How to Determine NNN Costs
NNN (Triple Net) costs in commercial real estate are additional expenses that tenants are responsible for, on top of their base rent. These costs usually cover property taxes, insurance, and common area maintenance (CAM). Understanding how to calculate these expenses and convert them into a price per square foot is crucial for tenants and landlords. Here’s a detailed breakdown:
1.) Property Taxes
Formula: Annual Property Tax = Total Property (÷) Total Square Footage (x) Tenant’s Square Footage
Example:
- Total Property Tax: $120,000
- Total Building Square Footage: 100,000 sq. ft.
- Tenant’s Space: 10,000 sq. ft.
Annual Property Tax = 120,000 (÷) 100,000 (x) 10,000 = $12,000
2.) Property Insurance
Formula: Annual Property Insurance = Total Property Insurance (÷) Total Square Footage (x) Tenant’s Square Footage
Example:
- Total Property Insurance: $30,000
- Total Building Square Footage: 100,000 sq. ft.
- Tenant’s Space: 10,000 sq. ft.
Annual Property Insurance = 30,000 (÷) 100,000 (x) 10,000 = $3,000
3.) Common Area Maintenance (CAM)
CAM charges cover the upkeep of common areas like lobbies, restrooms, parking lots, and landscaping.
Formula: Annual CAM Charges = Total CAM Costs (÷) Total Square Footage (x) Tenant’s Square Footage
Example:
- Total CAM Costs: $50,000
- Total Building Square Footage: 100,000 sq. ft.
- Tenant’s Space: 10,000 sq. ft.
Annual CAM Charges = 50,000 (÷) 100,000 (x) 10,000 = $5,000
4.) Total NNN Costs
To determine the total NNN costs, add the individual components together.
Formula: Total NNN Costs = Annual Property Tax + Annual Property Insurance + Annual CAM Charges
Example: Total NNN Costs = 12,000 + 3,000 + 5,000 = $20,000
5.) Monthly NNN Costs
To find the monthly NNN costs, divide the total annual NNN costs by 12.
Formula: Monthly NNN Costs = Total Annual NNN Costs (÷) 12
Example: Monthly NNN Costs = 20,000 (÷) 12 = $1,666.67
6.) Price Per Square Foot
To determine the NNN costs as a price per square foot, divide the annual NNN costs by the tenant’s square footage.
Formula: NNN Price Per Square Foot = Total Annual NNN Costs (÷) Tenant’s Square Footage
Example:
- Total Annual NNN Costs: $20,000
- Tenant’s Space: 10,000 sq. ft.
NNN Price Per Square Foot = 20,000 (÷) 10,000 = $2.00 per sq. ft
Using these formulas can help tenants and landlords accurately calculate the NNN costs associated with a commercial lease and additionally convert them into a price per square foot. This information is essential for budgeting, financial planning, and comparing different properties on an equal footing.
If you have any specific questions and/or would like to further explore commercial real estate in Arizona, contact VandeWeerd Commercial.
Disclaimer: The information provided in this article is for educational and informational purposes only. It is not intended to be, nor should it be construed as, financial, legal, or investment advice. Readers are advised to consult with qualified professionals, such as financial advisors, attorneys, and/or real estate experts, before making any financial decisions or entering into any commercial real estate transactions. The author and publisher of this post make no representations or warranties regarding the accuracy, completeness, or suitability of the information provided herein. The use of this information is at the reader’s own risk.
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