What is a percentage Lease in commercial real estate?

As a real estate investor, you're likely familiar with the most common lease structures, such as full-service gross, triple net (“NNN”), and modified gross leases. However, there's another type of lease that can be particularly advantageous in certain situations: the percentage lease. In this blog post, we'll dive into the ins and outs of percentage leases, exploring what they are, how they work, and when they might be the right choice for your commercial real estate investments.

What Is a Percentage Lease?

A percentage lease is a type of commercial real estate lease where the tenant pays a base rent plus a percentage of their gross sales above a certain threshold. This structure allows the landlord to participate in the success of the tenant's business while still providing a stable base income. Percentage leases are most common in retail properties, such as shopping centers, malls, and street-front retail spaces, where tenant sales can vary significantly based on factors like location, foot traffic, and seasonality.

2. How do percentage Leases work?

In a typical percentage lease, the tenant pays a base rent that is usually lower than what they would pay in a traditional fixed-rent lease. In addition to this base rent, the tenant agrees to pay the landlord a percentage of their gross sales that exceed a predetermined breakpoint. The breakpoint is typically set at a level that ensures the landlord receives a fair base rent while also allowing the tenant to cover their operating expenses and generate a profit.

For example, let's say a retail tenant signs a percentage lease with a base rent of $5,000 per month and a breakpoint of $100,000 in gross sales. If the percentage rate is set at 5%, the tenant would pay the landlord an additional $500 for every $10,000 in gross sales above the $100,000 breakpoint. So, if the tenant's gross sales for a particular month were $150,000, they would owe the landlord the $5,000 base rent plus $2,500 (5% of the $50,000 in sales above the breakpoint), for a total of $7,500.

3. Key Components of a percentage lease

To fully understand how percentage leases work, it's essential to familiarize yourself with the key components that make up this type of lease agreement:

Base Rent:
The base rent is the fixed monthly amount that the tenant pays to the landlord, regardless of their sales performance. This base rent is typically lower than what the tenant would pay in a traditional fixed-rent lease, as it takes into account the potential additional revenue the landlord may receive through percentage rent. The base rent is usually calculated based on factors such as the size and location of the leased space, the tenant's creditworthiness, and the overall market conditions. In some cases, the base rent may be subject to annual increases based on a fixed percentage or tied to an inflation index, such as the Consumer Price Index (“CPI”).
Breakpoint:
The breakpoint is the predetermined level of gross sales at which the percentage rent obligation is triggered. In other words, it is the threshold above which the tenant must start paying a percentage of their sales to the landlord, in addition to the base rent. The breakpoint is typically set at a level that ensures the landlord receives a fair return on their investment while still allowing the tenant to cover their operating expenses and generate a reasonable profit. The specific breakpoint can be negotiated between the landlord and tenant and may vary depending on factors such as the tenant's industry, the property's location, and the overall market conditions. For example, if the breakpoint is set at $500,000 in annual gross sales, the tenant will only start paying percentage rent on any sales above that amount. If the tenant's annual sales are $750,000, they will pay percentage rent on the $250,000 in sales above the breakpoint.
Percentage Rate:
The percentage rate is the portion of the tenant's gross sales above the breakpoint that the landlord is entitled to receive as additional rent. This rate is negotiated between the landlord and tenant and can vary depending on factors such as the tenant's industry, the property's location, and the overall market conditions. Percentage rates typically range from 2% to 10% of gross sales above the breakpoint, with the specific rate depending on the tenant's business type and the property's potential for generating high sales volumes. For example, a high-end retailer in a prime shopping center may have a higher percentage rate than a small, local business in a neighborhood strip center.
Gross Sales:
Gross sales refer to the total revenue generated by the tenant from their business operations conducted on the leased premises. This includes all sales, whether they are cash, credit, or otherwise, and is typically calculated on a monthly or annual basis for the purpose of determining percentage rent. It's important for the lease agreement to clearly define what is included in gross sales and any exclusions or deductions that may apply. Common exclusions may include sales taxes, returns, and online sales that are not fulfilled from the physical store location.
Sales Reporting and Audits:
To calculate the percentage rent owed, the tenant is required to provide the landlord with regular sales reports, typically on a monthly or quarterly basis. These reports should include detailed information on the tenant's gross sales for the relevant period, along with any supporting documentation, such as cash register receipts or sales tax returns. The lease agreement should also specify the landlord's right to audit the tenant's sales records to verify the accuracy of the reported sales figures. This helps to ensure transparency and accountability in the percentage rent calculation process and protects the landlord's interests.

4. Negotiating a percentage lease

When negotiating a percentage lease, both the landlord and tenant should carefully consider their respective goals, risk tolerance, and market position. Some key points to address in the negotiation process include:

Setting the Base Rent:
The base rent should be set at a level that provides the landlord with a fair return on their investment while still being affordable for the tenant. The tenant will want to negotiate the lowest possible base rent to minimize their fixed expenses, while the landlord will want to ensure that the base rent covers their carrying costs, such as mortgage payments, property taxes, and insurance.
Determining the Breakpoint:
The breakpoint should be set at a level that is realistically achievable for the tenant based on their projected sales, industry benchmarks, and market conditions. The tenant will want to negotiate a higher breakpoint to minimize their percentage rent obligations, while the landlord will want to set the breakpoint at a level that ensures they receive a fair share of the tenant's success.
Establishing the Percentage Rate:
The percentage rate should be based on market norms for the specific property type, location, and tenant industry. The landlord will want to negotiate a higher percentage rate to maximize their potential upside, while the tenant will want to keep the rate as low as possible to retain more of their profits.
Defining Gross Sales:
The lease agreement should clearly define what is included in gross sales and any exclusions or deductions that may apply. This helps to avoid disputes and ensure that both parties have a clear understanding of how the percentage rent will be calculated.
Negotiating Sales Reporting and Audit Rights:
The lease should specify the frequency and format of the tenant's sales reporting obligations, as well as the landlord's right to audit the tenant's records. The tenant may want to negotiate limitations on the landlord's audit rights, such as requiring reasonable notice or limiting the frequency of audits, while the landlord will want to ensure that they have sufficient access to the tenant's records to verify the accuracy of the reported sales.

5. Advantages of Percentage Leases for landlords

Percentage leases offer several compelling advantages for landlords, making them an attractive option for those seeking to maximize the value and performance of their retail properties. By aligning the interests of the landlord and tenant, percentage leases create a framework for shared success and long-term prosperity.

Upside Potential

One of the primary advantages of percentage leases for landlords is the potential for higher rental income. By tying a portion of the rent to the tenant's sales performance, landlords can participate in the upside of a successful business and benefit from the growth and profitability of their tenants.

In a traditional fixed-rent lease, the landlord's income is limited to the predetermined base rent, regardless of how well the tenant's business performs. In contrast, a percentage lease allows the landlord to share in the tenant's success and capture a portion of their incremental sales growth.

For example, consider a retail tenant who signs a percentage lease with a base rent of $50,000 per year, a breakpoint of $1 million in annual gross sales, and a percentage rate of 5%. If the tenant's business thrives and generates $1.5 million in gross sales, the landlord would be entitled to an additional $25,000 in percentage rent (5% of the $500,000 in sales above the breakpoint). This represents a significant increase in rental income compared to a fixed-rent scenario.

The upside potential of percentage leases is particularly valuable for landlords in high-traffic, high-sales environments, such as prime shopping centers, outlet malls, or tourist destinations. In these locations, the combination of strong tenant sales and a well-structured percentage lease can result in substantial incremental income for the landlord.

Alignment of Interests

Another key advantage of percentage leases for landlords is the alignment of interests between the landlord and tenant. In a fixed-rent lease, the landlord's primary focus is on collecting the base rent and maintaining the property, while the tenant's focus is on maximizing their own profitability. This can lead to a misalignment of priorities and a lack of shared commitment to the success of the property.

In contrast, a percentage lease creates a direct financial incentive for the landlord to support and promote the tenant's business. The more successful the tenant is, the more percentage rent the landlord stands to earn. This alignment of interests fosters a collaborative and mutually beneficial relationship between the parties.

For example, a landlord with a percentage lease tenant may be more willing to invest in property improvements, such as upgraded signage, landscaping, or parking facilities, knowing that these enhancements can help drive tenant sales and increase their own percentage rent income. Similarly, the landlord may be more proactive in marketing the property, attracting complementary tenants, and creating a vibrant retail environment that supports the success of all tenants.

This alignment of interests can lead to a virtuous cycle of investment, growth, and prosperity for both the landlord and tenant. By working together to optimize the property's performance and drive tenant sales, both parties can achieve their financial goals and create long-term value for the property.

Risk Mitigation

Percentage leases also offer a degree of risk mitigation for landlords, particularly in uncertain economic conditions or when leasing to untested concepts or start-up businesses. The base rent component of a percentage lease provides the landlord with a guaranteed minimum income stream, even if the tenant's sales do not meet expectations.

In a fixed-rent lease, the landlord assumes the full risk of the tenant's ability to pay the agreed-upon rent, regardless of their sales performance. If the tenant's business struggles or fails, the landlord may be left with a vacant space and no rental income until a new tenant can be found.

With a percentage lease, the base rent serves as a safety net for the landlord, ensuring that they can cover their basic property expenses and debt service obligations even if the tenant's sales are lower than anticipated. The percentage rent component provides the upside potential, but the base rent mitigates the downside risk.

For example, consider a start-up restaurant concept that signs a percentage lease with a base rent of $75,000 per year, a breakpoint of $1.5 million in annual gross sales, and a percentage rate of 6%. If the restaurant struggles in its first year and only generates $1 million in gross sales, the landlord would still receive the full $75,000 base rent, providing a stable income stream to cover their property expenses.

This risk mitigation can be particularly valuable for landlords in markets with high vacancy rates, economic uncertainty, or a prevalence of new and unproven concepts. By structuring leases with a base rent and percentage rent component, landlords can reduce their exposure to tenant credit risk and maintain a more predictable cash flow.

Market Insights and Benchmarking

Percentage leases also provide landlords with valuable insights into the sales performance and market dynamics of their properties. By receiving regular sales reports from tenants, landlords can gain a deeper understanding of the factors that drive tenant success, identify trends and opportunities, and make more informed decisions about property management and leasing.

For example, a landlord with multiple percentage lease tenants can compare sales performance across different categories, locations, or time periods to identify top-performing tenants, assess the impact of marketing initiatives or property improvements, and benchmark their property against competitive assets.

This market intelligence can help landlords make data-driven decisions about tenant mix, rental rates, capital investments, and leasing strategies. By understanding the sales potential and performance of their properties, landlords can optimize their assets to maximize value and drive long-term growth.

In addition, the sales data generated by percentage leases can be a valuable tool for attracting new tenants and negotiating favorable terms. Landlords can use this data to demonstrate the strong sales performance of their properties, justify higher rental rates or percentage rent thresholds, and attract top-tier tenants who are looking for proven locations with a track record of success.

Flexibility and Adaptability

Finally, percentage leases offer landlords a degree of flexibility and adaptability in structuring rental agreements to meet the unique needs and characteristics of different tenants and market conditions. By negotiating the specific terms of the base rent, breakpoint, percentage rate, and other lease provisions, landlords can create customized leases that balance risk and reward, incentivize tenant performance, and align with their overall investment objectives.

For example, a landlord may offer a lower base rent and higher percentage rate to attract a high-volume, low-margin tenant, such as a discount retailer or fast-food chain. Alternatively, they may negotiate a higher base rent and lower percentage rate for a luxury or specialty retailer with strong brand recognition and customer loyalty.

This flexibility allows landlords to adapt to changing market conditions, tenant demands, and consumer preferences. By structuring leases that are responsive to the needs of different tenants and market segments, landlords can maintain high occupancy rates, generate stable cash flows, and create a diverse and resilient tenant mix.

Moreover, the flexibility of percentage leases can be a valuable tool for landlords in negotiating lease renewals and retaining top-performing tenants. By offering adjustments to the base rent, breakpoint, or percentage rate based on the tenant's sales performance and growth potential, landlords can create incentives for tenants to renew their leases and continue to invest in their businesses.

In summary, percentage leases offer a range of compelling advantages for landlords, including the potential for higher rental income, alignment of interests with tenants, risk mitigation, market insights and benchmarking, and flexibility in structuring rental agreements. By carefully considering these advantages and negotiating lease terms that balance risk and reward, landlords can create a framework for long-term success and value creation in their retail properties.

6. Disadvantages of percentage leases for landlords

While percentage leases offer several potential benefits for landlords, they also come with some notable drawbacks and challenges that should be carefully considered before entering into this type of rental agreement. These disadvantages can impact the landlord's financial stability, management responsibilities, and overall investment strategy.

Income Uncertainty

One of the primary disadvantages of percentage leases for landlords is the inherent uncertainty and variability of rental income. Unlike fixed-rent leases, where the landlord knows exactly how much rent they will receive each month, percentage leases tie a portion of the rental income to the tenant's sales performance, which can fluctuate based on a variety of factors.

This income uncertainty can make it more difficult for landlords to accurately project their cash flows, budget for expenses, and make long-term financial plans. If a tenant's sales are lower than expected, the landlord may not receive the anticipated percentage rent, which can impact their ability to cover property expenses, service debt, or fund capital improvements.

For example, consider a retail tenant who signs a percentage lease with a base rent of $50,000 per year, a breakpoint of $1 million in annual gross sales, and a percentage rate of 5%. If the tenant's business experiences a downturn and only generates $800,000 in gross sales, the landlord would not receive any percentage rent and would be limited to the base rent of $50,000, which may not be sufficient to cover their expenses.

This income uncertainty can be particularly challenging for landlords who rely on their property income to support their personal financial obligations or investment goals. In addition, the variable nature of percentage rent can make it more difficult for landlords to obtain financing or attract investors, as lenders and partners may prefer the predictability and stability of fixed-rent leases.

Tenant Creditworthiness and Default Risk

Another potential disadvantage of percentage leases for landlords is the increased exposure to tenant creditworthiness and default risk. In a fixed-rent lease, the landlord's primary concern is whether the tenant can pay the agreed-upon base rent. However, in a percentage lease, the landlord's income is also tied to the tenant's sales performance and financial health.

If a tenant's business struggles or fails, the landlord may not only lose the percentage rent, but also face the risk of default on the base rent. This can be particularly problematic for landlords who have a high concentration of percentage lease tenants or who are relying on the income from a specific tenant to support their overall investment strategy.

For example, consider a shopping center where 50% of the tenants are on percentage leases, and a large anchor tenant with a percentage lease experiences financial difficulties and is forced to close their store. The loss of this tenant could have a ripple effect on the entire property, reducing foot traffic, sales, and percentage rent for the remaining tenants, and potentially leading to additional vacancies and defaults.

To mitigate this risk, landlords may need to perform more extensive due diligence on potential percentage lease tenants, including reviewing their financial statements, business plans, and credit history. Landlords may also require additional security deposits, guarantees, or other forms of credit enhancement to protect their interests in the event of a default.

Increased Management and Administrative Responsibilities

Percentage leases also typically involve greater management and administrative responsibilities for landlords compared to fixed-rent leases. To accurately calculate and collect percentage rent, landlords must regularly review and audit tenant sales reports, verify the accuracy of reported sales figures, and ensure compliance with lease terms.

This increased oversight and administration can be time-consuming and costly, particularly for landlords with multiple percentage lease tenants or large portfolios. Landlords may need to invest in specialized accounting software, hire additional staff, or outsource the administration of percentage leases to third-party providers.

In addition to the financial reporting and auditing requirements, percentage leases may also involve more frequent communication and collaboration with tenants to support their sales efforts and address any issues that arise. Landlords may need to work closely with tenants to coordinate marketing initiatives, property improvements, or operational changes that can impact sales performance.

For example, a landlord with a percentage lease tenant may need to be more involved in decisions about store hours, product mix, or customer service standards to ensure that the tenant is maximizing their sales potential and generating sufficient percentage rent. This level of involvement can be a significant time commitment and may require a different set of skills and expertise than traditional property management.

Potential for Tenant Disputes and Litigation

Percentage leases can also create a greater potential for tenant disputes and litigation compared to fixed-rent leases. The complex nature of percentage rent calculations, sales reporting requirements, and lease provisions can lead to disagreements or misunderstandings between landlords and tenants.

For example, disputes may arise over the definition of gross sales, the inclusion or exclusion of certain revenue streams, the accuracy of reported sales figures, or the landlord's right to audit tenant records. These disputes can be costly and time-consuming to resolve, and may require legal intervention or formal arbitration.

In some cases, tenants may also attempt to manipulate their sales reports or underreport their revenue to reduce their percentage rent obligations. This can be difficult for landlords to detect or prove, and may require extensive investigation and documentation to support their claims.

To mitigate the risk of tenant disputes and litigation, landlords should work with experienced legal counsel to draft clear and comprehensive percentage lease agreements that address all relevant terms and conditions. Landlords should also establish regular communication and reporting protocols with tenants, and promptly address any issues or concerns that arise.

Limited Applicability and Market Demand

Another potential disadvantage of percentage leases for landlords is their limited applicability and market demand. Percentage leases are most commonly used in retail properties, particularly those with high sales potential or unique tenant mixes. However, they may not be suitable or desirable for all types of commercial real estate or tenant categories.

For example, office tenants, industrial users, or medical providers may not generate sufficient sales revenue to justify a percentage lease structure, or may prefer the simplicity and predictability of fixed-rent leases. In addition, some tenants may be hesitant to enter into percentage leases due to concerns about sharing their financial information or potentially paying higher rents if their sales exceed expectations.

This limited applicability and market demand can make it more challenging for landlords to attract and retain tenants for properties with a high concentration of percentage leases. Landlords may need to offer additional incentives, such as lower base rents, tenant improvement allowances, or exclusive use provisions, to make their percentage lease properties more competitive in the market.

Moreover, the market demand for percentage lease properties can be influenced by broader economic and industry trends. During economic downturns or periods of declining retail sales, tenants may be less willing to enter into percentage leases or may negotiate for more favorable terms. This can limit the landlord's ability to generate percentage rent income and may require additional concessions or adjustments to lease terms.

7. Is a percentage lease right for your commercial real estate investment?

Deciding whether a percentage lease is the right choice for your commercial real estate investment requires careful consideration of several key factors, including your property's characteristics, tenant mix, market conditions, and your overall investment objectives. By thoroughly evaluating these factors and consulting with experienced professionals, you can make an informed decision that aligns with your goals and maximizes the value of your investment.

1. Property Characteristics:

The type, location, and physical attributes of your commercial property can significantly influence the suitability of a percentage lease. Retail properties, such as shopping centers, malls, and street-front retail, are typically the most compatible with percentage leases due to their reliance on tenant sales performance. When evaluating your property for a percentage lease, consider the following characteristics:

Property Type: Is your property primarily focused on retail tenants, or does it include a mix of office, industrial, or other commercial uses? Percentage leases are most common and effective in retail properties where tenant sales are a primary driver of value.
Location and Accessibility: Is your property situated in a high-traffic, high-visibility location with strong demographics and easy access for customers? Properties with excellent exposure and accessibility are more likely to generate strong tenant sales and benefit from percentage leases.
Physical Layout and Amenities: Does your property offer a well-designed, attractive environment with modern amenities and convenient parking that encourages customer traffic and tenant sales? Properties with appealing physical attributes and customer-friendly amenities are better positioned to support percentage lease tenants.
Tenant Mix and Synergy: Does your property have a complementary mix of tenants that create a cohesive shopping experience and drive cross-patronage among stores? Properties with a well-curated tenant mix and strong tenant synergy are more likely to generate higher sales volumes and percentage rent.

2. Tenant Profile and Sales Potential:

The success of a percentage lease is heavily dependent on the sales performance and financial stability of your tenant base. When considering a percentage lease, it's essential to evaluate the profile and sales potential of your existing or prospective tenants. Consider the following factors when assessing your tenant mix:

Tenant Category and Brand Strength: Do your tenants represent strong, recognizable brands with a proven track record of success in their respective categories? Tenants with established brands and loyal customer followings are more likely to generate consistent sales and percentage rent.
Sales Performance and Growth Potential: Do your tenants have a history of strong sales performance and year-over-year growth? Tenants with demonstrated sales success and potential for future growth are ideal candidates for percentage leases.
Financial Stability and Creditworthiness: Are your tenants financially stable and creditworthy, with strong balance sheets and reliable payment histories? Financially robust tenants are less likely to default on their lease obligations and can provide a more secure income stream for landlords.
Alignment with Property and Market Position: Do your tenants align with the positioning and target market of your property? Tenants that complement the property's overall concept and appeal to its target customer base are more likely to generate strong sales and contribute to the success of a percentage lease.

3. Market Conditions and Competitive Landscape:

The broader market conditions and competitive landscape can also impact the viability and attractiveness of percentage leases for your commercial real estate investment. When evaluating the market for percentage leases, consider the following factors:

Economic Conditions and Retail Sales Trends: Are the national, regional, and local economies strong, with positive indicators such as GDP growth, low unemployment, and rising consumer spending? Strong economic conditions and retail sales trends can support the success of percentage lease tenants and drive higher rental income for landlords.
Competitive Properties and Tenant Demand: How does your property compare to other competitive assets in the market, in terms of location, tenant mix, sales performance, and overall appeal? Properties that offer a competitive advantage and strong tenant demand are better positioned to attract and retain percentage lease tenants.
Market Rental Rates and Lease Terms: What are the prevailing rental rates, lease terms, and incentives for comparable properties in the market? Understanding the market norms for percentage leases, including base rents, breakpoints, percentage rates, and tenant incentives, can help you structure leases that are competitive and attractive to tenants.
Regulatory and Zoning Considerations: Are there any regulatory or zoning restrictions that could impact the use, operation, or performance of your property or its tenants? It's essential to ensure that your property and its percentage lease tenants comply with all applicable laws and regulations to avoid potential legal or financial issues.

4. Investment Objectives and Risk Tolerance:

Ultimately, the decision to use a percentage lease should align with your overall investment objectives and risk tolerance as a commercial real estate investor. Consider the following factors when evaluating percentage leases in the context of your investment goals:

Income Stability and Predictability: Do you prioritize stable, predictable cash flows from your commercial real estate investments, or are you willing to accept some variability in exchange for potentially higher returns? Percentage leases can offer the opportunity for increased rental income, but also introduce a degree of uncertainty and fluctuation compared to fixed-rent leases.
Growth and Upside Potential: Are you seeking investments with the potential for significant growth and upside, or do you prefer more conservative, income-focused strategies? Percentage leases can allow you to participate in the success and growth of your tenants' businesses, but also expose you to the risk of lower-than-expected returns if tenant sales underperform.
Management Intensity and Expertise: Are you prepared to take on the additional management responsibilities and expertise required for percentage leases, including tenant sales reporting, auditing, and collaboration? Percentage leases can be more complex and time-consuming to administer than fixed-rent leases, and may require specialized knowledge and resources.
Portfolio Diversification and Tenant Concentration: How do percentage leases fit into your overall commercial real estate portfolio, in terms of property type, tenant mix, and lease structure diversification? While percentage leases can be a valuable tool for certain properties and tenants, it's important to maintain a well-diversified portfolio that balances risk and return across multiple dimensions.

By thoroughly evaluating these factors and weighing the pros and cons of percentage leases in the context of your specific property, tenant mix, market conditions, and investment objectives, you can make an informed decision that maximizes the value and performance of your commercial real estate investment.

However, it's important to recognize that the decision to use a percentage lease is not a one-size-fits-all solution, and what works for one investor or property may not be the best fit for another. As with any significant investment decision, it's essential to consult with experienced professionals, such as commercial real estate attorneys, accountants, and property managers, who can provide valuable guidance and expertise specific to your unique situation.

These professionals can help you navigate the complexities of percentage leases, including lease structuring, tenant negotiations, financial modeling, and ongoing management and administration. They can also provide insights into market trends, best practices, and potential risks or opportunities that may impact your investment.

In addition to professional guidance, it's also important to conduct thorough due diligence on your property, tenants, and market conditions before entering into a percentage lease. This may include:

Analyzing tenant sales data and financial statements to assess their creditworthiness and sales potential
Conducting market research to understand the competitive landscape, rental rates, and lease terms for comparable properties
Reviewing property operating expenses, capital requirements, and cash flow projections to ensure the financial viability of the investment
Investigating any legal, regulatory, or zoning issues that may impact the property or its tenants

Ultimately, the key to success with percentage leases – and commercial real estate investing in general – is to remain adaptable, proactive, and focused on your long-term goals. By continually monitoring your properties and tenants, staying attuned to market conditions and trends, and making strategic decisions based on sound analysis and advice, you can navigate the challenges and opportunities of percentage leases and build a thriving, profitable commercial real estate portfolio.

Conclusion

Percentage leases are a powerful tool in the commercial real estate investor's toolkit, offering the potential for higher returns and tenant alignment in the right circumstances. By understanding how these leases work, their key components, and the advantages and disadvantages they present for both landlords and tenants, you can make more informed decisions about when and how to deploy this strategy in your own investments.

As you explore percentage leases and other creative lease structures, remember that success in commercial real estate investing requires a combination of market knowledge, financial acumen, and strategic thinking. By continually educating yourself, building relationships with experienced professionals, and adapting to changing market conditions, you'll be well-positioned to maximize the returns on your investments and achieve your goal of generating substantial passive income through commercial real estate.

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