Commercial Property, 10 must-know terms
Category Property
Commercial property investing, purchasing and leasing, involves many different terms and concepts that can be overwhelming for beginners. Understanding these terms is essential when investing in commercial property.
Here are 10 must-know terms to help you navigate the complex commercial property market:
Gross Lettable Area: Gross lettable area (GLA) is the total area of a building that can be rented out to tenants. It includes both the floor area and any shared spaces such as staircases, corridors, and lifts.
Net Lettable Area: Net lettable area (NLA) is the area of a building that can be leased to tenants. It is calculated by subtracting the areas taken up by shared spaces and services such as lifts, staircases, and restrooms.
Cap Rate: The capitalization rate, or cap rate, is the rate of return on an investment property based on the income that the property is expected to generate. Cap rates are a way to estimate the value of an income-generating property, with lower cap rates indicating higher value.
Gross Lease: A gross lease is a lease in which the tenant pays a fixed rental amount, and the landlord is responsible for paying all property-related expenses, including taxes, insurance, and maintenance.
Net Lease: A net lease is a lease in which the tenant pays a lower rental amount, but is responsible for paying some or all of the property-related expenses.
Escalation Clause: An escalation clause is a provision in a lease that allows for the rent to increase over time to keep pace with inflation or other economic factors.
Due Diligence: Due diligence is the process of investigating a property or a deal to ensure that all aspects of the property or deal are in line with the investor's goals and expectations.
Loan to Value (LTV): Loan to value (LTV) is a ratio that lenders use to assess the risk of a loan. It compares the amount of the loan to the appraised value of the property, with higher LTV ratios indicating higher risk.
Beneficial Occupation: Beneficial occupation is the right of a tenant to occupy a property before the lease is fully executed, typically after certain conditions are met.
Tenant Installation Allowance: A tenant installation allowance is a financial incentive offered by landlords to tenants to help cover the cost of renovating or modifying a commercial space to suit their business needs.
Navigating the commercial property market can be challenging, but understanding these 10 must-know terms can help you make informed decisions and protect your investment. It is also advisable to consult with a trusted commercial property broker at Fundation Property prior to making any decisions. We are here to help.
Author: David Asbury