What things do I need to consider in analyzing commercial space?
How are lease rates quoted for commercial property?
What is the difference between a net lease and a gross lease?
What is a typical amount for NNN charges?
What are CAM charges?
How can using a broker help me if I am looking for space to lease?
How much does it cost to hire a broker?
What is a letter of intent?
Is a letter of intent legally binding?
What are tenant improvements?
Who pays for tenant improvements?
What do I need to do if I want to list a property for sale or lease?
What is the commission rate for listing property?
How is the commission calculated on a lease?
What will be done to market my property if I list it?
Are you a member of the local Realtor Association?
Will my property appear on the multiple listing service if I list with the Accord Commercial Team?
What is a disclosed limited agency?
What is an appointed agency?
What do I do if I want to buy or lease property?
What is a 1031 Exchange and how does it work?

What things do I need to consider in analyzing commercial space?Top

There are a number of considerations in selecting a commercial site. Depending on the type of business and how it operates, the following factors may be of great importance: location (near consumers, clients, interstate highways, vendors, airports, etc.), cost (base rent, triple net charges, build out cost, utilities, etc.), zoning restrictions and private covenants, traffic counts, access, visibility, available signage and parking, tenant mix and neighborhood demographics.

How are lease rates quoted for commercial property?Top

Typically, with commercial properties, lease rates are based on the annual cost, per square foot, of the leased space. Thus, to determine the monthly rent for a property, one would need to multiply the quoted rent per square foot by the number of square feet being leased. The resulting product is the annual rent for the leased premises. That number should then be divided by twelve to arrive at the monthly rent figure. One must then know whether the quoted rent is a gross rental rate, gross plus utilities or a triple net rate.
Example:
500 square feet x $10 per square foot = $5,000 annual rent.
$5,000 annual rent / 12 months per year = $416.67 rent per month.

What is the difference between a net lease and a gross lease?Top

Net and gross are different ways of quoting rent. A gross lease means that the stated rental rate includes the major expenses from real estate taxes, property insurance and common area maintenance, and that no additional rent for those items is required to be paid. In an absolute gross or full service lease, the quoted rate will include basic utilities such as electricity, gas, water and sewer. A triple net or NNN lease is one where the rent is quoted as a base rent net of, or not including, the expenses for real estate taxes, building insurance and common area maintenance. These three expenses, as well as the utilities, are an extra charge over and above the base rent. Under a NNN lease, the tenant will also be responsible for utilities in addition to the NNN expenses. In between a gross rental and a NNN rental is a gross plus utilities rental where the quoted rent covers the taxes, insurance and maintenance expenses but does not include utility charges for the leased premises such as gas, electricity, sewer and water. Typically, a tenant will pay for its own telephone and internet services under any of these lease types.

What is a typical amount for NNN charges?Top

The amount of NNN charges will vary depending on the type of property, its location, its size and how fastidious or frugal the property owner is in managing the property. In years of heavy snow fall, for example, the NNN charges will be higher. There may also be repairs or updates required for common areas that increase NNN charges. Real estate tax and insurance rate variations can also impact the amount of NNN charges. Essentially, a gross lease places the risk of increases in these expenses on the landlord while a NNN lease places the risk of increase in these costs on the tenant(s). In most situations, the landlord will estimate the total amount of the NNN expenses for the year and the tenants of the building will pay estimated monthly installments of the NNN expenses as additional rent during the year. At the end of the year, the actual expenses will be reconciled with the estimated expenses and the account will be trued up and any over-payments by the tenant will be credited to rent while any under-payments are to be paid within thirty days by the tenants. In a multi-tenant building, the tenants will pay these expenses proportionately in the same ratio that their square footage of space bears to the total square footage held out for rent in the building. In the event some of the space in the building is vacant, the property owner will generally have to bear that proportionate amount of the NNN expenses.

 What are CAM charges?Top

CAM stands for common area maintenance and typically includes the costs of snow removal, lawn mowing, common utilities, janitorial services for common areas, etc. Landlords and tenants should be careful to note all the things that can be included in CAMi charges and whether it can include things such as management fees, administrative costs, seasonal shopping center decorations, etc. 

How can using a broker help me if I am looking for space to lease?Top

A competent real estate broker can be of great assistance to a prospective tenant in helping the client to understand and recognize all of the factors that should be considered when making a leasing decision. A broker will also likely have knowledge of past transactions and future trends that can help in making a leasing decision. The broker will provide advice on site selection, rental rates, build out issues and a myriad of other issues facing a prospective tenant.

How much does it cost to hire a broker?Top

If you're considering renting space or buying property, then using a broker will likely cost you nothing. Brokerage commissions are typically paid by the property owner who lists the property for sale or lease. The listing broker typically splits the sales commission with any other cooperating broker who brings a buyer or tenant for the property. Thus, as long as a tenant leases or buys a property that is listed for sale or lease by a broker, then the commission will actually be paid by the property owner rather than the tenant or the buyer. In the event a tenant or buyer wants to buy or lease property that is not listed, then the buyer or tenant may be required to pay the broker's commission. However, with an unlisted property, that fee will generally be only half of the regular commission or about 3% of the sales price or total base rental to be paid during the initial term of the lease.

What is a letter of intent?Top

A letter of intent is a non-binding document signed by a prospective tenant or buyer and expressing the primary deal terms of the transaction such as price, term, build out, etc. It is generally not considered to be a binding document and does not contain the level of detail of a final binding contract document such a lease or a purchase agreement. It is simply a good faith statement that the tenant or buyer is willing to lease or buy the property on the terms stated if all other conditions can be agreed upon. Often a letter of intent will be signed subject to various contingencies such as licensing, financing or agreement on terms that cannot yet be solidified.

Is a letter of intent legally binding?Top

Typically, a letter of intent is just that - a statement of intent and not a binding contract. However, the exact language of the letter of intent should be reviewed to make sure that the language used is not that of a binding contract.

What are tenant improvements?Top

Tenant improvements are the improvements or remodeling tasks that need to be completed before the tenant can use the leased premises as intended. This can be a moot issue if the space is move in ready, or can involve construction of an addition to a building or a significant structural change to the building. 

Who pays for tenant improvements?Top

The cost of tenant improvements is typically negotiable as are other portions of a lease agreement. Often, a property owner will offer a stated build out allowance with new construction property ranging from $10 to $30 per square foot to assist the tenant with build out expense. With space that has previously been built out, the property may or may not offer an allowance to the tenant. The amount of money that a property owner will be willing to offer to a tenant may depend on a number of factors including the length of the lease term, the rental rate the tenant is paying, the nature of the improvements the tenant wants to build and how usable they will be by subsequent tenants, and the financial strength of the tenant. When a tenant is evaluating a build out allowance, the tenant should be clear as to what improvements, if any, will be made by the owner prior to the allowance figure being applicable. In other words, will the allowance apply to a dirt floor with no interior walls, or will it apply to space that already has a concrete floor, constructed demising walls and plumbing and electrical utilities brought to the Leased Premises.

What do I need to do if I want to list a property for sale or lease?Top

In order to market a property, the South Dakota Real Estate Commission requires that brokers obtain a written, signed listing agreement from the property owner. This agreement sets forth the duties of the broker and the client and establishes how the broker will be compensated for his or her efforts. In addition, there is an Agency Relationships Disclosure that must be signed by the client acknowledging that the broker has explained the different types of agency relationships offered by the broker. Finally, there is an Agency Agreement Addendum that must also be signed disclosing how the agency relationship will work if the listing broker produces the buyer or tenant for the property and allows the client to consent to either a disclosed limited agency or an appointed agency.

What is the commission rate for listing property?Top

When a property is listed for sale, the typical commission for most transactions is six percent of the total sales price. Due to the greater complexities involved in the sale of a business opportunity, the commission rate on those transactions will generally be higher depending on the nature and size of the business. On very large listings, that rate may be subject to negotiation.

How is the commission calculated on a lease?Top

The commission rate on leased property is determined based on the amount of base rental to be received by the property owner during the initial term of the lease. For example, if a property owner leases 1,000 square feet of space to a tenant at a base rental rate of $12.00 per square foot, the annual rental would be $12,000. If it were a five year lease the total rentals would then be $60,000. The rental commission for a five year lease on those terms would then be $3,600. Of that amount, the listing broker would have to pay the cooperating broker commission to any other broker who produced the tenant.

What will be done to market my property if I list it?Top

When a commercial property is listed, we prepare a spec sheet for the property listing the details of the offering. The offered property is placed on the local multiple listing service, and the spec sheet is also uploaded to the HJN web site (www.hjnteam.com) as well as our Accord Commercial Team web site (www.TheAccordTeam.com) where it can be found by people searching for properties. We also send out a blast e-mail to all commercial brokers in the Sioux Falls area advising them of the new listing. We will also place a sign on the offered property advising of its availability (unless the client does not want such a sign posted). The listing is also placed on Commercial Source, a national computerized listing service maintained by the National Association of Realtors for commercial properties. Depending on the nature and scope of the listing assignment, we may also engage in other specifically targeted marketing of the property via direct mail, phone calling campaigns, social media or other methods of getting word out about the property to those parties most likely to have interest or have clients that would be interested.

Are you a member of the local Realtor Association?Top

Yes, HJN Team Real Estate is a member of RASE as are all members of the Accord Commercial Team. At the Accord Commercial Team, we believe in active involvement in our trade associations and our community. Mike Hauck from the Accord Commercial Team is also a member of the Board of Directors of the local association and Chair of the local and state associations' Government Affairs Committees.

Will my property appear on the multiple listing service if I list with the Accord Commercial Team?Top

Yes. If you list your property with a broker who is a member of the Realtor Association of the Sioux Empire and an MLS member, then your property will appear on the MLS listings and be available to the much larger audience of real estate brokers and consumers who search MLS listings. Commercial brokerages who are not members of RASE or MLS cannot offer this exposure to their clients.

What is a disclosed limited agency?Top

A disclosed limited agency may occur when the listing broker is also the broker who comes up with a tenant or buyer for the client's property. In this case, the broker is working for both sides and must inform the client. In that situation, the broker become a limited agent in that the broker can then no longer advocate for or advise the client or the other party on how to proceed. Rather, the broker must simply relate offers and responses from the parties to the other.

What is an appointed agency?Top

An appointed agency occurs where the prospective buyer or tenant is produced by another broker in the same company as the listing broker. If that occurs, the responsible broker will appoint that other agent in the same office to represent the prospective buyer or tenant in the negotiations while the listing broker continues to represent the property owner. In this scenario, each broker is free to advocate on behalf of their respective clients even though they are in the same firm. Technically, when a brokerage company lists a property, all agents in that firm are agents of the client who has listed the property, so the appointed agency is a way to allow brokers in the same company to fully represent their clients in those transactions where both sides are represented by the same company. However, clients generally want as broad an exposure as possible for their property and do not want to limit prospective buyers or tenants to clients of other companies. Thus, most clients will agree to disclosed limited agency or an appointed agency so as to make sure that the clients of the brokers in the listing company are also able to become buyers or tenants of that property. 

What do I do if I want to buy or lease property?Top

By contacting a member of the Accord Commercial Team to assist you in your search for property to buy or lease, you are gaining access to and knowledge of basically all commercial properties in the area. As brokers, we are able to show you any listed properties, regardless of the listing company, and we can narrow down the best options for you, your business and your budget in a timely manner. Since brokerage commissions are typically paid by the property owner who lists the property for sale or lease, having a broker to represent you typically does not cost you any more than if you did not have representation. 

What is a 1031 Exchange and how does it work?Top

A 1031 exchange is a method of trading properties that, under Section 1031 of the Internal Revenue Code, is done without the current payment of tax on the capital gain. Rather, the owner's tax basis in the property is transferred to the replacement property received in the exchange. When a property is exchanged in accordance with the rules promulgated by the IRS, the tax on the gain is not eliminated, but is deferred until the replacement property is subsequently sold or transferred. By continuing to elect Section 1031 treatment on subsequent real property exchanges, a property owner can defer taxes indefinitely. Another section of the tax code allows heirs of a deceased property owner to inherit the property at a stepped up date of death fair market value tax basis, thus eliminating the capital gains tax entirely and leading to the strategy of swap 'til you drop transactions. Under the IRS rules, once a taxpayer sells a property, he or she is allowed a specified time period to identify the replacement property and then to close on its acquisition. At no time during this process, however, can the taxpayer have access to the sale proceeds from the first transaction. Thus, those funds need to be held by the title company or other qualified intermediary until used to acquire the replacement property. There are many technical requirements for this type of exchange, and we can help connect with the right people to prepare the necessary paperwork and guide you through the process