The following definitions are provided to help you understand some of the terms commonly encountered in commercial real estate.
Base year, base year lease: Many gross leases include a provision whereby the tenant is responsible for paying any increases in operating costs which occur after a given point in the lease term. The base year is the name for the last year for which the landlord pays 100% of the operating costs; after the base year, the tenants pay their share (typically in proportion to the area of their premises) of any increases in those costs. Increases in operating costs usually reflect the then prevailing inflationary pressures.
Build-to-suit lease: A lease in which the landlord constructs a free-standing building to meet the specifications of a particular client, who then becomes the sole occupant of the building. This type of arrangement provides a means for a business to acquire a building meeting its specific requirements without tying up its capital in real estate, without assuming the administrative burden associated with owning and operating real estate, and without committing to the building for any longer than the term of the lease. Also see reverse build-to-suit, and the build-to-suit FAQ section.
CAM charge: An abbreviation for Common Area Maintenance charge. The term is loosely used to describe any charge for the cost of operating a facility, which may include not only common areas, but also costs relating to the building itself, such as property taxes, insurance, utilities, building maintenance, grounds maintenance, and property management. Because of its ambiguous nature, we do not use this term.
Common area: Areas devoted to public uses, or areas available for the common use by all occupants of a building. Examples include equipment rooms for machinery which supports operation of the building's mechanical and electrical systems, elevator lobbies and corridors, and public restrooms. Exterior common areas typically include all sidewalks, landscaping and parking areas.
Full service lease: Often considered synonymous with a gross lease, in which the quoted rent includes the provision and payment by the landlord of all or most of the costs of operating the building. However, it may refer to a lease in which the landlord provides the forgoing services, but in which the tenant reimburses the landlord for some or all of those costs. In the latter context, the term "full service" refers only to who provides the services, rather than who pays for them.
Gross lease: A type of lease in which the quoted rent includes the provision and payment by the landlord of all or most of the costs of operating the building. Common for office leases in multi-tenant buildings.
Impact fee: A type of tax levied upon new construction or development as a means of funding public improvements. Within Ada County (including the cities of Boise and Meridian), the most significant impact fee is that levied by the Ada County Highway District, and its fee is based on the volume of vehicular traffic estimated to be associated with each project. The fee for a fast food restaurant with a drive-up window will therefore be more per sq ft than for a typical office building. See the office and retail impact fee FAQs for information about how we treat impact fees for multi-tenant buildings.
Load factor: Most buildings include some enclosed common areas which are necessary to the proper function of the building, but which are not located within any occupied suite, including, for example, equipment rooms supporting building mechanical and electrical systems. It is customary for the building area devoted to these functions to be allocated among the occupied suites in proportion to their area, resulting in a modified area for each suite. The factor applied to each suite to establish this modified area is commonly called the load factor. Our suburban single-story office buildings have negligible load factors - typically around one percent.
Many buildings have much larger load factors to allocate lobbies, public restrooms, corridors and other public spaces as common areas. This can have a significant influence on rental rates, since those rates are usually quoted after application of the load factor. For example, in a building with a 15% load factor, the real rental rate for the space that you can physically occupy is about 15% higher than the quoted rate. A suite containing 2,000 sq ft of space within its perimeter walls will be considered to have 2,300 sq ft of "rentable" space after application of the load factor. Based on a quoted rate of $18 per sq ft, this space will have an annual rent of $41,400 (2,300 x $18). This equates to a rate of $20.70 per sq ft for the 2,000 sq ft that is available for occupancy, rather than the quoted $18 rate. The lobbies and corridors underlying the load factor often do have value, but it is important to be aware of the load factor and its influence on rental rates when comparing rates in different buildings.
A note about terminology: Using the terms and methods established by the American National Standard Z65.1-1996, the Useable Area is the space which can actually be occupied for office functions, the Rentable Area is the Useable Area plus an allocated share of the building common area, and the R/U Ratio is the ratio between Useable and Rentable Areas (Useable Area x R/U Ratio = Rentable Area). Though mathematically distinct from one another, the R/U Ratio and the term "load factor" refer to the same principle. An R/U Ratio of 1.15 is commonly referred to as a 15% load factor. (Also see the office space measurement FAQ for more information about this measurement standard.)
Net lease: A type of lease in which the quoted rent is based on the tenant paying all or most of the costs of operating the building.
Operating costs: Costs incurred in the operation of a building, typically including property taxes, insurance, utilities, maintenance and property management. (See the gross lease, net lease, and full service lease glossary entries, and the office, retail and build-to-suit included-services FAQs for related information.)
Parking ratio: An expression of the quantity of parking provided in relation to the size of the building area entitled to use it. It may be expressed as the number of parking spaces per 1,000 sq ft of building area, or as the number of sq ft of building area per parking space. When using the former method, the expression is often abbreviated to substitute "one" for the reference to 1,000 sq ft. For example, a "5 to 1" parking ratio means there are five stalls available for each 1,000 sq ft of building area. Using the latter method of expressing the parking ratio, a "5 to 1" parking ratio would be expressed as "1 space per 200 sq ft."
Percentage rent: A form of rent dependent upon the volume of business transacted by the tenant from the premises. It is usually in addition to a minimum level of rent. We do not include percentage rent in our retail leases, based on the belief that a tenant's success is more a measure of the tenant's own efforts, rather than a measure of anything the landlord has provided that isn't already adequately compensated for by the minimum rent.
Rentable area: The result of adding the load factor to the useable area of a suite, thereby including an allocation of building common areas. Rent is typically quoted in terms of rentable area. This term is often considered synonymous with "leasable area."
Reverse build-to-suit lease: An arrangement in which a tenant constructs a building for itself, using funds ultimately provided by the landlord, and upon completion occupies the building as a tenant under a long term lease. This arrangement is typically favored by users who have their own real estate and construction departments, but who prefer the advantages of leasing their real estate rather than owning it. Also see the build-to-suit glossary entry, and the build-to-suit FAQ section.
TI: An abbreviation for tenant improvements, referring to improvements to the interior of a building or space, as opposed to the improvements comprising the building shell.
Vanilla shell: Typically used to describe a minimal level of finish to the improvements included within a new space or building. There is no standard set of specifications for what constitutes a vanilla shell or any of the several variations of that term (i.e., warm shell, gray shell, cold shell). It is therefore better to rely on an itemized description of the improvements furnished when negotiating a contract, rather than rely on these ambiguous terms.