Page 95 - Trump University Commercial Real Estate 101

Ho w to Read a Deal

The creditworthiness of the tenants or lessees is important. With

office, retail, and industrial properties, the better their credit, the more

steady your cash flow will be. On the other hand, these types of ten-
ants know they have great credit, and will negotiate you down on price.
Most things are a tradeoff, and this is no different.
When you continue this lease audit, check to see whether the
rent roll the seller gave you in fact matches the sum of individual
leases in terms of rents and deposits. If they don ’ t match, you may
now have another negotiating point, depending on the magnitude of
the discrepancy.

There are an infinite variety of lease clauses. Similar to trusts, they
can be written to favor the seller, favor the buyer, or can be pretty neu-
tral. When you get serious about buying or selling any commercial
property, be certain you have a highly experienced real estate attorney.
This person can alert you to minefi elds in the leases, and can also get
you the most favorable legal treatment possible when the time comes
to sign new leases.

Types of Commercial Leases

Be aware of these common forms of commercial leases:

• The gross lease is where the owner pays all operating expenses and
gets them back by charging higher rents to lessees. These expenses
include management fees, common-area maintenance, taxes,
insurance, and so on.
• The modified gross lease is very similar to the gross lease but

certain expenses are passed through to the tenant. These are
appropriately called pass - through expenses . They usually are taxes,
maintenance, insurance, or any combination of these.
• The net lease requires tenants to pay operating expenses and
common - area maintenance. It ’ s net because the landlord is
receiving revenue net of all these expenses. A very common
form is the triple - net lease , where tenants pay all operating

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