create a unique space that can support both business and residential demands. 

 

Industrial Spaces, Flex Space, and Medical Spaces

As one would expect, the market for industrial space and flex space in Parkersburg mirrors national trends, having incredibly high absorption rates and quick turnarounds upon hitting the market. Because of on-shoring efforts and major distributors opting to maintain production levels instead of stopping the assembly line, industrial spaces have been getting snapped up for assemblage and storage operations. The market in Parkersburg for industrial space does skew older, but in that older stock, greater value can be found. Amenities can be elusive, but the value of the spaces available in Parkersburg surpasses that of other regional markets. For businesses looking to grow into a larger footprint and find more direct consumer opportunities, available properties along Depot Street, 7th Street, and Route 68 can provide greater visibility and room to grow. 

 

By way of flex space like a combined space with an office and industrial component, Parkersburg has a number of options that can suit your needs. Applicable zoning notwithstanding, several spaces along Depot Street near the rail terminal,  in South Parkersburg along US 50 and Camden Avenue, and along Dudley Avenue at the crossroads of Lakeview and 36th Street. Typically home to industrial supply stores, automotive maintenance centers, and the occasional manufacturing operation, flex spaces are always in high demand and provide the highest grade of flexibility in the market. For those in Parkersburg the options are wide ranging in scale and age, and are interspersed throughout the city. 

 

Lastly, consolidation of medical services by area providers has provided interesting opportunities for private practitioners or specialists to find newly renovated or recently constructed medical spaces, complete with waiting areas, ADA accessible entrances, and applicable signage pieces that will help your business stand out to new patients. Growth in the medical services sector has been consistent in Parkersburg, and should your practice be in the market for a new highly visible space, numerous opportunities exist within the city. 

For those who are seeking a space to rent, or want to engage a professional about what opportunities exist in Parkersburg, a conversation with a member of the trusted team at the PMC Company may be in order. Take a moment to view our commercial properties for sale or lease in Parkersburg then contact our team for details.

Man places cubes spelling lease for CAM fees

What are CAM fees on a commercial lease?

What are CAM fees on a commercial lease?

 

If you’ve ever had to negotiate a commercial real estate lease, you’ve likely wondered about the differences between a triple net lease and a lease with CAM charges. These differences are important to the real estate lease framework because they impact the net operating incomes for properties. This article will help business owners make the right decisions regarding triple net Lease and CAM lease structures. 

 

What is a Triple Net Lease? 

Often referred to as an NNN lease, the triple net lease is an agreed-upon contract where the tenant leases a property and agrees to pay for virtually all costs related to occupying and maintaining the property. From the taxes to property insurance and grounds maintenance, the lessee is responsible for their own coverage and procurement. 

 

What are CAM charges?

CAM, or Common Area Maintenance charges, are fees added to the lease that cover the aforementioned costs of occupation and maintenance related to the property. These charges are typically determined by the landlord and are specific to the lease and load factor. They are commonly agreed upon by the tenant prior to occupying the facility.

 

Why Most Leases Fall Under the Triple Net Category 

A triple net lease is the most common type of commercial lease. The standards of maintenance vary from lease to lease, but because it omits charges associated with maintenance and upkeep, a triple net lease typically has a lower base rent value than other lease forms. The lease rate includes the base value of the rented square footage without additional fees and charges that would otherwise be included. 

 

Because the cost of maintenance can vary significantly based on building age, location, climate, etc., triple net leases usually include an agreed-upon maintenance cost cap. The cost cap provision is written to include coverage for maintenance purposes only, not capital improvements to the facility. For example, if the HVAC goes out and is in need of full replacement, a lessee is not expected to pay the cost for replacement. That falls on the landlord. However, if an A/C condenser unit to your portion of the building gets clogged, the lessee would be responsible for paying for the maintenance. 

 

Despite these potential liabilities, the triple net lease still makes long-term financial sense due to lower, recurring rents. However, it’s important to factor in anticipated maintenance costs and lease rate before signing on the dotted line. The building’s repair history, age, and overall environment are worth considering in the lease negotiation stage. 

 

When to Sign a Lease with CAM fees

If the concept of trying to negotiate the intricacies of your NNN lease is puzzling, consider a managed property that offers Common Area Maintenance. CAM fees are an upfront way of packaging maintenance fees into your monthly rent. The fees may cover exterior improvements such as landscaping and lawn care, window washing, snow removal, pesticide application, parking lot and sidewalk improvements, exterior security coverage, and various other tenant improvement amenities. CAM fees can also cover interior maintenance needs such as bathroom cleaning and supply stocking, shared conference room cleaning and maintenance, elevator operation and permitting, and in some cases, utility costs like water, sewer, electric, phone, and internet. Most importantly, the CAM fee structured agreement adds a level of convenience to major appliance outages. For example, should the condenser unit fail and the A/C goes out on a hot summer day, the building owner would service the HVAC system, saving you the time, money, and frustration of finding a repair service. 

 

How are CAM Charges Configured?

CAM charges vary from tenant to tenant. Most agreements are defined by the total square footage occupied of a shared space. These charges are often pooled among all the tenants since all tenants benefit from their usage. For example, if your business occupies 1/5th of an office park, and is allotted 1/5th of the available parking, then it would stand to reason that your share of total Common Area Maintenance would be 1/5th of the gross CAM fee. 

 

The distribution of fees is subject to individual negotiation and is highly dependent upon anticipated use. If your business has significantly greater access to common areas, it would be in the best interest of the landlord to charge more than other tenants. All of these nuances should be negotiated with the landlord prior to lease approval.  

 

By design, CAM charges are designed to benefit both the tenant and the landlord. The freedom of not worrying about insect removal, snow plowing, and elevator inspection gives tenants the freedom to focus on their businesses fully. For the landlord, CAM fees allow for a consistent maintenance schedule and consistent billing for such services since they are included in lease terms and not subject to a case-by-case invoice process. 

 

What is the Best Option for My Commercial Lease Needs?

Each case differs, but the question often boils down to what type of lease rate are you willing to pay and what kinds of services you expect to need? If your business is less customer-facing and would benefit more from a lower lease burden, a NNN lease may be perfect for you. However, if your business is one where customers interact with you in your building, and the reliability of cleanliness and accessibility helps foster good relationships, an adequately vetted CAM fee structure may be your best bet. 

Basics of commercial real estate lease in Mid-Ohio Valley

The Basics of a Commercial Real Estate Lease – What You Need to Know

The Basics of a Commercial Real Estate Lease – What You Need to Know

 

Every business owner who leases commercial real estate should have a basic understanding of what goes into a typical lease. This allows business owners to avoid confusion and unexpected surprises when signing a commercial lease. Informed business owners spend less time clarifying simple questions and can quickly approach a potential landlord to close deals. In fact, executives who understand the basics of commercial real estate leases are more likely to:

 

  • Identify leases with favorable terms
  • Understand their business’ needs and jump on opportunities as they arrive
  • Spot red flags and avoid leases that may become a burden

 

The Mid-Ohio Valley commercial real estate market provides unique challenges. As it is a stable, but slow-growth area, new leases are not often available. The area is full of many well-established businesses that have found their ideal location and see no need to move. This means that new or growing businesses must be ready to act quickly when a property does open up since these opportunities are not always available. However, in that haste, it’s important that one slow down enough to fully understand the lease terms for the space. The PM Company encourages everyone looking at commercial real estate to brush up on the basics of a commercial lease. This allows interested parties to act decisively and quickly, while protecting current and future interests. We’ve provided a quick overview of the basics of a commercial real estate lease. 

 

What Items Are Usually on A Basic Commercial Real Estate Lease?

 

Most lease contracts will include the following elements.

 

Notice addresses

Both parties will provide addresses for receiving official communication. If the landlord needs to notify you of an issue regarding the commercial property, this is where they will send the information.

 

Property description

The property owner will provide a written, legal description of the commercial real estate property. This description should be thorough and accurate to prevent misrepresentations.

 

Security deposit

The lease contract should also lay out the details of your security deposit. Specific points might include the total value of the deposit, what the deposit will secure, when it becomes refundable, and whether or not it can apply to your rent.

 

Use of premises

Acceptable use of the property will depend on zoning rules and property management stipulations. For example, heavy industrial work cannot happen in a building zoned for commercial retail. The property manager might also limit loud businesses (like a nightclub or doggy daycare) to protect the other tenants from unwanted noise.

 

Defaults by either party

This clause defines what constitutes default (i.e., late rent payment by the tenant, failure to maintain the outside structures by the landlord) and the available remedies.

 

Building access

Not all leases include 24/7 access to the property. Businesses that hold irregular hours should pay attention to this clause and be sure the agreement works in their favor.

 

End of lease holdover

The typical fee for staying in the space after the lease term ends. These fees can range anywhere from 100 percent to 200 percent of current rent. 

 

Insurance, indemnification, and liability

This section of the commercial real estate lease will lay out what types and amounts of insurance each party must hold. It will also cover which party is liable for a host of possible damages.

 

What Are Some Basic Fee Structures for a Commercial Property Lease?

 

Businesses in the Mid-Ohio Valley will likely see three different types of commercial property leases. Each provides a different way of structuring fees and allocating them between the property owner and the leasing party. 

 

Triple Net (NNN)

A triple net lease, or a net lease, is one of the most common lease structures used for commercial properties. In this arrangement, the tenant pays the base rent along with the three additional “nets,” which include:

  •     Property taxes
  •     Building insurance
  •     Common area maintenance (CAM)

While it may seem as though the tenant absorbs the brunt of the costs, the landlord is still responsible for maintaining the structural components (structural walls, foundation, and roof) of the building.

To calculate rent for a NNN lease, take the estimated annual expenses and add that number to the price per square foot multiplied by the rentable square footage of the space.

 

Full-Service Gross (FSG)

A full-service gross commercial real estate lease releases the tenant from most expenses related to the property. The tenant will pay a base rent that changes only in relation to the agreed-upon rent adjustment clause. To calculate the rent for an FSG lease, you simply multiply the price per square foot by the square footage of the space.

 

Modified Gross (MG)

A modified gross lease allows the tenant and property owner to agree on a detailed breakdown of rent versus operating expenses. A tenant may be asked to pay for rent plus just the electrical bill or just the water.

 

What Additions are Commonly Made to Basic Commercial Property Leases?

 

Sublease Clause

Businesses in the Mid-Ohio Valley and across the country are facing huge disruptions related to real estate. Many employees are working remotely while some businesses are seeing large stockpiles of inventory that can’t be used due to supply chain issues. Business owners may find that they are leasing more space than they need. 

This is where a sublet comes into play. A sublet will allow a tenant to rent extra space to a third party. Anyone leasing commercial property should find out what is and what isn’t allowed when it comes to a sublease.

Exclusivity clause

Business owners may ask for an exclusivity clause in their commercial property lease. These are popular in retail leases since it keeps similar businesses from setting up shop in the same location. For example, a smoothie bar might want to ensure another smoothie bar doesn’t move into the same strip mall.

Rent Escalation

When leasing commercial real estate, a business’ rent can increase on a yearly basis or during any renewal options – this is what the rent escalation clause covers.

The rent escalation clause explains how much of an increase in rent a tenant will be subject to. Business owners should treat rent escalation like a homeowner would treat an adjustable mortgage. Calculate rent escalation through the long-term as even small percentage increases can compound lifetime lease costs. 

Even the most basic commercial lease requires careful reading and a sophisticated understanding of commercial contract law. While this provides a basic foundation for your understanding, we recommend you always discuss potential commercial real estate leases with a qualified lawyer before making decisions.

For over 30 years, the PM Company has been involved in commercial real estate throughout the Mid-Ohio Valley. We help business owners find properties that benefit their business and provide leases with equitable terms for both parties. We currently hold a million square feet in commercial and retail properties throughout the Mid-Ohio Valley.

 

View our listing page for up-to-date commercial property listings including “For Sale” and “For Lease.”

Call us at any point in the leasing process and we will be happy to help you.

Contact us today for more information. 

Spirit of Giving 2021 – Doing Good Together

UPDATE – Spirit of Giving 2021

Dear Friends of The PM Company,

With the complexity and challenges of the last year and a half, the “Spirit” of Giving is one of the most important things we can possess. Here at The PM Company, we always try to hold true to that important core value.

We are kicking off the 2021 Spirit of Giving fundraising campaign, a PMC charitable effort, where we join forces with our tenants, vendors, and business associates to raise money for local nonprofit organizations. This year The PM Company will participate in matching all funds up to $60,000 that are donated and received by December 1, 2021. We have been successful over the last decade with supporting local charity organizations and “doing good together”.

We ask you to join us this year with a donation to the Spirit of Giving Fund.

The 2021 recipients are:

The impact of this collective giving effort has been profound, and we look forward to sharing another successful Spirit of Giving with our community and you.

Make donations payable to:
Spirit of Giving
1000 Grand Central Mall
Vienna, WV, 26105

Sincerely,

Karmyn, Pat, and Jason Minnite
and The PM Company

Chipotle – At last!!!

Chipotle Announcement 

Who doesn’t love a warm, foil-wrapped burrito stuffed full of hormone-free meat and locally sourced veggies? With the overwhelming response we’ve received concerning the new Chipotle on its way, we’re certain most would agree.

The PM Company is excited to bring the first Chipotle Mexican Grill to the Mid-Ohio Valley. This well-loved brand has been trying to locate in Vienna for close to seven years, and we’ve been working hard to make it happen. We finally did!

Our construction crew built the building per corporate specifications at the former location of the Vienna Walmart fueling station along Grand Central Avenue. We have turned it over to Chipotle to finish the interior. They will operate and manage the store, and plan to have doors open for service soon! 

We have been grateful for the collaboration of the Chipotle development team and we know their excellence will continue into their service and support of our community. We trust the presence of their brand will support even more growth and opportunity within the Mid-Ohio Valley.

 

New Office Suites Available in Vienna for Individual Business Needs

 

Early in 2019, we sent out a survey asking the public: Is there a need for small, affordable offices for individuals? Would you utilize a single office for one person, in an office suite with a common area?  What would you consider a reasonable price for a short-term lease of an upscale, professional space in an established office building?  The response was positive, and PMC Executive Office Suites were born as a result.

Our Gen III group, consisting of the newest family members to join the company, put their heads together to create and market the space.  As a result, we now have an office suite consisting of five separate, locked spaces, with a small meeting room, kitchen, and reception area shared by the group.  Monthly lease agreements start at six months, $350 and up per month, with one month’s security deposit and liability insurance also required. Because of the location of the property, no B&O taxes are required.

High-speed internet, parking, and maintenance of all common areas including parking lot are included, and offices are furnished with desks and chairs.  This turnkey situation allows a new leasee to simply move in, connect, and start doing business immediately.

Cale Conley is available to show the space and discuss leasing options. He can be reached  by emailing cale@thepmcompany.com, or by calling 304-588-2253.