Can you Negotiate a NNN lease?
An investment in landed interests is attractive for investors who want to invest their money and generate an interesting return. Taking into account the last decade, it is possible to observe a growing interest in Real property Investment with private investors. Commercial property is a solid strengthening of the portfolio for the accumulation of private wealth, especially in regions with a scarce supply of office, storage, or production space.
What are commercial properties?
Commercial properties are structures that are used entirely or mainly for commercial purposes. This is the case if the rooms are utilized to pursue a commercial activity. And, according to the legislature, anyone who intends to make financial gains from their activity follows it. This already applies to the self-employed and freelancers who rent a small office. It also includes the use of rooms and buildings by authorities or public companies.
Commercial real estate in detail: typical commercial areas
Smaller, more widespread commercial properties include doctor’s offices, law firms, shops, and supermarkets. Larger ones are, e.g., shopping centers, industrial and commercial parks, office premises, and hotel complexes.
Basically, these properties are divided into the following categories:
Commercial real estate
Goods are sold in these objects. The spectrum ranges from small shops and supermarkets to specialist markets and shopping malls. In this category, the value of a property depends very much on its location and management. In the top city locations, especially in cities such as Düsseldorf, Hamburg, Munich, and Berlin, you can often achieve very high rental prices with retail properties, which then has a corresponding impact on the purchase and sale prices.
The offers in the market range from a small office floor with a few hundred square meters to a skyscraper with dozens of floors. Here too, in addition to the equipment, the location plays a major role in terms of the value of the property and the amount of the rent. Because more and more companies and freelancers are urgently looking for a workspace, a new trend can be observed in office properties. Foreign and national companies are offering fully equipped office space with a comprehensive infrastructure for temporary rental at more and more locations.
Here the offer is particularly wide, and it includes fitness studios as well as adventure parks, sports halls, and event locations. As leisure behavior changes rapidly, a certain amount of caution is advisable. The musical, which was just a hit, no one wants to see tomorrow. Since the investments for a new use can be immense, so is the associated risk.
Production real estate
Manufacturing processes mostly take place in these properties. The areas can also include storage rooms. The properties are often used by several parties, and they often also contain smaller office spaces.
Logistics real estate
Goods, materials, and spare parts are housed in these commercial properties. This is why these properties are usually found in the vicinity of production facilities and in the vicinity of transport hubs.
Special real estate
These are major projects such as motorway service areas, train stations, power plant buildings, but also hotels, and airport terminals. The objects referred to as special or special properties have one thing in common: They are tailored to the special requirements of a specific user and, therefore, only have limited third-party use.
A special tenancy
In contrast to residential real estate, commercial real estate in most cases is largely contractually free. In this market, there is neither tenant protection nor does the rental price brake apply. As a result, this market can develop much more dynamically than the residential real estate market. Last but not least, it also makes buying and selling objects easier.
The best markets to sign a triple net lease contract
Basically, where the economy is booming, the demand for commercial real estate increases. EURAMCO sees Australia, the US, and Central Europe as interesting markets where alternative investment funds holding office properties can generate attractive returns.
Let’s touch on one deal that caused a stir. An example from Berlin shows the enormous profits that can be made by selling commercial space. After the famous Sony Center on Potsdamer Platz changed hands in 2010 for a reported €570 million, it was resold in 2017 for the attractive price of €1.1 billion.
Why choose NNN among other contracts
Landlords and tenants negotiate several types of commercial property leases. Among them, three types are signed most often: gross, percentage, and triple net rents. Triple net leases are the opposite of gross leases; so tenants may consider triple net leases to be the most beneficial of the three leases.
Triple net rent, also called “triple N,” makes the tenant in charge of three payments on top of the rent. Thus, the tenant pays for the structure maintenance, property insurance and required taxes. This type of an arrangement can be beneficial for both parties since the rent for this lease is usually smaller than for a gross or percentage lease. Moreover, the lower rent makes it easier to find tenants, so the landlord is less likely to have an empty building.
NNN lease negotiation: how to change the contract details
Although the NNN lease is a fixed contract, you are still able to make changes to the contract. The parties to the lease agreement may agree to change the lease payments, reduce or extend the lease term, or even terminate the agreement ahead of schedule.
At the same time, the underlying asset is considered to be the asset that is the object of the lease and the right to use, which was granted to the lessee by the lessor.
Contract modification can result in two accounting scenarios:
1) the emergence of a separate lease agreement;
2) a change in the accounting treatment of an existing lease (i.e., a separate lease does not arise, but the original lease is remeasured).
The modification date is the date on which both parties agree to change the terms of the lease. This is usually the date the amended lease is signed.