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Basics you must know about a Modified Gross Lease

A Modified Gross Lease is a type of lease agreement that is commonly used in commercial real estate for office space. It is a hybrid between a Full Service lease and a Triple Net lease, which allows for some flexibility in terms of which party is responsible for certain expenses associated with the property. In a Modified Gross Lease, the Landlord and Tenant share some of the costs associated with the property, while others are the sole responsibility of one party or the other. 

The Tenant’s rents include paying the base rent and the budget expenses including taxes, maintenance, and other operating expenses. The Tenant is responsible for their own electricity and their janitorial cleaning services. Tenants may receive an invoice for their proportionate share (based on their square footage) based on the Landlord’s reconciliation of their annual budget which surpassed the Tenant’s Base Year or expense stop. The Tenant is responsible to pay any increase in those expenses above the Expense Stop amount. These overages should be nominal since these expenses are budgeted by the Landlord. 

The specific terms of a Modified Gross Lease can vary, but generally speaking, the Landlord will be responsible for paying certain expenses related to the property, such as property taxes, insurance, and maintenance. Meanwhile, the Tenant will be responsible for paying for certain utilities, such as electricity and water, as well as any expenses related to their specific use of the property, such as cleaning, HVAC repairs, plumbing within their Suite etc.

Advantages of Modified Gross Lease for Tenants

Flexibility in terms of which party is responsible for certain expenses can be a great advantage for Tenants who may not have the financial resources to pay for all of the expenses associated with a property on their own. By sharing some of these costs with the Landlord, Tenants can reduce their overall expenses and potentially afford a property that would otherwise be out of reach.

Minimize disputes between Landlords and Tenants by clearly defining which expenses are the responsibility of each party, there is less room for misunderstandings or disagreements. This can help to create a more positive and productive relationship between the Landlord and Tenant, which can be beneficial for both parties in the long run.

Disadvantages of Modified Gross Lease for Tenants

There are also some potential drawbacks to a modified gross lease. Monthly office expenses can fluctuate because the Tenant is paying utilities directly. An issue arises when you have fluctuating utilities so you must make sure they have a buffer in their budget when budgeting expenses because the cost can vary each month.

 

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The basics you must know about a Triple Net Lease

Triple Net Lease, also known as NNN lease, is a commercial real estate lease in which the Tenant is responsible for paying for all or some of the property’s Operating Expenses or sometimes called, Common Area Maintenance. These expenses can include property taxes, insurance, maintenance for common areas costs. In a Triple Net lease, the Tenant not only pays rent but also assumes financial responsibility for the upkeep and maintenance of the property. This type of lease is common in commercial real estate, particularly in retail and warehouse spaces and less likely to come across in office space. 

Benefits of Triple Net Leases For Landlords

Landlords can easily project their income stream, as the Tenant is responsible for the expenses associated with the property. There can be years when Real Estate Taxes and Insurance increase, those increased amounts can be passed directly to the Tenants.  Landlords can use this predictable income stream to secure financing for additional real estate investments or to reinvest in the property itself. Tenants being responsible for maintaining the property, Landlords can minimize their involvement in the day-to-day management of the property.

Disadvantages of Triple Net Leases For Landlords

If the Tenant fails to pay for expenses such as property taxes or insurance, the Landlord may have to cover those costs, leading to financial losses. Furthermore, if the Tenant is responsible for maintenance, the Landlord may not be aware of issues that arise, leading to potential property damage that could reduce the property’s value.

Benefits of Triple Net Leases For Tenants

Triple Net leases can provide more control over the property and potentially lower costs since they are responsible for maintenance and repairs by choosing which vendors to use or update themselves. Additionally, since Tenants have more control over the property’s upkeep, they can customize the space to fit their specific needs. This can be particularly advantageous for businesses with unique requirements, such as medical offices or laboratories.

Disadvantages of Triple Net Leases For Tenants

Tenants should also be aware of the potential downsides of Triple Net leases. If the property requires significant maintenance or repairs, the Tenant may be responsible for substantial expenses. Property Taxes and Insurance can fluctuate and subsequently may face higher costs if Property values or Insurance rates increase.

Triple Net leases can benefit Landlords and Tenants. Landlords can secure a stable income stream and minimize their involvement in property management, while Tenants can have more control over the property and potentially lower costs. It is essential for both parties to understand the potential downsides of triple net leases, such as financial risks and increased expenses. As with any real estate transaction, it is crucial to carefully review and negotiate the lease terms to ensure a mutually beneficial arrangement.

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The Rise of Florida Commercial Real Estate Market Trends

Florida's commercial real estate markets poised for continued growth - South Florida Business Journal

 

The Rise of Florida Commercial Real Estate Market Trends

The Commercial Real Estate market in Florida has experienced significant growth and change over the past few years. Due to the state’s favorable business climate, growing population, and low taxes have made it an attractive destination for companies looking to expand or relocate. We will discuss five of the current trends in Florida’s Commercial Real Estate market.

Growth of the Industrial Warehouse Sector

With The rise of e-commerce and online shopping and specifically service-based industries in Florida,  the demand for warehouse and distribution facilities has increased significantly. As a result, developers are building larger and more sophisticated industrial buildings to meet this demand. According to CBRE Florida ranks third in the nation for the total square footage of new industrial construction.

Flight To Quality and Flexible Office Arrangements 

The growth of remote work and the gig economy, many companies are seeking flexible workspace solutions that can accommodate their changing needs. Co-working spaces, which offer shared office space and amenities, have become increasingly popular in Florida’s urban areas. We are calling a “flight to quality” for companies who are choosing to lease office space in locations with buildings that provide amenities for Tenants and located where their ideal employers live, work and play. In Tampa, we are seeing this example in Westshore and Downtown Tampa. 

The Hospitality Sector Has Bounced Back and There Is No Looking Back

Florida’s tourism industry continues to thrive, with record numbers of visitors each year. According to Visit Florida, the state’s official tourism marketing corporation, Florida welcomed a record-breaking 135.5 million visitors in 2022. As a result, developers are building new hotels and resorts to meet the demand. Additionally, there is a growing trend of mixed-use developments that combine hotel, residential, and retail space. In Tampa Bay we have experienced an influx of new restaurants in Downtown Tampa’s Water Street community and Midtown, both mixed use developments which opened their doors to Tenants and patrons in the past two years. 

Retail Isn’t Dead, It Might Look a Little Different Though

Florida’s retail sector has been impacted by the growth of e-commerce, with many brick-and-mortar retailers struggling to compete. Fair to say we will be seeing changes in malls and the reuse of some of the big box Tenants being reimagined to smaller footprints and more experienced focused purposes. 

Florida’s favorable business climate and growing population have created opportunities for retail developers who can provide unique shopping experiences. According to Macro Trends Tampa Bays Population was 2,945,000 in 2022 and currently 2,977,000 in 2023. For example, outdoor shopping centers that offer dining, entertainment, and community events have become popular in Florida’s urban areas. Midtown which is centrally located between Westshore, South Tampa and Downtown Tampa is a prime example of new national retailers and restaurants who have expanded into Tampa Bay. 

Race for Multifamily Developers

Florida’s population is projected to continue to grow, with many young professionals and retirees moving to Florida. As a result, developers are building new apartment buildings and condominiums to meet the demand. Tenant’s are demanding convenience and desiring more than an apartment but built in a community with a small grocery and other day to day needs. No longer are the days where developers are delivering apartment complexes without a retail component for their Tenants.

Florida’s commercial real estate market is evolving to meet the increased demand by population growth plus the lack of existing housing. Florida’s  favorable business climate and low taxes are playing a key role in driving the economy forward. Developers are building larger and more sophisticated industrial buildings, co-working spaces and flexible office arrangements are becoming increasingly popular, and the hospitality, retail, and multifamily sectors are all experiencing growth. As the state’s economy continues to thrive, it is likely that these trends will continue, creating opportunities for real estate investors and developers in Florida.



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Florida Top Population Growth

 

Census: Florida defies decline in population growth; nation becomes more diverse

The Sunshine State took the top place for the first time since 1957 in terms of the nation’s highest population growth, according to estimates issued last week by the U.S. Census Bureau Florida saw the country’s most substantial growth. Its expansion revitalizes the economy and makes Florida more appealing and competitive worldwide. The third-largest state in the US had a population growth of 1.9% between July 2021 and July 2022, adding more than 400,000 people to the state’s 22.2 million total, according to Ian Hodgson of the Tampa Bay Times. According to these experts, most people moving last year were older U.S. residents nearing retirement age. 

Remote working increased during the Pandemic in 2020, creating an influx of individuals relocating to Florida to take advantage of the flexibility. We have seen the younger generation moving to Florida in recent years selling their homes in more expensive areas like New York and California. This younger generation is purchasing cheaper properties in Florida. “Cheaper” is no longer what it once was due to the competition for scarce homes brought on by out-of-state money. Comparing prices in the states where transplants are leaving (California and New York), Florida’s record-high numbers are appealing unless you are an existing Florida resident. 

Throughout 2022, South Florida had a decrease in the number of vacant commercial properties, while vacancy rates rose in cities like New York, there were 57,488 New Yorkers who relocated to Florida. It is nothing new, as New Yorkers have been moving to Florida forever. In fact, New Yorkers want to take advantage of cheap taxes, pleasant weather, and a supportive business climate. 

There are two top factors luring people in higher income brackets to Florida. The absence of personal income tax, one of the few states in the US that exempts its citizens from paying state income tax. The overall state tax burden in Florida will be far lower than the majority of states, even with paying sales and property taxes. Secondly,  lifestyle reasons with weather, sandy beaches, amusement parks and outdoor activities. Income for remote workers in these higher income brackets, can go a longer way in the State and enhance their lifestyle as a whole.

Despite the many reasons people are moving to Florida, there are also challenges associated with population growth. As more people move to the state, there is increased demand for housing, transportation, and public services. This can lead to issues such as overcrowding, traffic congestion, and strains on infrastructure.

Overall, Florida’s population growth is a complex issue with both positive and negative impacts. While it has brought new economic opportunities and lifestyle benefits, it has also created challenges related to infrastructure, the environment, and the quality of life for residents. As the state continues to grow, it will be important to carefully manage these issues to ensure that Florida remains a desirable and sustainable place to live for generations to come.