What does NNN mean in commercial real estate?

NNN stands for triple net, a commercial lease structure in which the tenant pays the property's real estate taxes, building insurance, and maintenance costs in addition to base rent. NNN is the most common lease type for industrial and retail space in the Inland Empire, so a quoted NNN rate is never the tenant's total monthly cost.

What is a good cap rate for commercial property?

A good cap rate depends on the property type, location, tenant credit, and lease term — there is no single correct number. Lower cap rates mean investors are paying more for each dollar of net operating income, which usually signals lower perceived risk. Compare a property's cap rate against recent sales of similar buildings in the same submarket before judging it.

What is the difference between a gross lease and a net lease?

In a gross lease, the landlord pays the property's operating expenses — taxes, insurance, and maintenance — and the tenant pays one all-inclusive rent. In a net lease, the tenant pays some or all of those expenses on top of base rent. A triple net (NNN) lease passes through all three expense categories, while a modified gross lease splits them.

What are CAM charges in a commercial lease?

CAM charges — common area maintenance charges — are the tenant's share of the costs to operate a property's shared spaces, such as parking lots, landscaping, exterior lighting, and security. Landlords bill CAM charges on top of base rent in most NNN and retail leases, usually as an estimated monthly amount that is reconciled against actual costs each year.

What is a 1031 exchange in commercial real estate?

A 1031 exchange is an IRS provision that lets a commercial real estate investor defer capital gains tax by selling one investment property and reinvesting the proceeds into another like-kind property. Strict deadlines apply: the investor must identify replacement property within 45 days of closing and complete the purchase within 180 days, using a qualified intermediary.

What does a tenant rep broker do in commercial real estate?

A tenant rep broker represents the business leasing or buying commercial space, not the landlord. Tenant reps identify suitable properties, benchmark asking rents, negotiate lease terms such as tenant improvement allowances and free rent, and manage the transaction through signing. The landlord typically pays the tenant rep's commission, so most tenants get this representation at no direct cost.

Commercial Real Estate Terms: A–Z CRE Glossary

Lease type	Property taxes	Insurance	Maintenance & CAM	How rent is quoted
Gross (full-service) lease	Landlord	Landlord	Landlord	One all-inclusive rate
Modified gross lease	Split by negotiation	Split by negotiation	Split by negotiation	Base rate plus agreed expense shares
NNN (triple net) lease	Tenant	Tenant	Tenant	Base rate plus NNN expenses
Percentage lease	Usually tenant	Usually tenant	Usually tenant	Base rate plus a share of sales over a breakpoint
Ground lease	Tenant	Tenant	Tenant (owns improvements)	Rent on the land only

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1031 Exchange

A 1031 exchange is a tax-deferral strategy under Section 1031 of the Internal Revenue Code that allows a commercial real estate investor to sell one investment property and reinvest the proceeds in a like-kind property without immediately paying capital gains tax. Investors must identify replacement property within 45 days of closing and complete the purchase within 180 days, using a qualified intermediary. Many Inland Empire industrial sellers use 1031 exchanges to trade into larger assets or Coachella Valley holdings.

A

Absorption

Absorption is the net change in occupied commercial space in a market over a period, usually measured quarterly in square feet. Positive net absorption means tenants occupied more space than they vacated — a sign of demand — while negative absorption signals rising vacancy. Brokers track absorption closely in Inland Empire industrial submarkets such as Ontario, Fontana, and Moreno Valley to gauge market direction.

ALTA Survey

An ALTA survey is a detailed boundary survey prepared to national standards set by the American Land Title Association, showing property lines, easements, encroachments, improvements, and access. Commercial lenders and title insurers typically require an ALTA survey before closing a purchase or refinance.

Anchor Tenant

An anchor tenant is the largest or most traffic-driving tenant in a shopping center — often a grocery store or national retailer — whose presence attracts customers and supports the smaller in-line tenants around it. Losing an anchor tenant can trigger co-tenancy clauses that let other tenants reduce rent or terminate their leases.

Asking Rent vs. Effective Rent

Asking rent is the rate a landlord advertises for commercial space, while effective rent is what the tenant actually pays on average over the term after concessions such as free rent and above-standard tenant improvement allowances are factored in. Effective rent is the better number for comparing competing lease proposals.

B

Base Year

A base year is the first full year of a commercial lease, used as the benchmark for operating expenses in a full-service or modified gross lease. The landlord covers expenses up to the base-year amount, and the tenant pays its share of any increases above that level in later years.

Broker Opinion of Value (BOV)

A broker opinion of value (BOV) is a commercial broker’s estimate of what a property would sell or lease for, based on comparable sales, rent comps, and current market conditions. A BOV is faster and less expensive than a formal appraisal and is commonly used to price a listing or evaluate a portfolio.

Build-to-Suit

A build-to-suit is a development arrangement in which a landlord or developer constructs a building to a specific tenant’s requirements, and the tenant commits to a long-term lease on completion. Build-to-suit projects are common for industrial users with specialized needs in the Inland Empire’s logistics corridors.

C

CAM Charges (Common Area Maintenance)

CAM charges — common area maintenance charges — are a tenant’s pro-rata share of the cost to operate and maintain a property’s shared areas, including parking lots, landscaping, exterior lighting, and common utilities. CAM charges are billed on top of base rent in most NNN leases and reconciled annually against actual expenses. Read the full Apex guide to CAM charges in commercial real estate.

Cap Rate (Capitalization Rate)

A cap rate (capitalization rate) is a commercial property’s annual net operating income divided by its price, expressed as a percentage. Investors use cap rates to compare returns across properties: a lower cap rate means a higher price relative to income, usually reflecting lower perceived risk or stronger tenancy.

Capital Expenditures (CapEx)

Capital expenditures (CapEx) are major, long-lived investments in a commercial property — roof replacement, HVAC systems, parking lot reconstruction — as opposed to routine operating expenses. CapEx sits below the NOI line, which is why two buildings with identical NOI can produce very different actual cash flow.

Cash-on-Cash Return

Cash-on-cash return measures a commercial real estate investment’s annual pre-tax cash flow divided by the actual cash the investor put in, expressed as a percentage. Unlike a cap rate, cash-on-cash return accounts for financing, so it shows what the investor’s own equity is earning.

CCIM (Certified Commercial Investment Member)

CCIM (Certified Commercial Investment Member) is a professional designation awarded by the CCIM Institute to commercial real estate practitioners who complete graduate-level coursework in financial, market, and investment analysis and document a portfolio of qualifying transactions. Apex’s associate broker, Robert Mendieta Jr., holds the CCIM designation.

Clear Height

Clear height is the usable vertical distance from an industrial building’s floor to the lowest overhead obstruction, such as joists or sprinklers. Clear height determines how high a tenant can rack product, making it one of the first specs logistics users check when touring Inland Empire warehouse space.

Concessions

Concessions are incentives a landlord offers to win or keep a commercial tenant, most commonly free rent, above-standard tenant improvement allowances, or moving-cost contributions. Concession levels rise and fall with market conditions and are the main difference between asking rent and effective rent.

D

Dock-High vs. Grade-Level Loading

Dock-high loading positions a warehouse floor at trailer-bed height — about 48 inches above grade — so freight can roll straight into a semi-trailer, while grade-level (ground-level) doors sit at pavement height for drive-in access by vans and box trucks. Distribution users generally require dock-high doors; service and contractor users often prefer grade-level access.

DRE License

A DRE license is the authorization issued by the California Department of Real Estate that a person must hold to broker or sell real estate in the state, including commercial property. Every California listing and marketing piece must display the responsible broker’s DRE number — Apex Real Estate Services operates under associate broker Robert Mendieta Jr., DRE #01422904.

DSCR (Debt Service Coverage Ratio)

DSCR (debt service coverage ratio) is a commercial property’s net operating income divided by its annual loan payments. Lenders use DSCR to test whether a building’s income comfortably covers its debt — a DSCR of 1.25 means the property generates 25% more income than it needs to make its mortgage payments.

Due Diligence

Due diligence is the investigation period after a commercial purchase contract is signed, during which the buyer inspects the property, reviews leases and financials, orders title and survey work, and confirms zoning and environmental status. If material problems surface, the buyer can typically renegotiate or cancel before contingencies expire.

E

Entitlement

Entitlement is the legal process of obtaining the government approvals — zoning changes, conditional use permits, site plan approvals — needed to develop or change the use of a property. Entitlement timelines vary widely by city, and entitled land typically sells at a premium to raw land in Inland Empire and Coachella Valley markets.

Escalation Clause

An escalation clause is a commercial lease provision that raises rent on a set schedule, most often a fixed annual percentage increase or an adjustment tied to an index. Escalations compound over a multi-year term, so tenants should model the full-term cost of a lease, not just year-one rent.

Escrow

Escrow is a neutral third-party process that holds funds and documents while a commercial real estate transaction moves from signed contract to closing. The escrow holder disburses money and records the deed only when both sides have satisfied all conditions of the contract.

Estoppel Certificate

An estoppel certificate is a signed statement in which a commercial tenant confirms the key facts of its lease — rent, term, deposits, and any landlord defaults — for a buyer or lender. Estoppels prevent tenants from later contradicting those confirmed terms and are standard in sale and financing due diligence.

Expense Stop

An expense stop is a fixed dollar limit on the operating expenses a landlord will pay under a commercial lease; the tenant reimburses expenses above the stop. Expense stops function like a base-year mechanism and are common in modified gross office leases.

F

FAR (Floor Area Ratio)

FAR (floor area ratio) is the ratio of a building’s total floor area to the size of its lot, set by local zoning. A FAR of 0.5 allows a 10,000-square-foot building on a 20,000-square-foot lot. FAR caps effectively control how much density a commercial site can support.

Fee Simple

Fee simple is the most complete form of real property ownership, giving the owner full rights to the land and improvements indefinitely, subject only to government powers such as taxation and zoning. Fee simple ownership contrasts with leasehold interests, where rights come from a lease such as a ground lease.

G

Gross Lease

A gross lease (full-service lease) is a commercial lease in which the tenant pays one all-inclusive rent and the landlord covers property taxes, insurance, and maintenance. Gross leases are most common in multi-tenant office buildings. See the full gross lease vs. net lease comparison.

Ground Lease

A ground lease is a long-term lease — often 50 to 99 years — of land only, under which the tenant builds and owns the improvements during the term. Ground leases are common for pad sites, drive-thrus, and fuel stations along retail corridors, and improvements typically revert to the landowner at expiration. Learn more in the guide to types of commercial leases.

H

Holdover

Holdover is when a commercial tenant stays in its space after the lease expires without a signed renewal. Most leases convert a holdover tenancy to month-to-month at a premium rent — often 125% to 150% of the final contract rent — and may make the tenant liable for damages the landlord suffers from the delay.

I

IOS (Industrial Outdoor Storage)

IOS (industrial outdoor storage) is a category of industrial property whose primary value is fenced, stabilized yard space for storing trucks, trailers, containers, or equipment, usually with a small building or none at all. IOS has become one of the most sought-after niches in the Inland Empire, where zoning that allows outdoor storage is scarce relative to logistics demand.

L

Listing Agreement

A listing agreement is the contract between a property owner and a real estate broker that authorizes the broker to market the property for sale or lease and defines the commission. Most commercial listing agreements are exclusive-right-to-sell or exclusive-right-to-lease, meaning the broker earns the fee regardless of who procures the buyer or tenant.

Load Factor

Load factor is the multiplier that converts usable square feet to rentable square feet in a multi-tenant building, accounting for the tenant’s share of lobbies, corridors, and restrooms. With a 15% load factor, a tenant occupying 1,000 usable square feet pays rent on 1,150 rentable square feet.

LOI (Letter of Intent)

An LOI (letter of intent) is a short, mostly non-binding document that lays out the key business terms of a proposed commercial lease or purchase — price or rent, term, concessions, and contingencies — before attorneys draft the full contract. Negotiating a clear LOI first saves both sides legal fees and surfaces deal-breakers early. The Apex guide to how to lease commercial property walks through the LOI stage step by step.

M

Mezzanine Debt

Mezzanine debt is a layer of commercial real estate financing that sits between the senior mortgage and the owner’s equity, typically secured by a pledge of ownership interests rather than the property itself. Because it takes more risk than the first mortgage, mezzanine debt carries a higher interest rate.

Modified Gross Lease

A modified gross lease is a commercial lease in which the landlord and tenant split operating expenses — for example, the tenant pays utilities and janitorial while the landlord covers taxes, insurance, and structural maintenance. It sits between a gross lease and an NNN lease on the expense spectrum. See the full modified gross lease guide.

N

NNN Lease (Triple Net Lease)

An NNN lease (triple net lease) is a commercial lease in which the tenant pays the property’s real estate taxes, insurance, and maintenance — the three “nets” — in addition to base rent. NNN is the dominant structure for industrial and retail space across the Inland Empire and Coachella Valley. Read the complete Apex triple net (NNN) lease guide.

NOI (Net Operating Income)

NOI (net operating income) is a commercial property’s total income minus its operating expenses, calculated before debt service, income taxes, and capital expenditures. NOI is the foundation of commercial valuation: dividing NOI by the market cap rate estimates what a property is worth.

O

Operating Expenses (OpEx)

Operating expenses (OpEx) are the recurring costs of running a commercial property — property taxes, insurance, utilities, maintenance, management, and CAM items. Who pays which operating expenses is the defining difference among gross, modified gross, and NNN lease structures.

P

Pad Site

A pad site is a standalone parcel at the edge of a shopping center or along a commercial corridor, typically ground-leased or sold to a single user such as a drive-thru restaurant, bank, or car wash. Pad sites trade on visibility and traffic, and they are a staple of retail development in high-growth Inland Empire cities.

Parking Ratio

Parking ratio is the number of parking stalls a commercial property provides per 1,000 square feet of building area. Cities set minimum parking ratios by use in their zoning codes, and uses like medical office and call centers need substantially higher ratios than warehouses.

Percentage Lease

A percentage lease is a retail lease in which the tenant pays base rent plus a percentage of gross sales above an agreed threshold, called the breakpoint. Percentage leases align the landlord’s income with the retailer’s performance and are most common with anchor and mall tenants. See how they fit among the types of commercial leases.

Pro Forma

A pro forma is a forward-looking financial projection of a commercial property’s income, expenses, and returns under stated assumptions. Buyers should stress-test pro forma assumptions — rents, vacancy, and expense growth — against actual operating history and current submarket data before relying on them.

R

Rentable vs. Usable Square Feet

Usable square feet is the space a tenant exclusively occupies, while rentable square feet adds the tenant’s pro-rata share of building common areas. Commercial rent is quoted on rentable square feet, so two suites with identical usable area can carry different total rents if their buildings have different load factors.

S

Sale-Leaseback

A sale-leaseback is a transaction in which a business sells the property it owns and occupies to an investor, then leases it back long-term — usually on NNN terms. The seller unlocks capital tied up in real estate while keeping operational control of the facility, and the buyer acquires a stabilized, single-tenant investment.

SNDA (Subordination, Non-Disturbance, and Attornment)

An SNDA (subordination, non-disturbance, and attornment agreement) is a three-way agreement among tenant, landlord, and lender that subordinates the lease to the mortgage while guaranteeing the tenant’s right to stay if the lender forecloses. Tenants making major improvements should always request an SNDA with non-disturbance protection.

Sublease

A sublease is an arrangement in which an existing commercial tenant rents all or part of its space to another business while remaining responsible to the landlord under the original master lease. Sublease space often comes to market below direct asking rents, but subtenants inherit the master lease’s terms and its remaining term.

T

Tenant Improvements (TI)

Tenant improvements (TI) are the modifications made to commercial space for a specific tenant — walls, flooring, HVAC, lighting, office build-out. A TI allowance is the dollar amount per square foot the landlord contributes toward that work, and it is one of the most heavily negotiated economic terms in a commercial lease.

Tenant Representation (Tenant Rep)

Tenant representation (tenant rep) is brokerage service provided exclusively to the space user — the business leasing or buying — rather than to the landlord. A tenant rep broker surveys the market, benchmarks rents, and negotiates terms, and is typically paid through a commission split from the landlord’s side. See how representation fits into leasing commercial property.

V

Vacancy Rate

Vacancy rate is the percentage of a market’s or building’s total rentable space that sits empty and available. Rising vacancy usually pushes rents down and concessions up, while falling vacancy does the opposite. Brokers compare submarket vacancy rates — for example, across Inland Empire industrial corridors — to gauge negotiating leverage.

Value-Add

Value-add is an investment strategy targeting commercial properties with fixable problems — below-market rents, vacancy, deferred maintenance, or weak management — where targeted improvements can raise NOI and therefore value. Value-add deals carry more risk than stabilized core assets and are priced accordingly.

Z

Zoning

Zoning is the system by which cities and counties regulate what each parcel of land can be used for and how intensely it can be developed. Common commercial designations include C-1 (neighborhood commercial) and M-1 (light industrial/manufacturing), though exact codes vary by city — always verify a specific parcel’s zoning with the local planning department before leasing or buying.

Commercial Real Estate Terms: The A–Z CRE Glossary

What are the most important commercial real estate terms?

Key takeaways

How the main commercial lease types compare

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