Behind the Scenes w/ David Brown - Commercial landlords, pay your own taxes, insurances and maintenance. NNN is bullshit.
Behind the Scenes: David Brown Rants on Commercial Real Estate (and Why It Grinds His Gears)
Time to unleash my inner Peter Griffin and tell you what really grinds my gears about commercial real estate! As film producer and entrepreneur David Brown explains, some common practices just don't make sense. This article unpacks Brown's frustrations with commercial real estate, specifically NNN leases and restrictive tenant clauses. Want to hear it straight from the source? Watch David Brown's commercial real estate rant.
Triple Net (NNN) Leases: The "Ass Backwards" Reality
What exactly is a triple net lease? Why does David Brown think it's "ass backwards?" Let's dive in.
What is NNN?
In a triple net (NNN) lease, tenants pay rent plus three additional costs. These include property taxes, insurance, and maintenance. It's different from residential leases. Usually, a landlord covers these expenses from the rental income they receive.
Brown's Perspective: Hidden Costs and Unfair Practices
Brown's main issue? He believes the advertised price per square foot should include all costs. He sees NNN as a way to inflate the price without being upfront. As Brown says, "When you advertise a price per square foot, that should be it!"
The Impending "Revolt" in Commercial Real Estate?
Could this frustration lead to change? With so many empty office spaces post-COVID, maybe it's time for a shift. The U.S. saw a record high vacancy rate in Q1 2024, at 13.8%. Perhaps landlords should cover their own taxes and insurance and charge fair market rent.
The Bigger Picture: Wealth, Power, and the Consumer
NNN leases highlight wealth inequality. Landlords pass costs to tenants. Then tenants pass those costs to you, the consumer. As Brown puts it, "The rich control this world."
Excluded Activities: When Anchor Tenants Dictate the Market
Ever heard of "excluded activities" in a commercial lease? It means certain tenants can dictate who can't rent space nearby. Why is this even a thing?
Outdated and Anti-Competitive?
Brown finds this practice incredibly frustrating. Major tenants can restrict competition. Is this really a free market?
The Bed Bath & Beyond Example: A Cautionary Tale
Bed Bath & Beyond's lease serves as a prime example. They didn't want any "lesser brand" stores nearby. This included competitors like Burlington Coat Factory, TJ Maxx, and Marshalls. The irony? After Bed Bath & Beyond went bankrupt, Burlington Coat Factory moved in!
Beyond Bed Bath & Beyond: Other Common Restrictions
What other businesses face these restrictions? Here are a few examples:
Pawn Shops
Storage Units
Salons
Brown's Stance: A Free Market Should Prevail
Brown believes landlords should rent to whomever they choose. He sees these restrictions as leaning toward "monopoly or antitrust" territory.
The Play Parks Trampoline Saga: Restrictions in Action
Brown faced hurdles opening his Play Parks facility. Other tenants (Sam's Club, Walmart, Academy Sports, Guitar Center) had to approve his trampoline park. The kicker? Academy Sports sells trampolines but didn't want a trampoline park nearby.
Call to Action: Landlords and Tenants, It's Time for a Change
Brown has a clear message for both landlords and tenants.
Brown's Direct Message to Landlords:
"Pay your own triple net – cover your own taxes and insurance. It's your job as the owner!"
Brown's Direct Message to Tenants:
"Don't dictate to landlords who the other tenants can be. It's a free market!" If you're worried about competition, adjust your model, lower your prices, and earn our business."
Brown believes commercial real estate needs to be fairer and more competitive.
Conclusion
NNN leases and restrictive tenant clauses seem outdated. It's time for a change. What are your thoughts on commercial real estate practices? Share your experiences in the comments below!
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