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Decrypting the Jargon

Net Lease or Triple Net Lease: Refers to the Tenant's financial share of the operating expenses of the real estate. Lease Rates are often quoted on a dollar per square foot basis. Leases can be plus utilities; Net, Net, Net or a combination of the two. Generally Nets are made up of real estate taxes, insurance on the property and C.A.M.

Gross Lease: Leases can also be quoted at gross rates, meaning that all utilities are included and the only cost in addition to the square footage rate will be janitorial services within the Tenant space. However, some leases include janitorial fees as well. Class A office buildings are most often the sites where lease rates are quoted on a gross basis.

C.A.M.: Common Area Maintenance charges, or C.A.M. charges encompass everything from landscaping/snowplowing to parking lights, to janitorial services in common areas (entrances and hallways, elevators)

1031 Exchange: Tax deferred exchange, a 1031 allows certain capital gains to be reinvested within a specific time period so that the gains taxes are deferred. Proceeds from the sale of real estate must be handled by a 1031 exchange specialist, and potential reinvestment sites must be identified and closed within specific time constraints: usually 45-90 days to identify potential properties to purchase and 180 days to close on one or all of them. Recommendations and guidance about 1031 exchanges are best provided by a competent accountant who works in this field regularly.

Phase I (Environmental) Survey: Environmental surveys are typically required by conventional lenders in Connecticut, when the purchase of a piece of Commercial or Industrial Real Estate is being financed. These reports are needed to comply with the Connecticut Property Transfer Act, relating to Commercial/Industrial properties. Environmental Engineering firms who conduct these surveys, can be found in every county in Connecticut, however, we often recommend firms that we've found to be helpful and ethical with their past work. Briefly, a Phase I survey is the starting point for research into a property's Previous Uses and Environmental history. It begins with a physical inspection, walking the property to look for signs of contamination, such as surface stains and the like. Research continues with the search of all DEP records relating to the property and the history of all previous owners and uses, as well as a report on existing land conditions.

Cap Rate (Capitalization Rate) - The percentage used to determine the value of income through capitalization. Capitalization, specifically, determines the present value of a building by taking the annual net income and discounting by using the rate of return acceptable to Buyers of similar properties. Example: Net income of a property is $100,000. per year. Using a 10% Cap Rate, the property would be worth: $1,000,000.

Contingency - A condition that must be met before a contract is legally binding. If a zoning change is necessary in order that a Prospective Buyer can operate a business, or make certain improvements, a contract will be written contingent upon Zoning Approval.

Due Diligence - Generally refers to the homework that the Buyer and Seller do during the period after a contract is signed, but before the closing of the transaction. This homework can include items such as zoning work, environmental surveys, physical inspections and the like.

Letter of Intent - An informal method of stating a Prospective Tenant's or Buyer's interest in a property. It is neither binding, nor a legal document in the contractual sense, but demonstrates a prospect's good faith interest. In the case of a Lease, a Proposal to Lease may be used in place of a Letter of Intent.

Right of First Refusal - A right usually given by an owner to a lessee, which gives the lessee the first chance to buy the property, should the owner decide to sell. The Owner must have a valid offer (in writing) which the lessee can match or refuse to match, in which case the sale will go through with the original offeror. In multi-tenant buildings, a right of first refusal can also apply to spaces for lease, whereby a lessee will have the right to expand into future available spaces in the building or pass it up.

Tenant Improvements - Also known as "Build-Out", these are improvements such as walls, additional plumbing, built-ins, HVAC changes, structural changes and so forth, that meet the needs of the Tenants. These improvements can be paid for by the Tenant, the Landlord, or both parties.

Real Estate Professionals in the Commercial/Industrial Field don't sell houses; we work solely in the business field. We'll guide you through Phase I evaluations, discuss your power needs, load limits for floors, Tenant or Buyer build out plans, the impact of brownfield properties and whether you need a vanilla box for your retail shop, or a cottage. As Commercial/Industrial Agents, we work in the spaces that house your business.


October 25, 2016

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