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Why You Need A Commercial Real Estate Broker To Represent You, Even When You Know The Landlord

Venturing into a new office space lease can feel intimidating. There are so many questions you may have, concerns about things unknown. That’s why having a Commercial Real Estate Broker working on your side is crucial to a successful journey in finding your next office space for rent in Tampa.

Landlords will always have their best interest in mind as the owner and investor of the building. Brokers, on the other hand, are working with your best interest in mind. Even when you have a good working relationship with the Landlord, they are still focused on protecting themselves and their property first and foremost at the end of the day. You could be in a position of thinking you are getting a pretty good deal on your lease and your commercial property for rent in Tampa but are you really? Here are a few things to consider:

Are you aware of current marketing conditions, concessions by Landlords and standard business terms? 

Do you have comparisons to a deal on the table with other possible small office space for rent in Tampa?

When you have concerns about a potential space, who is going to give you honest feedback and real insight about what will work best to meet your real estate needs?

When you don’t have the full overview of the Tampa Bay real estate market, it’s nearly impossible to really get the best possible lease. That’s why having the right Broker can educate you on the market as a whole and advise on business points they are experiencing and seeing at competing properties. Understanding what is a market norm is very important in negotiating a commercial lease and choosing which Landlord to have a long-term business relationship. 

Commercial Real Estate Brokers are also skilled in negotiating terms. They will seek to get you the office space of your dreams with a lease and terms that are not full of deal breaking concessions. Your Broker will help ensure that you are not paying exorbitant Common Area Expenses, hidden fees and other thumbs-down terms but instead that you are treated to a fair lease with all the amenities, parking spaces and square footage you need.

When you need an office space, you need Office Space Brokers.

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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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Operating Expense Reconciliation

 

 

What exactly is operating expense reconciliation, and why is it becoming increasingly important in the Tampa market?

As a Tenant in a commercial building in Tampa, you may be familiar with receiving an invoice from the Landlord for the reconciliation of the building’s operating expenses from the previous year. Typically, by May of each year, the Landlord will send you a notice with an invoice for any amount owed or a credit to your rent. If you are in a Full Service or Modified Gross lease, what are you receiving an additional invoice or credit in the first quarter of the following year?

Operating expense reconciliation is the process by which a Landlord calculates the actual operating expenses for a building over the previous year by reconciling the estimated budget expenses which were used for the Base Year of a lease compared to the actual expenses of the building for the previous year. The difference between the estimated expenses and the actual expenses is known as the “reconciliation amount.” If the actual expenses were higher than the estimated expenses, the Landlord will send an invoice to a Tenant for the amount due above the Base Year. If the actual expenses were lower than the estimated expenses, the Landlord will usually apply a credit of that amount to the monthly rent.

Why are operating expenses more crucial in the Tampa market? 

Hurricanes are a common occurrence in Florida, and the resulting damage can be significant and dramatically increase building insurance.  Hurricane Ian in 2022, insurance rates for commercial buildings in Tampa have been increasing dramatically over the past few years. Secondly, the value of commercial buildings has increased, especially in the City of Tampa, therefore so have the Real Estate Taxes. 

Landlords are responsible for holding an insurance policy on the building and passing on the cost of insurance to Tenants as a part of the building’s operating expenses. Depending on the type of lease you have, these pass-throughs will impact Tenants differently. A Full-Service lease, the rent includes the Tenant’s operating expenses, including insurance and are only responsible for the portion above your base year. 

If a Tenant has a Modified Gross lease with an Expense Stop, rent includes a certain amount for operating expenses that was agreed upon in the lease, and any expenses above that amount are passed on to the Tenant. For example, any increase in insurance rates will only impact a Tenant if the actual expenses exceed the expense stop.

How can Tenant’s prepare for operating expense reconciliation in the Tampa market? First and foremost, understand the terms of the lease and how the operating expenses are calculated. Always reach out to the Landlord or Property Manager with questions or concerns.

Consider negotiating the lease terms at renewal or when signing a new lease to establish the highest Base Year possible. For example, if you have a Full-Service lease, negotiating a cap on the amount rent can increase due to operating expenses. These caps often exclude non controllable expenses i.e. Real Estate Taxes and insurance but can still be beneficial. A Modified Gross lease, negotiating a higher expense stop can aid in avoiding additional pass throughs. 

Building operating expense reconciliation is a critical part of commercial leasing in the Tampa market, and it is becoming even more important due to the impact of hurricanes on insurance rates. Tenants must understand lease terms and how operating expenses are calculated. 

If your commercial lease is ending soon or questions on your operating expense pass through reconciliation, give us a call for a free consultation: 813-289-3700.

 

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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.