An industrial gross lease (also called a modified gross lease in some markets) is a type of commercial real estate contract that is often used to create a mutually beneficial deal between the property owner and the tenant on an industrial or warehouse property. In an industrial gross lease, the tenant is responsible for some (but not all) of the operating expenses of the property, which they pay to the property owner in addition to their agreed upon monthly rent.
The terms of each industrial gross rate can vary drastically, as each deal is negotiated to the specifications of the space and how the tenant will use it for their business. As a result, the terms of an industrial lease are often a middle ground between the terms of a gross lease and a triple net lease. In an industrial gross lease, the tenant is responsible for some (but not all) of the operating expenses of the property but they still get to pay them as part of one monthly rent amount.
How Does an Industrial Gross Leases Compare to a Gross Lease or a Triple Net (NNN) Lease?
In a gross lease, the property owner is financially responsible for the building, and covers all the expenses associated to its operation (including taxes, insurance, and maintenance). To help recoup some of these costs, the property owner builds them into the monthly rent amount that a tenant pays for use of the building. the property owner pays all of the expenses associated to the building, in exchange for a monthly, all-inclusive rent sum.
In a triple net lease, the tenant (in addition to monthly rent payments) assumes all or most of the operating expenses and property costs into their own business, which usually include:
- Property Taxes
- Insurance Premiums
- Maintenance, Repairs and Upkeep
Industrial Gross (IG) Rent Vs. NNN Rent
As you’re searching through commercial real estate investments on the market, you may come across the term “IG” or “IG Rent” on certain properties suited to industrial business or warehousing. Industrial gross (IG) rent implies that the tenant will share in the operating expenses of the building for a monthly rental rate (that may be included or separate from their space rental fee).
For example, in an industrial gross lease, a tenant may be required to pay a rent amount that covers the upkeep and maintenance costs as well as certain portion of insurance premiums, but does not include utilities or janitorial services. This means those costs not shared with or covered by the property owner will fall upon the tenant, who will need to build them into their operating business budget and cover those costs separately.
On the other hand, triple net (NNN) rent will typically be lower than that outlined in an industrial gross lease because the tenant is responsible for taxes, insurance, and maintenance expenses on their own accord, in addition to their rent payment.
Pros and Cons of an Industrial Gross Lease: Investors
An industrial gross lease can be advantageous for investors by giving them control over certain aspects of their property that they don’t want to be the sole responsibility of their tenants. Many investors use IG rent to help cover the costs they do assume in an industrial gross lease, which minimizes financial risk and improves returns.
One of the main drawbacks of an industrial gross lease is that they have to assume some to most of the responsibilities (financial and otherwise) of being a landlord. A property with an industrial gross lease in place will require more of an investor’s time and resources to manage and they will also have to assume more financial risk due to unknown or unexpected costs that come up when the property needs repairs or work.
Pros and Cons of an Industrial Gross Lease: Tenants
An industrial gross lease can be advantageous because they have a location for their business, and although they share in some operational costs, they don’t have to assume all the expenses and responsibilities of being a property owner themselves.
However, increased rent payments that are inclusive of shared operating costs as well as additional costs a tenant will have to cover themselves can bring about financial strain and risk the success of a business in an industrial location.
Sands Investment Group is a unique team of distinguished net lease brokers and advisors who fully understand the benefits and drawbacks of various lease types, and can advise clients on the best deal for their portfolio goals. Our client-focused approach, extensive connections, and marketing expertise are just a few of the reasons we’re the fastest growing net lease investment company in America, closing 1,900 transactions worth $4.5 Billion since 2010.
Get in touch with a net lease expert today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.
What does ig stand for in commercial real estate
(IG) is a common abbreviation for Industrial Gross. The abbreviation can be used when referencing both Industrial Gross Lease and Industrial Gross Rent. ‘IG’ is commonly found on lease abstracts or offering memorandums.