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Hamptons.com
August 21, 2015

A Look At The Ins And Outs Of Commercial Leasing

John A. Viterittiby John A. Viteritti
in Real Estate
Home Real Estate

In the past, I have written articles concerning residential leases. In this article, we will examine some of the issues regarding commercial leases. While commercial leasing may include large office buildings, retail stores, restaurants, theaters and other uses found in Manhattan, we will focus on the type of commercial business more common to the East End of Long Island and more proximate suburban areas.

First, we will explore a few fundamental points. A commercial lease, just like a residential lease, is a contract, but since a commercial lease covers a longer period of time than a residential, it is going to be much thicker. The typical residential lease is usually no more than three years, often times shorter, and the terms of the lease are less complex. Commercial leases of ten and fifteen years, sometimes longer, are typical. And while I take exception to the term “standard lease,” even for residential, the term would be even less applicable to commercial leases.

To gain some perspective of the commercial real estate market, let’s take a look at the development of a suburban shopping center. Many of the issues to consider are not unique to this type of endeavor. For instance, before I start investing any money, what is the market for a shopping center in the area I am contemplating? Do the demographics of the area sustain a Neiman Marcus, or would a Macy’s be more appropriate? What would be the costs of developing the shopping center, such as acquisition of the land, costs of financing, construction, insurance, taxes, marketing, and all other initial and long-term costs? What is the competition I would be up against? Unless I am confident I can rent the spaces, short-term and long-term to meet my costs and return a profit, I don’t want to start incurring costs. What if a zoning change would be required to develop the property to its highest and best use? I certainly would not want to be obligated to purchase the property should my analysis illustrate that it’s not a good investment or I couldn’t get the zoning changed. An option to buy the property from the current owner while awaiting the answers to these questions is a common solution.

One of the most important factors in the success of the venture is the attraction of the anchor tenant, the first tenant to sign a lease. It is this tenant that attracts all the others and on whose success they depend upon. Some businesses are destination points for customers, known as generative, in that they generate business for other tenants, who are not typically destination points. These other tenants are referred to as derivative, they derive their business from the generative. Because the anchor tenant is critical to the success of all the others, the developer will offer an aggressive rent to the anchor tenant, an amount lower than what might be the value of the space, and apportion the loss among all of the other tenants. The apportionment is not equal. The closer you are to the anchor tenants, the more of the loss to the developer you absorb. This leads to an important consideration for the tenant. What if the anchor tenant relocates or goes out of business? Will the tenant receive a rent reduction or be able to terminate or assign their lease and with what consequences? If the lease allows for assignment, the landlord may want to have control of who the new tenant may be. The landlord’s leases with other tenants is likely to assure them that the space will not be rented to tenants who would be in competition with them. What if Blockbuster signed a lease fifteen years ago and now they are not able to meet their rent obligations? Do they have any recourse? We would have to look to the lease.

Commercial leases are based on square footage. Some may be net leases, where the tenant pays some or all of the property taxes and expenses, or percentage leases where the rent is tied to the tenant’s profits.

What both the developer and tenants must keep in mind is that the longer the term of the lease, the more things may change that will affect their financial interests. The answer is, either have a crystal ball, or a well drafted lease that has anticipated all of these possibilities.

There are real estate brokers and attorneys who specialize in commercial leasing and should be engaged by those who intend to become involved in transactions of that sort.

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Candid Pop Stars And Swimmer Sculptures Showcased At The Nicole Ripka Gallery

Candid Pop Stars And Swimmer Sculptures Showcased At The Nicole Ripka Gallery

  • 167 Dune Road, Bridgehampton, NY 11932⁠
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Designed by the renowned architect Francis Fleetwood, this remarkable property boasts 300 feet of private ocean frontage, complete with its own private boardwalk leading directly to the beach, all set on over 3 acres of prime land.⁠
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The charming shingle-style residence encompasses 4,200 +/- sq. ft. of luxurious living space, featuring 5 bedrooms and 5 full bathrooms, plus an additional half bath.⁠
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  • The Hamptons have seen their fair share of collaborations and takeovers this summer. Still, nothing compares to The h.wood Group and Chase Sapphire Reserve’s transformation of Montauk hotspot Mary Lou’s into Delilah Montauk.⁠
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The four-day takeover combined unforgettable dining experiences with show-stopping live entertainment featuring performances by Zack Bia, Alesso, Gwen Stefani, and DJ Pee.Wee (Anderson Paak). ⁠
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Exclusively for Chase Sapphire Reserve cardholders, diners were treated to white glove hospitality and Delilah’s staples, including the famous chicken tenders and tuna tartare, and bold twists on Hamptons classics like lobster rolls, striped bass crudo, and crab and avocado toast. 

Check out more at Hamptons.com (Link in Bio)

#gwenstefani #alesso #djpeewee #chasesapphirereserve #delilahmontauk #montauk #hamptons
  • LVIS thrift shops are open Tuesdays through Saturdays 10 AM through 5 PM

donations are accepted Wednesday through Saturday 10 AM through 1 PM by appointment 

located at 95 Main St East Hampton
  • Check out the Top Hamptons Events This Weekend!⁠
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🚗 The Bridge IX⁠
📅 Sat, Sept 13 | 2–7PM⁠
📍 The Bridge, Bridgehampton⁠
Over 300 rare automobiles showcased across stunning landscapes.⁠
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🎬 23rd Annual Surf Movie Night⁠
📅 Fri, Sept 12 | 5:30–9PM⁠
📍 Southampton Arts Center⁠
Surfboard swap, live music & outdoor film screening. 🌊⁠
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🍝 San Gennaro Feast of the Hamptons⁠
📅 Sat, Sept 13 – Sun, Sept 14 | 10AM⁠
📍 Hampton Bays⁠
Italian pastries, live entertainment & fireworks Sat @ 8:15PM 🎆⁠
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🎭 In Process: Roderick George⁠
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📍 Guild Hall, East Hampton⁠
A special in-process presentation of The Missing Fruit (Part I).⁠
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🎤 Sheena Easton at WHBPAC⁠
📅 Sat, Sept 13 | 8PM⁠
📍 Westhampton Beach PAC⁠
Grammy-winning artist live on stage!⁠
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☕ Cars & Coffee⁠
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📍 Bridgehampton Museum⁠
Classic & exotic cars, food, drinks & live music.⁠
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Shop unique vintage finds!⁠
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Five-course tasting menu with exquisite wine pairings.⁠
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🎥 Toy Story 30th Anniversary Screening⁠
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Over 400 guests celebrated ARF’s remarkable work with cocktails, followed by dinner catered by Olivier Cheng. Peter Marino, accompanied by his daughter and ARF Board Member Isabelle Trapnell Marino, presented the Scarboroughs with their award. ⁠
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