Hi. Just trying to get myself firm on a few things. I'm shopping a commercial retail buyer. She wants to open her own dog accessory shop and has a back up plan to lease the space we will purchase in case things don't work with the dog biz. So, I'm establishing market values for rents. If someone advertises a space as lets say $22/sqft NNN does that mean the $22 includes maintenance, taxes, & insurance or does it mean that the NNN expenses are on top of the $22?

TI - How do I approach a seller about TI? Should I ask them if lets say their list price of $279K includes a $25/square foot allowance for TI? What level of finish can I expect in a shell? Do most sellers advertise their list price without TI cost?

First thing you need to do is find out if there is a DEMAND or such a business in the area.If there is what does the competition look like?How many similar businesses are in a few miles radius.What do the demogpahics say about the immediate area??Are there alot of pet owners that live closeby in homes?YES data companies do have this information available.

Next is the place for rent in the city limits?If so they might have approval for only certain kinds of businesses they will give a liscense for plus you might get hit with additional impact fees being in the city limits.Yes NNN usually means the price quoted includes cam,etc. but you would check the lease agreement before anyways with your due diligence period.

I am brain dead so I don't know what TI is.

good luck-no legal

TI= Tenant Improvement.

You mention TI in relation to a seller...are you talking retail space for lease or for sale? If for sale, you won't be seeing any TI. If lease, you will have to negotiate TI. TI on a lease is going to depend on lease rate (if below market rate, expect little to no TI, if above market rate, expect better TI). The owner's willingness to make TI concessions is going to be a direct reflection upon the lease rate, escalation terms, duration of the lease, credit worthiness of tenant, etc. Really...TI is usually a deal by deal basis and something you will just have to negotiate.
As for finish level of shell...usually just a white box...sheetrocked walls, mechanicals in place, etc.

Also, in my experience, a NNN lease traditionally has meant that the lease rate was not inclusive of taxes, insurance, and maint. of sturcture. Gross leases will include those amounts but usually the NNN leases don't and it is the responsibility of the tenant to handle those items.

For a small start up business i would recommend getting them in a gross lease scenario whereby they are not having to directly handle taxes, maint. of shell, etc. But- as Super said...get copies of actual leases or talk it through with the property owner or their broker what they mean by NNN and what is or is not included in that pice (CAM, etc. etc.).

Please excuse my lack of clarity. This is a purchase situation where I am representing the buyer who is looking for a commercial retail space.

So if we're purchasing, we'll just get the box? No TI with a purchase eh? Makes sense... "Tenant" improvement, duh. NNN does not apply either I guess.

Super realtor... can you tell me of a data company that could assist my client in establishing some of the demographics neccessary to evaluate?

Great information everyone. Thanks for your assistance!

claritas is one-I have a list but can't find it at the moment.

Watermark is right on- Gross lease includes taxes, insurance, etc. Triple net (NNN) means there is a fee for taxes, insurance, etc. So, if you are leasing 1,000 SF at $22/SF NNN- that's $22,000/year. The NNN or Common Area Maint. (CAM) charge may be $4/SF- or another $4,000/year. If it were $22/SF Gross, the $22,000 would cover everything (except utilities usually- but not always)

NNN leases are landlord friendly. The taxes, insurance, maintenance, etc. are passed directly to the tenant. In a retail situation, the items are typically prorated to the proportionate user's space quarterly to yearly. This means that the landlord can also add in their management fee to the NNN expenses.

Tenant Improvements are typically based on a set $/SF amount provided by the landlord (unless they are item specific - i.e. put in additional door on south wall). If the cost of tenant improvements exceeds the allowance, then it is either amortized out if paid by landlord, or the tenant is responsible for any costs out of pocket.

An example is the cost of TI's is $28/SF for a 1,000 SF shop. The landlord offered a TI allowance of $15/SF. The tenant would have to pay the contractors the $13,000 difference out of pocket.

My advice to you is if you want to do what is right for your client, turn him/her over to an investment specialist. There are a lot of big things that a person not familiar with the product can overlook. For instance loan assumptions, true NOI vs. ROI vs. effective CAP rate, and more.

Also if you could clarify, if they are going to be an owner/user for a dog accessory shop, why would they charge themselves rent and TI's?

Any TI's that the buyer wants would be in addition to the negotiated purchase price unless you are getting creative financing. At that point, the TI's roll into the mortgage or cash purchase price and are still out of pocket to the buyer.

If there is a silent partner or dual entities on your buyer's side, this might make more sense, but at that point it is a better question for an accountant on the best way to shelter them against taxes.