Renting out a warehouse, triple net (NNN) lease. Need guidance!
We're a moving company that's looking into renting out a warehouse to expand our storage business.  This is a fairly big expansion for us, so I don't want to screw it up.   We've been communicating with an agent that represents a landlord, and he drew up a LOI for a property.  However, before we sign anything, I'm wondering if we should hire a professional to represent us and guide us.  There's so much I don't know about such an arrangement.  Would we hire an attorney, an agent, or a company like TenantBase?  Any recommendations?
[{"id": "g8lupyf", "text": "You need to know 2 things-\n\n1) Is the amount fair? Are you paying a market-oriented amount of money?\n\n2) Is the contract fair? Is the language in the contract fair or does it favor one side? \n\nReal estate agents are a jack-of-all-trades and a master of none. They can do 1 &amp; 2, but not nearly as well as an appraiser for #1 and an attorney for #2.", "replies": [{"id": "g8m7pcp", "text": "I don\u2019t what you\u2019re talking about, I\u2019ve never found appraisers to have a better understanding of market value. Good commercial real estate brokers will know both 1&amp;2 quite a bit better than any appraiser or attorney. An attorney is critical once the business deal is framed up, but you\u2019ll need a good real estate broker to get you there.", "replies": [{"id": "g8m9hle", "text": "Written like a true agent.", "replies": [{"id": "g8ma2wk", "text": "I\u2019m not actually. I\u2019m on the landlord side. The only thing appraisers are needed for are lenders and insurers. The values that they derive in their analysis is by definition backward looking and they will rarely understand the current market conditions driving value. Lawyers take direction from their clients. They also don\u2019t have a good sense of market contracts. Find a good broker, they know both. Then use a lawyer to negotiate the finer points of the lease.", "replies": [{"id": "g8mcl1f", "text": "Explain \u201cby definition backward looking\u201d and how you think brokers do it better or differently?", "replies": [{"id": "g8meune", "text": "The only information appraisers have to rely on to base any values on is historical, hence \u201cbackward\u201d looking. Good brokers, certainly any from a national brokerage, are tracking forward looking data points to derive where the market is going in order to base their advice and market value projection. Good brokers are also active in market transactions on a real time basis, they are living and breathing the transactions and have a far better sense of the market. It\u2019s also unlikely that any appraiser is going to have access to all of the subtle information that went into forming a market face rate. Whereas Brokerages are compiling all of the added inducements to derive the values. That\u2019s how they do it better. Have you ever been involved in negotiating a market transaction?", "replies": [{"id": "g8mk5bo", "text": "First of all, the idea appraisers only have historical information is nonsense. We talk daily to market participants, including brokers, title companies, investors, lenders, and buyers/sellers. Appraisers also have much more education in using that information to extrapolate future market conditions. Plus, by not being a market participant, we are a neutral party and usually get better information than competing brokers.", "replies": [{"id": "g8mlh3p", "text": "Ah, so you are an appraiser, makes sense that you think that. Pretty funny that you think an appraiser can replace a broker in a transaction. Have you ever been hired to negotiate a transaction?", "replies": [{"id": "g8mnue0", "text": "No, because my role isn't negotiating transactions. My role is to be unbiased and to provide a well-supported opinion. Brokers, by role, are biased. Therefore, any opinion they render would be suspicious. I never said an appraiser can replace a broker, I said an appraiser can do one thing in a transaction better than a broker can, and that is to provide an unbiased opinion of the market. That is literally the appraiser's only role in the market, and we have significantly more education and experience in that role than most brokers. I also said a real estate attorney would be better at writing a contract, which again, they have significantly more education and experience doing than the average broker.\n\nA real estate agent wears many hats, and the idea that every real estate agent, which has the lowest education and professional licensing standards in the entire real estate field, would be best at every portion of the transaction is dumb.", "replies": [{"id": "g8muswi", "text": "Sounds like you\u2019re pretty jaded about how actually insignificant a role appraisers play in the industry. You certainly have a way higher opinion of your field than the reality of where you fit into the industry. It\u2019s a cool field and it definitely plays a part, but I\u2019ve never been involved (or even heard of a case) in a transaction where anyone sought the opinion of an appraiser on the value of lease rate or sale price - except when a sale involves a lender and they have to underwrite a loan.", "replies": [{"id": "g8njqzv", "text": "I took two orders today for cash buyers who wanted an appraisal to confirm their purchase price. Maybe you underestimate it?", "replies": [{"id": "g8nn66b", "text": "Lol. Do you hear yourself? They already negotiated the deal. Do you even know why they want the appraisal? They aren\u2019t going to you for some ultimate approval on the deal. They\u2019re getting the appraisal in place so they know how much debt they\u2019ll be able to get. The brokers,  buyer, and seller have already determined the value. Your job now is just to support it so they buyer can close with cash and know how much debt to raise.", "replies": [], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}, {"id": "g8mmei2", "text": "I guess every state is different then. In Texas at least, appraisers can get in some pretty hot water offering future market extrapolation predictions. \n\nEither way, this is deviating from OP's question of hiring someone to represent them, which would require either an attorney or CRE Broker.", "replies": [{"id": "g8mmnh1", "text": "I think you\u2019re incorrect.  Any appraiser that doesn\u2019t consider future conditions should lose their license.", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}, {"id": "g8mkf9f", "text": "u/lucky_deer, I agree with you that appraisers knowledge is based on historical data, not current market trends.\n\nEither way, at least in my experience in CRE in Texas, appraisers are for purchase/sale, not for lease review/negotiation. u/HarryWaters, have you used an appraiser for a lease before?", "replies": [{"id": "g8mkrw8", "text": "I am an appraiser, and have been hired to determine a market lease on many occasions.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g8lvs8a", "text": "I would hire at minimum an attorney, a tenant rep is less useful since you've already located a property. You should expect the lease to be very LL favored, but theres only a few things you can push back on if you have an attorney mark it up.\n\nThe LOI typically isn't binding, but does represent you investing time to review and prepare for the lease.", "replies": [{"id": "g8mt6h0", "text": "This is correct. Ignore the others telling you to bring a broker in.\n\nIf you are already at the point of LOI, no landlord or landlord broker is going to pay/split a commission to someone that didn\u2019t bring you to them.\n\nIf I were the listing broker, and got a call from a broker representing you at this point, I would tell them that while I\u2019d be happy to work with them, they need to look to you for payment of commission (which is likely way more than a lease review).\n\nAlso, many (not all!) brokers are bad/lazy at lease review (prefer to move a deal along smoothly so they get paid quickly). Find an attorney familiar with commercial real estate leases.", "replies": [], "depth": 2}], "depth": 1}, {"id": "g8ly8x4", "text": "Apologies if you are aware but NNN can leases can pass back most expenses incurred by the landlord, including real estate tax. You will pay base rent and \u2018cam rent.\u2019 CAM rent can fluctuate and is up to the honesty of the landlord to pass back expenses appropriately. You shoulda at least familiar yourself with what taxes the building is paying already. If you expect any operating expense to significantly increase at the building, you can request a cap in the increase of expenses year over year. \n\nIn any triple net lease always specify how capital expenses (major building expenses) are passed back, if at all. A local representative will know your market\u2019s typical terms. Good luck and congrats on expanding!\n\nEdit: I might ask for a gross lease instead of NNN.", "replies": [{"id": "g8m3h7f", "text": "The lease can stipulate that any/all expenses incurred must be fully documented and evidenced/presented to the tenant before the tenant has to pay, and that tenant can see bank statements of owner as further evidence of what actual expenses are, and that they've been paid.", "replies": [{"id": "g8m7e9q", "text": "OP you also need an expense stop, the right to audit the billing and billings must be produced within 90 days after first of the year.Consider monthly prepayments applied toward expected year end true up so you don't get hit with a large invoice early the next year. I'd look to see exactly what expenses they passed on the prior two years to tenants.  A good commercial realtor is recommended.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g8m83xt", "text": "Congrats on the expansion.\n\nEveryone deserves representation. \n\nI may be a bit biased since I am a CRE Broker in TX, but I'd recommend finding a commercial broker/agent to represent you. Make sure they specialize in commercial, not residential. The Landlord typically pays the commission to the Tenant Rep Broker, so it should be no additional expense to you. Since this is a lease and not a purchase, there shouldn't be a need to involve an appraiser as suggested in another comment here. You could hire an attorney to look at the lease for you, but you will need to cover that cost (unlike a Tenant Rep's commission being paid the the LL). If you do go the attorney route, make sure they specialize in commercial real estate law in your state. Otherwise, they may take a lot more time (aka, billable hours aka expensive) to review the lease if they are unfamiliar with it.\n\nWhen looking for attorneys in general, make sure they specialize in the area you need help with. I always tell people to think about it as if you were looking for a doctor. If you need brain surgery, you aren't going to go to a pediatric MD or a Dermatologist. You are going to go to a Surgeon who specializes in brain surgery. Technically, they are all doctors, but you want the one who is the expert to do the work not one who will just root around in unfamiliar territory!", "replies": [], "depth": 1}, {"id": "g8me90s", "text": "Almost all commercial CRE is Triple Net where all the costs get passed back to you (taxes, repairs, etc) so nothing unusual there. It's pretty unusual for warehouse space to be anything but NNN\n\nI would definitely hire an attorney to review. $400 for a contract review isn't much if it protects you from something silly in the future that could have been avoided. Your usual business attorney should be able to review it or refer you to someone. If you don't have a normal business attorney, you should get one because you'll need him or her eventually for something anyway.", "replies": [{"id": "g8mjwrg", "text": "I wouldn\u2019t agree that all CRE IS NNN but more so retail. Most office CRE are gross leases. But I\u2019ve seen either or in both sectors. The OP is at the discretion to ask for whatever they want in the lease which is why getting an experienced attorney is advisable.", "replies": [], "depth": 2}], "depth": 1}, {"id": "g8n0y01", "text": "Pay by the hours max X hours. Sign a contract. In our area a RE lawyer can nickel and dime you to death. Realtors are cheaper by project.", "replies": [], "depth": 1}, {"id": "g8ni419", "text": "Hire a broker or attorney. Make sure you're getting market business terms and reasonable contract language.", "replies": [], "depth": 1}, {"id": "g8nizyr", "text": "Hire a broker. Idk what market you are in but look up on LoopNet who has the best/most industrial listings in the area and call them. The LL might pay their commission but even if you had to pay them, it is still worth it in the long run. For all you know, you could be paying 10% over market or your broker could negotiate some TIs for you. Brokers do this everyday. You might do this every 5-10 years? I\u2019m not saying brokers are required in every deal but this sounds like you could benefit from hiring one. Let us know what happens", "replies": [], "depth": 1}, {"id": "g8oyrmq", "text": "Just echoing previous advice, but get an attorney. Yes, it can be expensive, but you're going to be signing a lease with tens of thousands of dollars of ramifications. Putting some cash up for an experienced CRE to review/provide guidance will pay dividends in the future. \n\nLook for an experienced CRE attorney in your area. You can look via google, call the local bar association, or ask friends/family/coworkers in the industry. Call attorney, explain situation, and ask upfront how much you can expect to pay for their work. \n\nIt sucks paying OOP, but again, you'll be happy you did.", "replies": [], "depth": 1}]