Basic Rental Rate (“Basic Rent”)
The per square foot rental amount payable by a Tenant to a Landlord on a per annum basis throughout the term of a lease. May also be referred to as “Face”, “Basic”, “Base”, “Net” or “Minimum” rent/rate.
Net Effective Rental Rate (“NER”)
The Landlord’s “bottom line” return expressed as an annuity after allowing forThe Landlord’s “bottom line” return expressed as an annuity after allowing for all tenant inducements and direct marketing costs (e.g., Improvement Allowance, Free Rental Periods, Brokerage Fees). For example, consider a lease of a 100,000 SF industrial facility with a 10% office component, with a Net Rental Rate over a 10 year term of $5.00 PSF per annum, a $25.00 PSF Improvement Allowance for the office component. Using a 9% discount rate, the NER would be calculated as follows:
Net Rental Rate: $5.00 PSF
Less: Amortized Improvements ($0.37) PSF
NER $4.63 PSF
The Tenant is responsible for the costs over and above the Net Rent. These costs include Realty Taxes, basic building maintenance and insurance. Expressed as an estimated per square foot per annum amount for a specific calendar year. Utilities are typically separately metered and charged on a consumption basis. It should be noted that Additional Rents are estimated only, charged as a flow through by the Landlord to the Tenant and are subject to adjustments based upon the actual amounts incurred.
Note that industrial landlords often only quote taxes in building asking rates.
When this is the case it will be identified as such in the survey.
The sum of the Basic Rent and Additional Rent. May be expressed per square foot, or in total over a period of time; i.e., the entire lease term.
Tenant Improvement Allowance (“TI”)
An amount provided by the Landlord to the Tenant in order for the Tenant to pay for the costs of completing its leasehold improvements in the premises. Usually incorporated as a component of the Basic Rental Rates, amortized over the term of the lease using an applicable discount rate.
Net Present Value (“NPV”)
The proforma cash flows implied by the quoted rental costs are discounted on a compounded annual basis in order to derive the value of a given lease commitment in “today’s dollars”. The benefit of this net present value analysis is that it creates an objective baseline method of comparing prospective lease commitments that may have varying rental amounts over the lease term.
The rate of interest used in Net Present Value calculations, usually based upon typical rates used by landlords in the market place
Building Quality Classifications
A subjective building categorization system is utilized in the office building environment. The category descriptions are useful as a guideline with the understanding that there is no official listing of such ratings. Buildings are typically categorized based upon location, age, HVAC system, image and building finishes.