NNN lease questions

[Adam Craig]

We are rehabbing a 6 unit office building - or possibly 4 units if tenants combine spaces.

After years of residential experience this is my first in commercial. I initially planned on hiring a commercial agent to help lease the property. But after meeting with one we decided I will just give them a referral fee if they bring me a tenant since I dont want ongoing management.

Reason being is because we already have our in houses management team, website, marketing materials, photographer,  ect... I guess I was mostly interested in picking their brains on lease structures and going rates.

Now that I am going in on my own I have a couple of questions.

1. Should I do gross lease/NNN/hubrid? The agent I asked about it didnt give me any clear cut answer. He said they have clients that do both. This property is in an extremely desirable downtown suburb location. After doing some comparable research in the area, I figure $1.00 - 1.50 /sq/ft is the going rate. Taxes are about $6500/year, insurance $1400.

2. When charging tenants by square feet - do you include stairs, hallways, storage closets, baths when coming up with this figure it they are going to be exclusive to the tenant?

[Richard W.]

This is such a good topic with so many incredible replies that I'm not sure I can add much more value to it but here goes.

I've been a commercial landlord/manager for 20 years, with spaces as small as 300 sqft to as big as 100k sqft and everything in between.

In my experience, the smaller mom and pop operators care mainly about the monthly check they cut, regardless of the metrics that go into determining the amount of the check. Some may care for a break-down, but it's casual at best.

Now, dealing with the national guys, regardless of size they are leasing, is an entirely different ball game. Don't mean to discourage you from doing your own legwork, but when it comes to these guys, even a seasoned commercial agent won't save you from their legalese and their somewhat predatory terms. Unless you've been doing commercial leases for a while and earned your stripes in the legal world of lease negotiations and litigation, I'd HIGHLY recommend you get an independent party to look over the lease.

Recently I signed up a national tenant that was taking up about 2% of a very popular plaza I own. Even when I insisted on using my own lease for that particular plaza, they still came back with language markup that made my fairly well experienced head spin. It was so badly butchered that I almost walked walked away from the deal, reminding them that they are only leasing 2% of the total square footage. That's when they yielded and agreed to a THREE hour conference call to 'iron out differences'!

Moral of story, dealing with a small local operator, go nuts. Dealing with a sophisticated national operator, get some SERIOUS help on your side or you'll live to regret it, I promise you.