EL+ Lease

EL+ is the methodology we use to analyze prospective property acquisition candidates, and it is made up of four main categories: Lease, Tenant, Location, and 360 View. This article discusses the EL+ “Lease” category. What do we look for; what is important to us.

The lease is the official legal contract that binds the property owner, as landlord, and the property user, as tenant. Since Elevate buys properties that are already leased to rent-paying businesses, analyzing and understanding all facets of the lease is essential. The lease will govern our business relationship with the tenant for years to come; we can’t rewrite it.  

The first main consideration is how many years are left on the lease.  The longer the lease term, the more predictable, reliable and consistent the income is to our investors.  

The second main consideration is the number of rental increases during the course of the lease term. The frequency and amount of those increases help us measure how the future rents compare with the anticipated pace of inflation. Typically these rental “bumps” are a percentage increase of the existing rent per year, or every 5 years.

The final main criteria considered when analyzing a lease is who bears financial responsibility for the expenses related to the property itself.  The property will be subject to property taxes in the local jurisdiction where it is located. The property will need to be insured to protect against casualties such as a fire and liabilities such as an elderly person slipping or falling in the parking lot. The property will incur expenses for utilities, such as power and water.  Finally, the property will have ongoing maintenance and repair costs.

The lease will outline who pays for which of these expenses. These responsibilities can be borne by either the tenant, landlord, or both. In regards to our property type of Single Tenant Net Lease (STNL), it is common that the tenant, not the landlord, pays those expenses directly.  Typically, the tenant of an STNL property wants to control the timing and amount of expenses needed to operate its building and business.

Whether the landlord or tenant is responsible for property-related expenses is an incredibly important consideration when analyzing how much we are willing to pay for a property.

Gleaning all of this information from the lease itself, we are provided with a full understanding of a property’s attractiveness to us.

The other three EL+ aspects that we consider are the Tenant, Location, and 360 View, allowing us to make an informed investment decision for each potential property. Check out more details on all 4 pillars of EL+ at Elevate Lens+.