Net EffectiveRent is the true measurement of the value of the lease from both the Landlord’s and Tenant’s perspective. To effectively negotiate leases, it’s important to understand Net Effective Rents and the financial impact it will have on the Tenant and Landlord side.
Negotiation of the terms of a lease involves many aspects such as:
- Motivation of Tenant and Landlord
- Financial stability of Tenant
- Tenant requirements for size of space and durations of lease
- General market conditions and rental rates
Understanding Net Effective Rental Rate:
Net Effective Rental Rate is what is left over to service the debt on the building after operating cost (janitorial, management fees, utilities, and similar day to day expenses, as well as real estate taxes, insurance etc.) and transaction costs (Tenant improvements, free rent, leasing commission). The comparison of Net Effective Rental rates on various lease proposals will result in an informative analysis of Landlord’s bottom line. An overview of the analysis of Net Effective Rental rates will also enable you to achieve ideal Tenant lease terms (and not leave any money on the table).
Below, I have illustrated calculation of Net Effective Rent.
If you would like to learn more about Net Effective Rents, please contact Urban Realty today.