Load Factor Flashcards

Load Factor Flashcards triple net leasemeans three additional costs; tenant pays rent + taxes + insurance + maintenance.often used in any commercial lease; usually favors landlord's interests fully serviced lease (gross lease)landlord directly pays all or most usual costs. these costs are often passed on to the tenant in rent as a "load factor"often used in office, some industrial and retail eases usable square feetThe space actually available and usable for a tenant's personnel, furniture, and equipment. The actual floor space inside the exterior walls of leased premises. Space the tenant can physically use inclusive of interior walls and columns. Also called Net Square Feet.(building rentable square feet) / (building usable square feet) load factor (calculation) load factor (common area factor or an add-on factor)to calculate rentable square feet and total monthly rent costs to a commercial space, landlord's use what is called _____ landlords by limiting their exposure to operating expenses being greater than they anticipated over the life of a lease.For this reason, many landlords look to incorporate some type of Base Year Stop into Full Service leases because it protects their operating income.

base year stop benefits:

rentable square feetThe"useable" square fee plus a pro-rata portion of the common areas shared among all of the tenants.

• A Base Year Stop is derived directly from the property's

operating history, whereas an Expense Stop can be arbitrarily set. For this reason, a Base Year Stop usually establishes a more accurate starting point to benchmark future operating expense increases.2. The downside of a Base Year Stop is that the landlord has some level of control (i.e. ability to manipulate) during the period which the Base Year Stop is being established. Because of this, many tenants insist on including certain checks and balances within their Base Year Stop clause. The most popular precaution is the right to audit the landlord's operating expense ledger and expense reconciliation calculations once a year.3. A stated Expense Stop does avoid the need for a tenant to be concerned about how the Base Year Stop is established, but it is important to validate that the Expense Stop that is used is a realistic estimate from which to benchmark future expense increases. If the Expense Stop is artificially low, the tenant risks being

exposed to larger than expected reimbursement billings from the landlord.Agreeing to a Base Year Stop, rather than an explicit

Expense Stop has several implications:

Because of the Time Value of Money! Makes lower taxes paid on income each year a benefit to theinvestor.Furthermore, the portion of capital gain due to price appreciation was only taxed at 15%, and the portion due to depreciation recapture was taxed at 25%.Thus...the investor is able to defer taxes until the property is sold, and convert some of theordinary income to capital gains, which are taxed at a lower rate.Why is the Effective Tax Rate lower than the Marginal Tax Rate?Percentage Lease- Owners/landlords in shopping centers and some strip malls may demand a share of a retail tenant's profits in addition to the monthly rent.- Typically, only rather large and sophisticated tenants, with hefty sales, fall into this group...typically.- With a percentage rent lease, you first pay a minimum rent under a gross or net lease.- Then, when your gross sales surpass a specified mark, you begin to pay a certain percent of every additional dollar in sales

as additional rent.- The percent that's applied is negotiated; however, 7% is often cited as an industry standard.- Typically set/established so that the percent of sales is equal to the base rent. This is called the "natural breakpoint." An "artificial breakpoint" is a negotiated rate.- The breakpoint is the amount of gross sales you must reach before the landlord will begin to apply the percentage multiplier and exact a share of your income.base year stopThe annualized amount per rentable square foot that a landlord pays toward the operating expenses of a building.Amounts exceeding the expense stop are billed to the tenant. Expense stops are often set following the first year of the lease (i.e. the "_____ ____").calculated on a calendar year basis or the first 12 months of a tenant's occupancy.

• The landlord asks for your yearly minimum sales, then

figures out what you would have to make in gross profits if you were paying rent equaling the negotiated percent of sales and had to come up with that same minimum rent amount.- That figure is your natural break-point. If your gross receipts never get to that point, you never pay percentage rent. But if your gross sales meet and exceed that figure, you begin paying percentage rent on every additional dollar.calculating breakpoint (natural breakpoint) net leasein addition to rent, tenant pays all or some property taxes; percentage is negotiableoften used in any commercial lease; usually favors landlord's interests double net leasemeans two additional costs; tenant pays rent + taxes and insuranceany commercial lease; usually favors landlord's interests the landlord is then able to bill the tenant for those increases, rather than having to absorb them on their own and impact their investment return.as the property expense increase over the life of a tenant's lease term ....percentage leasebase rent + percent of monthly salesoften used in retail businesses, malls