Commercial Real Estate


DEFINITION of 'Commercial Real Estate'

Property that is used solely for business purposes. Examples of commercial real estate include malls, office parks, restaurants, gas stations, convenience stores and office towers. Commercial real estate is one of the three primary types of real estate. The other types are residential real estate, which is used for living purposes; and industrial real estate, which is used for manufacturing and production. The businesses that occupy commercial real estate usually lease the space. An investor usually owns the building and collects rent from each business that operates there.

BREAKING DOWN 'Commercial Real Estate'

There are four primary types of commercial real estate leases, each requiring different levels of responsibility from the landlord and the tenant. In addition to rent, a single net lease makes the tenant responsible for paying property taxes; a double-net (NN) lease makes the tenant responsible for paying property taxes and insurance; and a triple-net (NNN) lease makes the tenant responsible for paying property taxes, insurance and maintenance. Under a gross lease, the tenant pays only rent; the landlord pays for the building's property taxes, insurance and maintenance.

Investing in commercial real estate often requires a considerable amount of startup capital and extensive knowledge of the legal, financial and regulatory aspects of owning this type of property. Investors who don't want to deal with these hassles directly can gain exposure to commercial real estate through real estate investment trusts (REITs).

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