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Why Did Common Area Expenses (CAM) Invoice Increase?

What are Common Area Expenses?

If you are looking for office space to rent in Tampa, this information will be most helpful to you. Common Area Maintenance (CAM) refers to the shared upkeep and maintenance costs for the common areas of a property. Several examples of common CAM include:

  • Utilities
  • Lawn care and landscaping
  • Bathrooms
  • Sidewalks
  • Elevators
  • Unique property needs such as administrative costs, building repairs, property management fees, property taxes and insurance

Commercial real estate throughout the state of Florida has experienced record highs in two main categories which are causing increases in CAM. Whether you’re looking for a small office space for rent in Tampa or a large office space lease near downtown Tampa, an increase in CAM can impact you. Both categories that have increased are what we in the commercial real estate world refer to as uncontrollable, which are Real Estate Taxes and Building Insurance.

Real Estate Taxes:

Especially, if you are renting space within city limits in Tampa or St. Petersburg, the real estate taxes are higher than those within Hillsborough county and surrounding Pinellas, Pasco and other counties. The specific location of your office space in the greater Bay area can be a factor into your increased CAM.

Insurance:

At the time this blog is being published, there are approximately less than twelve insurance companies that are writing insurance policies for commercial buildings in Florida. The increased hurricane activity over the past three years has caused insurance pricing to increase to the point where insurance companies are removing Florida from their coverage list.

What can you do as a Landlord?

It pays to do due diligence when it comes to selecting who insures you. Shop around to get pricing from several companies and if you own more than one property, bundling insurance can often give a discount. Happy tenants lead to happier Landlords. As such, it is in your favor as a Landlord to keep the CAM invoice from increasing when possible. 

What can you do as a Tenant?

When looking for commercial space, having a Landlord who owns multiple commercial properties might not a better deal on insurance premiums. Especially the larger Landlords in Florida and those who may own buildings across the country can actually lead to a higher CAM for you. Keep this in mind as you search for your best fit for an office space to rent. 

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A Key Resource for Commercial Real Estate Buyers and Sellers

In the world of Commercial Real Estate, a Commercial Real Estate Office Broker, whose primary focus is representing office space, is a key resource for Buyers and Sellers alike. Commercial Real Estate brokers specialize in buying, selling, and leasing commercial properties, such as office buildings and industrial warehouses. Expertise and experience assist clients navigating the complex world of Commercial Real Estate,  and make informed decisions about their investments.

One of the key benefits of working with a Commercial Real Estate broker is their deep knowledge of the local market. Brokers have their finger on the pulse of the local commercial Real Estate market and can provide valuable insights into trends and opportunities. Office Brokers guide Tenants and Buyers uncover properties that meet their specific needs, budget and can provide Landlords and Sellers with accurate valuations and marketing strategies.

In a Commercial Real Estate office, Office Brokers work with clients to identify their objectives and develop strategies to achieve their goals. For Buyers, this might involve identifying properties that are likely to appreciate in value or Tenants, negotiating favorable lease terms. For Sellers, pricing the property appropriately, staging it for sale, and Landlords, developing a comprehensive marketing plan.

One of the key roles Commercial Real Estate Brokers play is that of a mediator. Commercial Real Estate transactions can be complex and often involve multiple parties, including Buyers, Sellers, lenders, and attorneys. Brokers act as a bridge between these parties, facilitating negotiations and ensuring that all parties are on the same page.

Commercial Real Estate Broker offices are not without their challenges. Managing multiple transactions simultaneously, while also staying up-to-date on changing market conditions and industry trends is a fast-paced environment that is not for the faint of heart. Brokers must also understand best practices for work environment culture, be skilled negotiators, able to navigate complex deals and resolve conflicts that may arise.

Despite these challenges, Commercial Real Estate Broker offices remain a critical resource for Tenants, Buyers, Landlords and Sellers in the Commercial Real Estate market. Whether you’re looking to buy, sell, or lease a property, working with a Commercial Real Estate Broker can provide you with the expertise and guidance you need to make informed decisions and achieve your goals.



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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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All You need to Know About Operating Expenses In Office Space Lease

 

What Are Operating Expenses In Office Space Lease?

Operating Expenses are the expenses to operate the building. The Landlord has an annual budget and typically reconciles by June of the following year. A good Landlord stays within or close to their budget each year. Depending on the type of lease structure (Full Service, Modified Gross, or Triple Net) determines if a Tenant is just responsible for the pass thru only or the entire Operating Expense. Read more about the three most common lease structures here.

Why does this matter?

When you sign a new lease your base year is established. You always want the highest base year. Why? Each Tenant is responsible for any pass thru overage from the Landlord based on the prorated percentage of their sf of their suite being leased in the building. Having the highest base year minimizes the amount of this potential pass thru.

How can we evaluate the consistency of the Landlord operating within or close to the Operating Expense budget?

  • During Lease Proposal negotiations, requesting the two previous year’s Operating Expenses budgets and reconciliation will be a good indicator of the Landlord’s budgeting consistency.
  • Once the Landlord’s consistency is verified, a strategy to minimize any potential pass thru is to cap the controllable operating expenses i.e. management fee, cleaning, improvements on the building, etc. We discussed the importance of reviewing the Operating Expense reconciliation here. We once saved a Tenant tens of thousands of dollars who had been overcharged for a few years by a Landlord “passing thru” expenses that were not application to the Tenant’s lease. Reconciliation is one of the more overlooked areas of fiscal stewardship when leasing office space.

The above is just scratching the surface of what is entailed in Operating Expenses.
Having a Tenant Representative on your side will give you an advantage when evaluating operating expenses in different buildings. Give our team at Office Space Brokers a call 813-289-3700, for a complimentary consultation to strategize your company’s office space.

Types of Leases

There are typically three primary types of real estate leases, each with its own set of benefits and drawbacks. You must read the lease specifics thoroughly so that you know what to expect in any circumstance. Full Service, Modified Gross, and Triple Net leases are the three most frequent forms of leasing.

Full Service: 

A lease form in which the landlord is liable for all of the property’s operational expenditures.

Modified Gross: 

In which the tenant pays a flat rate for the space.

Triple Net:

Where The Tenant pays all the expenses of the property to the landlord.