Renting, Leasing, or Owning Commercial Space

Once land is acquired, the process of finding tenants that satisfy the needs of the community and fit the organizational mission is equally important. Organizations need to define their process for prospecting and qualifying tenants, as well as lease terms, reporting requirements, and other expectations.

On this page, we cover the two main ways commercial tenants pay for their spaces:
Master Lessor
Shared Equity
Sources

Other topics we cover in this section of the website:

  • Leasing Strategies: How should organizations structure rentals and spaces in order to attract and retain the right commercial tenants to fulfill their missions? Strategies for determining uses of the space, prospecting and qualifying tenants, and setting lease terms are discussed.
  • Criteria for Leasing: Renters of affordable commercial spaces will not be the strongest businesses financially, so what should lessors use instead? Community and workforce criteria are outlined.
  • Examples of Renting Affordable Space: How organizations have structured their leases to achieve their goals. Examples include tenant mix diversity, critical community services, commercial corridors redevelopment, shared equity, and incubators.

There are two main ways commercial tenants pay for their spaces: leasing, or shared equity.

Master Lessor: In this model, a non-profit entity retains ownership of a commercial structure and the land underneath. The entity then either manages individual leases with all businesses or partners with another non-profit to manage business leases.

A common variation of a master lessor non-profit is an incubator, in which the entity provides additional business development support to many businesses that lease space from the entity. The intent is to provide start-up support for many community residents, rather than providing long-term business space.

Shared Equity: In this model, a non-profit entity retains ownership of the land but sells the building or spaces within the building to business owners. These business owners must agree to a resale formula that sets an annual equity limit so that when the owner resells the space, the price of the building or space is affordable. This is called shared-equity because the cost of the mortgage is shared between the business owner and the landowner.

Another form of equity is lease-to-own in which a potential buyer leases the building for a specific amount of time with the intent to purchase at the end. Until then, the entity retains ownership of both the land and building and sets aside a portion of the potential buyer’s monthly payment to be credited towards a down payment. Credits will not apply if the resident does not uphold aspects of purchase agreement.

Sources:

Sorce, Elizabeth. “The Role of Community Land Trusts in Preserving and Creating Commercial Assets: A Dual Case Study of Rondo CLT and in St. Paul, Minnesota and Crescent City CLT in New Orleans, Louisiana.” University of New Orleans. 2012. PDF File.

Small Business Incubators.” Neighborhood Development Center. 2014. Web 10 November 2014.

“Shared Equity Research.” Urban Institute. 2014. Web. 7 November 2014.

Home Buyer Rehab/Lease to Purchase.” Community Land Trust of Schenectady. n.d. Web. 10 November 2014.

 

 

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