Hey, Business Bankers! If You Need CRE Loans To Meet Your Production Goals, You Need To Know The Basics Of CRE Leases!
Jan 17, 2023Business Bankers that win over prospects and referral sources are those that sound like business banking professionals (aka Business Banking Rockstars)…not like product pushers! Your prospects and referral sources want to know what you can do to help them. The fastest way to make a good impression and win them over is to serve up valuable insight right out of the gate. If you are talking commercial real estate with a prospect or referral source, you need to know the basics of CRE leases in the event in comes up in conversation! I found a short article that does a great job of describing one of the types of CRE leases: NNN leases. I have included a link to the article below. I have also included some quick nuggets of knowledge on CRE leases to help you sound like a Biz Banking Rockstar!
CRE Lease Types:
- Full Service (Net Lease): requires the tenant to pay all or a portion of the real estate taxes. A single-tenant building requires tenant to pay all real estate taxes. In a multitenant building the taxes are prorated based on square footage.
- Modified Gross (Net Net Lease): includes charges of a Net Lease plus a charge for insurance on the building.
- Gross Lease: the tenant pays a fixed charge and the landlord is responsible for building maintenance, insurance, taxes, and operating expenses.
- Triple Net (Net Net Net Lease): the tenant pays all the costs of the building including maintenance, repairs, grounds keeping, snow removal, and the like.
Other Terms You Should Know:
Lessor: owner of the property that rents it to another party.
Lessee: the party that rents from the lessor.
Ground or Land Lease: a lease situation where an individual or businesses lease land from another individual or business. The lessee can build on the property. However, at the maturity of the lease, any improvements on the land covered by the ground lease revert to the lessor. It is not a preferred situation to lend against collateral/building located on land covered by a ground lease. Lender will likely need to get legal opinion on ground lease before proceeding. The lessor may be required to sign a subordination, estopple, or joinder agreement acceptable to the bank to ensure proper payment, occupancy and foreclosure rights.
Leasehold Improvements: improvements by lessee to a leased asset. Things such as walls, air conditioners, and shelves that are added to leased space.
Lease Subordination Agreement: has the effect of terminating a lease upon foreclosure.
Subordination Non-Disturbance & Attornment Agreement (SNDA): agreement between the bank and the tenant that the lease will remain binding upon both parties after a transfer of title via a foreclosure.
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Article Title: The Benefits of Investing in a Triple Net Lease
Article URL: https://techbullion.com/the-benefits-of-investing-in-a-triple-net-lease-property-via-net-lease-world/
