Commercial medical & legal office building - share utilities

5 Replies

Hi BP. I'm looking at a medical & legal office building for a commercial purchase. A value add I can see is to have the tenants pay for the utilities which would be a great increase in income and almost creating a NNN lease. Since I'm more of a residential guy and this is my first look at commercial, I'm not familiar with all the nuances of the commercial realm. If it helps, the building is located in CA in the So Cal area. Anyone have any thoughts and experience with having a tenant take over their utilities? Will they be upset and leave? Or will they accept it and stay? (I'm planning on having the current rent stay the same.)

Is their lease ending soon? so you will give them a renewal option with those terms? See what spaces in the area are doing. You may be better off just raising the rent and continuing to pay for utilities. Small tenants prefer to have a gross lease, less work for them even if they are technically paying more. 

Originally posted by @Jay Dimacali :

Hi BP. I'm looking at a medical & legal office building for a commercial purchase. A value add I can see is to have the tenants pay for the utilities which would be a great increase in income and almost creating a NNN lease. Since I'm more of a residential guy and this is my first look at commercial, I'm not familiar with all the nuances of the commercial realm. If it helps, the building is located in CA in the So Cal area. Anyone have any thoughts and experience with having a tenant take over their utilities? Will they be upset and leave? Or will they accept it and stay? (I'm planning on having the current rent stay the same.)

 Read existing leases and determine if you have sub metering in place. % calculations may not be appropriate or feasible if medical uses 10x as much as legal uses.

@William Thresh  

@Ronald Rohde

Thank you for the input guys! 

It gives me actionable ideas of what to do next: 1) check with other spaces in the area and see what typically occurs in regards to utilities 2) ask for the leases to review and see if there is any sub-metering in effect or if I can add it.  

Originally posted by @Jay Dimacali :

@William Thresh  

@Ronald Rohde

Thank you for the input guys! 

It gives me actionable ideas of what to do next: 1) check with other spaces in the area and see what typically occurs in regards to utilities 2) ask for the leases to review and see if there is any sub-metering in effect or if I can add it.  

 Let us know how that goes. Most of my clients wouldn't share a lease until you were ready to sign, but no harm in trying.