Commercial Real Estate Terms You Need To Know
- If you read my previous post, The Top Ten Commercial Real Estate Terms You Need To Know, you may recall that I mentioned that there is an endless list of commercial real estate terms you will inevitably encounter. In order to expand on that list, I wanted to do a continuation of that post with some additional – and equally important – commercial real estate terms that are important to your success.
There are three classes of buildings known as A, B, and C. Class A buildings are among the newest in the market. They are typically located in desirable areas and are known for good maintenance. Class A buildings are highly sought after by some tenants, and may also be the most expensive to buy or lease.
Class B are average buildings with fewer amenities. Class B buildings will be less expensive to buy, have lower lease rates and are in a less desirable location.
Class C buildings were built more than 20 years ago, and they tend to need a lot of improvement and repairs. Class C buildings are the cheapest buildings to buy or lease, but typically will require a lot of renovation expenses that may even include zoning and permit renewals.
In order to determine the parking ratio, take the total rentable square footage of the building and divide it by the total number of parking spaces. The lease contract should include how many parking spaces will be available for each tenant.
Return on Investment (ROI)
ROI is the calculated benefit of an investment (called the return), divided by its cost. The ROI is impacted by several variables, such as renovation and maintenance costs, and how much was originally borrowed in order to invest in the property.
Capitalization Rate (Cap Rate)
The value given to the property when the Net Operating Income (NOI) is divided by the current market value or sales price. A cap rate can be used as a rough indicator of how quickly an investment will pay for itself. The higher the cap rate, the better.
An agreement in which one broker has exclusive rights to represent the owner or tenant. If another broker is used, both the original and actual broker are entitled to receive the leasing commissions.
A listing given to any broker without liability to compensate any broker except the first one to secure a buyer who is ready, willing, and able to meet the terms of the listing. Acceptance by the landlord of a satisfactory offer will result in the commissions being paid to the broker who finalized the deal.
Tenant Representative (Tenant Rep)
This is a commercial real estate agent who represents the tenant instead of the landlord. They help identify the space a tenant needs and negotiates with the landlord on the tenant’s behalf. Tenant reps earn their fee by splitting the commission with the leasing agent. They can also help resolve tenant-landlord disputes and serve as an intermediary for tenants.
Landlord Representative (Landlord Rep)
This is the leasing agent. They represent the best interests of the owner or landlord and are responsible for obtaining the highest amount of rent with the least amount of expense and risk. A landlord representative is authorized to negotiate with the tenant or tenant representative on behalf of the landlord, to secure a rental agreement that details rental costs, security deposits, tenant improvement allowances and other concessions. They often have a lot of experience and will negotiate the best possible deal for the owner or landlord.
A landlord or owner will most often sign an exclusive listing agreement with a commercial real estate agent. Co-brokering occurs when two agents are working together on a deal. These two agents are usually on the same team or work in the same office together. One agent represents the landlord (or seller) and the other agent represents the tenant (or buyer). The commission is split between both agents once the deal is completed.
This is a fee paid from one broker or agent to another when they refer a client. Typically, this is a percentage of the total commission. This is different from a co-broker. A co-broker is actively trying to lease or sell a property in order to secure a commission. A referral fee is paid when a broker simply refers a client to another broker. This usually happens when an agent or broker has a client in an area they are not familiar with.
Commercial real estate terminology can be intimidating and a challenge to learn when you’re new to the industry. As a ClientLook commercial real estate CRM subscriber, you will encounter these terms within our software. You can also create custom fields to suit your specific needs. ClientLook is proud to be the only all-in-one CRM built specifically for the commercial real estate industry. See how our software can take your business to the next level by scheduling an overview or signup for a free trial.