Real Estate Definitions

Commercial Real Estate Terms

Commercial Real Estate Terms

Net Rent or Basic Rent

The Net rental rate of the lease, or “face rate”, paid by the tenant over

the term of the lease and varies between building classes. For lease

terms of ten years, there is typically a mid-term escalation for the second

five years of the lease

Class A: Over $25 net per square foot

Class B: Between $10 and $25 net per square foot

Class C: Less than $10 net per square foot

Additional Rent

Those recurring expenses that are essential to the continuous operation

and maintenance of a property. Operating expenses are generally

divided into the following categories: Fixed expenses such as real

property taxes and building insurance; variable costs such as utilities,

payroll, administration and property management fees; and reserves for

replacement. Operating expenses do not include items such as

mortgage payments, capital expenditures and depreciation.

Class A: Over $20.00 per square foot

Class B: Between $15.00 – $20.00 per square foot

Class C: Less than $15.00 per square foot

Net Effective Rate

This is the base rate paid by the tenant less the value of any free rent

period and cash inducement to build out the space. The value of these

incentives, normally given at the beginning of the lease term, is

amortized over the term at a stated interest rate.

The term is generally used by the landlord as a benchmark comparison

of lease transactions. It can be misleading if tenants are comparing raw

space (requiring higher landlord improvement allowances) to already

improved space.

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