The Real Estate Source

The Natural Break Point is the occurrence when all of the base rent has been met and a negotiated percentage rent above the natural break point is begins.

Here is the assumption,

You have a base rent of $25.00 PSF and 5,000 SF $25.00 PSF x 5,000 SF = $125,000.00 = Total annual base rent Yr. 1 of lease term.

$125,000.00 Divided by 6%*= $2,083,333.30

*Note the 6% is an arbitrary number that is inserted for all other operating expenses, usually it’s 4% on Retail and 6% on Restaurants, but considering inflation these percentage numbers can change, but in any case this is the formula.

Assume there is a negotiated percentage rent above the natural break point, this is the point where a landlord has added in value to a deal, providing for TI allowance or some monetary concessions, usually a lower base then market and or TI allowance above the vanilla shell, for improvements, so they can share in the upside.
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This entry was posted on June 7, 2011 at 1:03 pm and is filed under Leases, Retail and Restaurant Leasing Specialist with tags Lease, Restaurants and The Art of the Deal!, Retail. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.