Commercial Tenant Type vs Lease Type

[Scott Henninger]

I’m looking at buying a vacant commercial space and considering what might be the best-use tenant. Could vary from ice cream shop to small clothes retailer or office space.

Is there a suggested route to go for lease type vs tenant type? Like a restaurant is best as NNN or office space is straight monthly rent $$/sq ft type of thing?

Or everything just a straight NNN no matter who's in the space?

Thanks!

[Evan Polaski]

To jump onto Russ's comment:

NNN is almost always more beneficial to the Landlord, while gross rent is almost always more beneficial to the tenant. Retailer tenants may be willing to sign a partial % rent deal, i.e. there is a lower base rent, with 1% of gross sales, paid as % rent. This can be a great for a start up retailer, since they have lower fixed costs, and great for you if that retailer does phenomenally well.

If you have a low credit tenant, you may WANT gross rent at a higher rate, since it could be unclear if the tenant will be able to budget for NNNs if they come in higher than escrows.

In my experience though, the preferred lease type is NNN for any commercial lease.

As an aside, if you do some type of retail user, even if not on % rent, I would require sales reports on a monthly basis.  Good to keep tabs of their sales consistently to see signs early if they are struggling.