This 3 part series breaks down the complex topic of commercial lease comparisons by detailing basic concepts as well as more nuanced considerations. The case study serves as a practical example to solidify understanding before moving on to additional factors that influence lease decisions. The intent is to both educate and provide a clear path through the potentially confusing terrain of commercial real estate leasing.

Navigating the landscape of commercial leases can feel like trying to solve a complex puzzle with pieces that don’t quite fit together. Whether you’re a business owner seeking the perfect space for your operations or an investor looking to expand your portfolio, understanding the intricacies of lease rates, load factors, and the myriad expenses included or excluded is crucial. This guide aims to demystify these elements, providing you with a clear framework for comparing leases on an apples-to-apples basis.

Part 1: Understanding Lease Types and Load Factors
Lease Types Explained. NNN, Modified Gross and Full Service Rates are just some of the ways lease rates are classified. To add greater complexity, one Modified Gross rate is not necessarily the same as another. The same can be said for NNN Rates and Full Service rates.

Here are some basic definitions of the 3 main types of lease rates.

NNN (Triple Net Lease): In this lease, tenants pay base rent plus their share of property taxes, insurance, and maintenance costs. These additional costs can fluctuate, affecting the overall expense of the lease.

Modified Gross Lease: Tenants pay base rent and some operating expenses, with the lease specifying which expenses are the tenant’s responsibility. The terms can vary significantly between leases, making comparisons challenging.

Full Service Lease: This all-inclusive approach covers base rent and all operating expenses. It’s the simplest in terms of financial planning but often commands a higher lease rate.

The Impact of Load Factors
The load factor, or add-on factor, is crucial in understanding how much space you’re actually paying for. It determines the tenant’s share of common areas, affecting the total rentable square footage versus the usable square footage. Understanding this factor is key to accurately comparing lease rates.

We invite you to share your experiences, questions, or insights on commercial lease comparisons in the comments below. Whether you’re navigating these decisions currently or have wisdom to share from past experiences, your input can help create a richer understanding for all.