Exploring Types of Shell Leases for Commercial Spaces

Posted on March 19, 2024 by bafcorp20

Navigating the intricate realm of commercial real estate involves understanding the myriad lease options available. Among these, shell leases stand out as a flexible and dynamic solution for both lessors and lessees. This blog dissects the different varieties of shell leases available, shedding light on what each one entails, and which might be most beneficial for specific scenarios.

Call 317-253-0531 for Commercial Vanilla Shell Remodeling and Construction in Indianapolis

The Significance of Shell Leases in Commercial Real Estate (CRE)

Small business owners, franchisees, and entrepreneurs alike are no strangers to the complexities of property agreements. Shell leases, in particular, are instrumental in dictating the terms of engagement when it comes to commercial space. These leases form the fundamental framework upon which the lessee can build their ideal working environment, often involving significant investments in interior development and fit-outs.

Understanding the implications of various types of shell leases empowers tenants and landlords to structure agreements in ways that align with their business objectives, financial capabilities, and risk tolerance levels.

4 Common Types of Shell Leases

When it comes to engaging in a shell lease, the devil is in the details. Here, we break down four primary categories of shell leases to help you discern what might be the best fit for your commercial aspirations.

Warm Shell Lease

The warm shell lease is a middle ground between the extreme points of the “cold” and “vanilla” spectrum. Under this lease, the landlord provides a space with the basic structure and systems in place, sometimes including flooring and painting. However, amenities such as HVAC, interior walls, and lighting are not typically included.

Features and Benefits

Provides a semi-finished space that can be operational with minimal investment
Offers a faster move-in timeframe compared to a cold shell
Still allows for substantial tenant customization to tailor the space to specific needs

Possible Drawbacks

Tenants may find limitations in the extent of build-out flexibility
Initial costs can be higher than a cold shell, especially if the provided elements require modification

Ideal Scenarios

This type of lease is ideal for lessees who need a midway point where they can set up and operate quickly, while still maintaining a certain level of interior customization.

Cold Shell Lease

At the more minimal end, a cold shell lease provides a vanilla shell but with less equipment or finishings. It often equates to an entirely unfinished space, with no walls, ceilings, or interior finishes. The space is typically a clean, sealed structure ready for adaptation to the specific needs of the tenant.

What Cold Shell Leases Offer

Blank canvas for complete tenant customization
Typically longer lease terms with opportunities for cost-sharing expenses with the landlord
More control over the design and construction process without considerations for pre-existing interior structures

When to Consider a Cold Shell Lease

Businesses that have the capacity and vision for an interior space built to their exact specifications would find the cold shell lease a beneficial starting point.

Vanilla Shell Lease

The vanilla shell lease offers a bit more than the cold shell by providing the basic structure of a commercial space with certain elements installed. Common inclusions are the roof, exterior walls, windows, doors, and sometimes even the basic capacities of electrical and plumbing systems.

Defining Features of a Vanilla Shell Lease

Allows tenants forego the construction or installation of major structural elements
Provides a platform for interior design and customization
Typically shorter move-in periods due to available basics

Pros and Cons of a Vanilla Shell Lease

Reduced Tenant Improvement (TI) costs compared to a warm shell
Less initial investment required, but may still lead to higher costs for additional fit-outs

Ideal Applications for a Vanilla Shell Lease

This lease can be a sweet deal for lessees with specific yet adaptable business needs who seek a middle ground where they can make the space their own without major structural work.

Grey Shell Lease

Sitting just beyond the vanilla shell, the grey shell lease is a space with some of the more intricate systems of the HVAC, plumbing, and electricity already installed but not yet active. There may be some interior finishes such as ceiling tiles but not to a useable or business-reflective standard.

Key Components of a Grey Shell Lease

Intermediate level of inclusions requiring less initial investment for redundant systems
Time-saving advantage as some of the basic systems are in place and just require activation
Allows for a certain level of tenant input on finishing materials and details

Pros and Cons of Grey Shell Leases

Offers a good balance of provided amenities and tenant customizability
Tenant may encounter some strategic challenges in coordinating with the landlord on finishing works

Compatible Business Types

This practical lease solution can cater to businesses seeking a space with a robust structure that requires more than the basics but not a full-blown interior overhaul.

Conclusion

In sum, choosing the right shell lease type is a critical first step in the commercial space leasing process. Each type caters to different needs and preferences and has implications on cost, customization, and timeline. By understanding the nuances of these lease models, tenants and landlords can forge agreements that foster successful and satisfying partnerships.

Navigating the commercial real estate market is a constant learning curve, but with the right knowledge, each curveball can present an opportunity rather than a challenge. Whether venturing into your first commercial space lease or looking to optimize your existing business location, taking the time to select the right shell lease type can enhance your experience and outcomes in the world of commercial property.

Are you looking for a trusted commercial general contracting company who can turn your leased commercial space into exactly what your business needs? Contact BAF Corporation at 317-253-0531 for help with everything from space planning and permitting to tenant remodeling, retail franchising, and more in Indianapolis, Indiana. We serve clients all throughout the state.

Commercial Lease Terminology You Need to Know Before Signing

Posted on October 22, 2021 by bafcorp20

Before signing on that dotted line, be sure you are clearly interpreting the commercial real estate leasing jargon on your contract. Continue below to review some of the most common commercial lease terms and definitions you need to know if you want to make an informed and intelligent decision on your new office or business space.

Commercial Space Planning Indianapolis IN 317-253-0531

Vocabulary Terms on a Commercial Office Lease

Understanding the terms and conditions of your commercial lease is quite difficult if you are not familiar with the standard terminology used within such contracts. It can be especially troublesome if you wish to amend or get out of your commercial lease at some point.

Some of the most common terms you will come across, on your standard commercial office lease that is, include common area maintenance, load factor, option to purchase, parking ratio, right of first refusal, rentable square footage, usable square footage, and request for proposal. Let’s start with these:

Common Area Maintenance

Common area maintenance (CAM) is a general term used to describe the stipulations surrounding shared maintenance expenses for the building you are leasing within. In a multi-unit building, each tenant may be required to contribute to such costs, which are typically decreed within the lease.

Load Factor

Load factor, or core factor, is a calculated number generated by the property management company or landlord of the building. This number represents the division of common area square footage among each tenant. This number allows you to interpret the value or fairness of your rentable square footage.

Option to Purchase

Option to purchase is a term typically reserved for leasing a whole building, not just a unit within a multi-tenant office building. Option to purchase is a section that will describe clauses for a tenant who wishes to buy the building outright one day. An Option to purchase agreement should take into account the amount of rent paid to date.

Parking Ratio

Parking ratio simple refers to the number of parking spaces allotted to the tenant’s rented space. For a multi-tenant office building, there could be a certain number of spaces assessed for employees and visitors.

Right of First Refusal

Commercial leases that have a Right of First Refusal clause gives tenants an upper hand when new space becomes available in the building. A landlord must notify you and offer you any newly available space before advertising it to the general public. Basically, you have first dibs, plus to right to refuse it.

Rentable Square Footage

Rentable square footage is the total square footage of the space you are leasing, plus any shared or communal spaces that other tenants use as well, such as outdoor break areas, hallways, break rooms, cafeterias, bathrooms, and elevators.

Usable Square Footage

Usable square footage is generally less than the rentable square footage. It represents the total square footage of the space that can actually be occupied and used. For instance, if an office space has a basement level that is unfinished, it is not usable, and therefore, would not be included in the usable square footage value.

Request for Proposal

A Request for proposal is also called an RFP document. This document is constructed by you and your broker, then submitted to the commercial landlord to notify them of what you expect and want with your leased space. The landlord can respond by informing you if their facility meets your needs or not. This document tends to commence the lease negotiating process.

Are you looking for help procuring and designing a new office space for your business? Contact BAF Corporation at 317-253-0531 to speak with our esteemed commercial construction management teams about our space planning and permitting solutions we offer in Central Indiana.

Indianapolis Commercial General Contracting and Design Build Services — Contact Us Today 317-253-0531

What is a Commercial Lease Abstract?

Posted on June 29, 2021 by bafcorp20

If you have ever signed a contract before, you know that they are incredibly long and complicated pieces of literature that are virtually impossible to understand without a thorough comprehension of real estate law and liability. For this reason, when signing a commercial lease agreement, it is common to request a lease abstract.

Continue reading to learn what a commercial lease abstract is, and what should be included in one before making a commitment.

Indianapolis Indiana Commercial Office 317-253-0531

Commercial Lease Agreements and Abstracts

It is unrealistic to fully read through and understand every element of a commercial lease agreement. Commercial lease abstracts play an important role in a tenant’s ability to understand what contractual agreement they are signing into, and what is expected of them during their occupation. Basically, a lease abstract is a summary of all the primary and important aspects of the lease agreement.

Sort of like CliffsNotes for a book you forgot to read in college, a lease abstract covers the basics of the contract and informs you of all the vital facts you need to know, and in a language you can understand. Lease abstracts are constructed to be free of confusing industry jargon, and allow a potential corporate or commercial tenant to fully understand the liability and responsibilities they are taking on if they choose to enter into the lease.

What Should Be Included in a Lease Abstract?

Although a summary of the full contract, a lease abstract will (and should) contain a lot of information. The basic information it should have includes:

☑ Tenant’s Full Name
☑ Total Cost of Rent
☑ Square Footage of the Rental Space
☑ Lease Start/End Date
☑ First Rent Payment Due Date
☑ Premises Specifications
☑ Authorized Use of the Premises
☑ Parking Space/Requirements
☑ Accountable Party for Repairs and Maintenance
☑ Co-Tenancy/Sub-Leasing Terms
☑ Expansion/Build-Out Rights
☑ Tenant Improvement Allowances
☑ Assignability and Exclusivity (if the lease can be transferred)
☑ Estoppel

Are you looking for a trusted commercial management team who can help you find the right commercial office space or warehouse? Contact BAF Corporation at 317-253-0531 to learn more about tenant improvement construction and space planning services in Indianapolis, Indiana.

You Might Also Enjoy:

Common Operating Costs as a Commercial Tenant
Are All Tenant Improvement Allowances the Same?
Options for Getting Out of a Commercial Lease

Common Operating Costs as a Commercial Tenant

Posted on October 12, 2020 by bafcorp20

Whether you are preparing to perform a routine audit of your commercial lease portfolio, or considering a list of potential office spaces for rent, rent is not the only operating cost to review. Aside from rent, there are many other types of operating costs for a rented commercial space. Continue reading to learn some of the most common operating costs you can expect as a commercial tenant, as well as, where to get trusted advice regarding tenant improvements.

Indianapolis Tenant Improvement (TI) Contractors — Tenant Improvements and Office Renovations in Indianapolis 317-253-0531

The Cost of Rent

You can certainly expect to pay rent for your commercial space, but also expect this expense to be the bulk of your total operating costs. Review your base rent cost, then follow up by reviewing how that cost might evolve or increase overtime. Be prepared to learn that your lease allows the commercial landlord to increase rent at their discretion, as many commercial leases do. However, in such cases, the rate at which the rent will increase, and by how much, is usually defined in the lease agreement from the start. There are likely set caps on how high the rent can get. Variable indicators, like the Consumer Price Index, might also influence a landlord’s method of rent changes.

Property Taxes

Taxes are an obvious cost for a commercial tenant, and for anyone working in the country for that matter. In your commercial agreement, the portion of property taxes paid might be with a single, double, or triple net lease. Furthermore, property tax reassessments can result in sudden and unexpected operating cost increases. Talk to your landlord when reviewing your lease, and ask whether or not the property has been assessed recently, or if any assessment is in the books.

Insurance Coverage

General liability insurance might also be an obvious operating expense for a commercial tenant, but there is more to consider when reviewing your lease. For instance, if you have a double or triple net lease, you must pay for a portion of the landlord’s property insurance. When renegotiating your liability insurance premiums, be sure you understand that your space’s location will have an impact.

Utility Costs

Like any other modern building or space, it will require the use of electricity, running water, heating and air conditioning, and many other modern utilities. So, you can expect to pay utility costs on a routine basis, unless you have a gross or full-service lease. Talk to your trusted Indianapolis commercial general contracting company to learn how you can keep utility costs down by incorporating more sustainable infrastructure, operations, and technology.

Miscellaneous Fees

Your landlord might require their commercial tenants to be responsible for paying certain miscellaneous property fees, separate from rent and utilities. Some examples of such fees include parking fees, permits, property facility maintenance, exterior sign displays, a possibly even a hidden repayment of rent abatement. Also, some landlords will offer first months’ rent free, but then require that month’s rent to be repaid by the end of the year. Watch out for this too when reviewing your lease agreement.

General Maintenance and Upkeep

Commercial tenants are generally responsible for maintaining the property on their own dime. This commonly includes expenses like facility maintenance, custodial services, indoor plant care, garbage and recycling, minor repairs, landscaping service, snow removal, and security. Be sure to look for these fees in your commercial lease, and discuss who is responsible for paying what when the time comes. Also be sure to discuss your TI allowance with your landlord, and perhaps plan a needed tenant improvements or remodels for your commercial space or building.

Office Renovations and TI Improvements in Indianapolis, Indiana

Contact BAF Corporation at 317-253-0531 for trusted office and commercial-use construction services in Indianapolis, Indiana and its surrounding locations. Our skilled and experienced commercial general contractors are certified specialists in tenant improvements, office remodels, and commercial-use construction services. Whether you are launching, expanding, renovating, or relocating an office or professional space, our commercial construction and building contractors have the qualified expertise, first-class resources, and latest technologies to support your business’s objectives and generate long-term value. We serve all corporate, commercial, and industrial.

What is a Build-to-Suit Commercial Lease?

Posted on March 30, 2020 by bafcorp20

When a business owner is looking for an office space that will adequately meet the needs of the business, including its unique square footage requirements, they have four basic options. They can 1) lease or sublet an existing space that is vacant, 2) purchase an already-built property and renovate it as needed, 3) buy, build, and design a property from the ground up, or 4) opt for a build-to-suit lease.

Continue reading to learn more about this popular alternative the first three options, and where you can get started with a free quote.

Indianapolis Design Build Commercial Contractors 317-253-0531

Commercial Build-to-Suit Leases

Buying and constructing a commercial property requires a significant, upfront investment that not every business owner can obtain. A commercial build-to-suit lease is a smart alternative for commercial tenants or business owners who wish to design and build their own facility without having to sacrifice this large expenditure, upfront.

In a build-to-suit lease, a commercial tenant chooses their preferred property, and then hires an Indianapolis design build (DB) real estate developer to plan, construct, and design their custom space. The commercial tenant will then lease the space from the developer. So, under a commercial build-to-suit lease, the tenant never actually owns the facility.

Build-to-Suit Lease Benefits

A commercial build-to-suit lease is the perfect solution for customizing a property to meets the unique space requirements of a business, without having to give up large sums of capital upfront. These lease agreements are especially beneficial for businesses that have outgrown their current space, and need a new space to accommodate their overall business objectives. Furthermore, these leases give tenants more options when it comes to looking for a space on the market, which makes finding the right size much easier.

Best of all, designing and building a commercial property from the ground up gives tenants the option to incorporate the most innovative technologies and cost-effective energy efficient solutions for commercial real estate. Not only can this improve success of the business, it can also help lower costs and save money. See our blog, “Top Commercial Real Estate Technology Trends Today” to learn some popular, modern day options for businesses and buildings.

Lease Terms and Conditions

A build-to-suit commercial lease is not a short-term agreement. Because such leases involve complicated tenant-developer financing, transactions, and similar logistics, they are usually a lengthy process that requires a lengthy commitment on both sides. Additionally, it is important to understand that build-to-suit leases are often more expensive than simply leasing an existing office space. But in the long run, the cost difference is counterbalanced by the cost-saving advantages a custom built office space will render.

Central Indiana Design Build Commercial Construction

Call 317-253-0531 to learn more about the trusted and esteemed Indianapolis commercial design build services at BAF Corporation. You can learn more about our services, or schedule a consultation to discuss your commercial construction and general contracting needs. We work with all corporate, commercial, and industrial industries in Indianapolis, Indiana and its surrounding areas.

Factors to Consider Before Signing a Commercial Office Lease

Posted on March 17, 2020 by bafcorp20

Moving into a new commercial space is a serious undertaking. There are several complex steps to complete in order to get your business back to fully-operating at peak performance following a relocation. But first you must sign a new lease. Before you do so, there are various considerations to apply to your decision in order to protect yourself from entering into a contract you later regret.

Continue reading to learn which factors should be at the forefront of your mind when discussing a new commercial real estate lease prior to signing.

Space Planning and Tenant Improvements 317-253-0531

General Commercial Lease Inquiries

With all new commercial real estate leases, there are basic questions that you must ask. These answers will give you the foundation of knowledge you need to decide whether or not to move forward with the lease agreement. Such questions include the following:

What is the Type of Lease Offered? There are different types of lease agreements for commercial properties, including net leases, gross leases, triple nets, and absolute triple nets.

What are the Terms and Conditions? You must read through all terms and conditions, and derive questions pertinent to your overall objectives and limitations.

Is the Lease Negotiable? Most often, lease agreements are flexible, and landlords will negotiate certain elements in the lease’s terms and conditions.

Will Rent Increase? Rent escalation is common in commercial real estate, like stepped increases that periodically increase in fixed amounts, or increases tied to Consumer Price Index.

Can You Sublease? Long-term leases might contain a subleasing and assignment clause that allows you to lease out all or a portion of your space to another tenant in the future.

Comprehensive Facility Touring

Always be sure to tour the facility as thoroughly as possible before signing a lease. You want your potential commercial space to have an inviting and functional atmosphere. When taking your tours, be sure to focus your attention on cleanliness, attractiveness, curb appeal, practicality, degree of remodeling or renovation needed, and amenities available, like parking, cafeterias, bathrooms, break rooms, lobbies, and more.

Neighboring Properties

Before entering in a legal contract that binds you to a commercial office space, it is wise to first check out your future neighbors. Consider the local businesses and buildings surrounding your potential space, including the actual proprietors and contemporaries you will likely encounter on a regular basis. This could easily thwart your interest in a new commercial space. For instance, if your business is a Zen spa, you wouldn’t want to lease a space directly below a dance studio or next door to a drum store.

Renewal Processes

It is wise to ask about the lease renewal process before making any agreements. Inquire about the terms and conditions of renewing or terminating the lease. In some cases, a tenant is required to notify the landlord within a certain time period that they wish to remain in a lease, while others do not. Communication guidelines and requirements for commercial leases vary from landlord to landlord. So, always be sure you fully understand your role when it comes time to renew or terminate your commercial lease.

Leasehold Improvements and Maintenance

Another important topic of discussion to cover prior to signing a new commercial lease are leasehold improvements. This includes facility maintenance. Questions to ask include, “Are you allowed to modify the space to meet your business’s needs?”, “Is the landlord willing to make tenant improvements before you move in?”, “Is the tenant improvement allowance enough?”, and “Is a maintenance program included in your lease?”

Professional Commercial Space Planning in Indianapolis

Call BAF Corporation at 317-253-0531 to learn more about planning a new commercial space for your business. We provide full-service commercial space planning and permitting services in Indianapolis, and throughout Central Indiana for all businesses and industries. Whether you’ve already moved into a new space or still searching for one, our commercial construction management team has what it takes to meet your unique specifications. Call our office today to discuss your commercial space planning and tenant improvement needs, today.