Essential CRE Terms: Real Estate Maintenance and Upgrades Unveiled

Essential CRE Terms: Real Estate Maintenance and Upgrades Unveiled

Effectively managing a commercial property involves a continuous focus on maintenance and enhancements to ensure the property remains in optimal condition. This is not only crucial for tenant satisfaction but also for attracting new tenants. In this edition of “Terms,” we delve into common phrases used by real estate professionals when discussing repairs, improvements, and maintenance in commercial spaces.

1. Make Ready Costs: Getting Ready for Occupancy

A term familiar to multifamily operations within the commercial real estate (CRE) sector is “Make Ready Costs.” Defined by Adventures in CRE, these costs encompass minor repairs and maintenance work performed on an apartment unit to ensure it is in suitable condition before being placed on the market for lease. The scope of work can vary, ranging from deep cleaning to repainting, floor and fitting repairs, and preventive maintenance.

2. Cold Shell to Warm Shell: The Evolution of a Building

In the realm of newly developed or completely gutted buildings, the term “Cold Shell” is used to describe a structure without existing amenities or interior finishes, such as plumbing, lighting, and HVAC. Once equipped with necessary improvements, it transforms into a “Warm Shell,” often customized according to a tenant’s specifications. Notably, “warm shell improvements” are typically initiated after a lease has been signed to avoid unnecessary spending on improvements that may not align with the tenant’s needs.

3. Tenant Improvements: Tailoring Spaces to Tenant Needs

At the commencement of a new lease, landlords may offer “Tenant Improvements” for office, retail, or industrial spaces. This involves making alterations to meet the tenant’s layout requirements, such as adding walls, partitions, shelving, bathrooms, or doors. The responsibility for covering these improvement costs is subject to negotiation between the landlord and tenant, with options ranging from a “Turnkey” arrangement to a “Tenant Improvement Allowance.”

4. Common Area Maintenance (CAM): Sustaining Day-to-Day Operations

For properties with established tenants, property managers are tasked with handling basic day-to-day maintenance requests. “Common Area Maintenance” or “CAM” encompasses the aspects of daily maintenance that tenants are expected to contribute to. As clarified by Adventures in CRE, common CAM items may include janitorial services, landscaping, common area electricity, security, trash removal, and snow removal. Essentially, CAM covers all services and operations benefiting tenants collectively, playing a crucial role in maintaining the property for both new and established occupants.

In conclusion, understanding and effectively navigating these terms is essential for property managers and real estate professionals involved in the maintenance and improvement aspects of commercial properties.