Commercial Real Estate Terminology

Posted on June 21, 2014 by Admin

dictionaryLike every industry, commercial real estate has a language of its own.  Let’s run through some of the key terminology you must know and understand when plotting your real estate strategy.

Blend and Extend: A strategy where tenants trade early renewal and extended lease length for more favorable lease terms.

Build-Out: Refers to the construction of the tenant’s proposed space to make it ready for occupancy.  Also referred to as TI or tenant improvements.

Building Class (A, B, C): Building classification may rate how the building is generally accepted in the market, or could be a personal classification by the individual referring to that structure.  Buildings are usually referred to as Class A, Class B, or Class C.

  • Class A. These buildings represent the highest quality buildings in their market.  They are generally the highest quality properties featuring first class tenant improvements and state of the art infrastructure.  Class A buildings are located close to important amenities and enjoy good access.  They are professionally managed and well maintained.  Class A properties tend toward the larger side for their market.  For example, in the western suburbs of Chicago most class A properties would be 50,000 square feet or larger.  These features allow Class A properties to attract the highest quality tenants and command the highest rents.
  • Class B. This is the next notch down.  Class B properties are either new buildings in secondary locations or older buildings in prime locations.  Class B properties also include new, smaller suburban properties sized 5,000-25,000 square feet which lack typical Class A features (covered parking, onsite property management, etc) due to their size.  Class B properties are still expected to have good quality management and tenants.  Often times, value-add investors target these properties as investments since well-located Class B buildings can be returned to their Class A glory.  Generally, all space in a Class B property has been occupied at least once, but the property is not functionally obsolete.
  • Class C. The lowest classification of an office property is Class C.  These older buildings (usually more than 30 years old), are located in less desirable areas and are in need of extensive renovation.  These properties are obsolete, featuring outdated building infrastructure and technology.  As a result, Class C buildings have the lowest rental rates, take the longest time to lease, and are often targeted as re-development opportunities.

First Right of Refusal: A right given to the tenant stating that before the landlord will lease the space in question (usually expansion space), the tenant will be given the right to lease it first.  The first right of refusal is usually negotiated into the lease and is typically governed by an agreed upon time limit.

Rentable Square Footage vs Usable Square Footage: Rentable Square footage is the amount of space the tenant will pay rent on.  It includes the space inside the tenant’s suite plus a factor to account for the tenant’s use of common area.  Rentable Square Feet is always larger or equal to Usable Square Feet.  Usable Square Feet equals the amount of square feet measured within the confines of the tenant’s space – this does not include common area space.

Site Selection: Indicates the practice of new facility location. Site selection involves measuring the needs of a new project against the merits of potential locations.

Sublease: A lease of a property or space by a tenant to a subtenant.

Tenant Improvement Allowance: This is the amount of money the landlord is willing to contribute for the build-out of the tenant’s space.  It is usually quoted as “x” amount of dollars per rentable or usable square feet.

Whatever question you have about commercial real estate, chances are it can be answered by your tenant representation commercial real estate broker.  For more on the benefits of tenant representation and more information about planning an office relocation, contact Business Spaces, (310)428-9009.

Source: Oak Brook Office Report Blog

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