Brokers and landlord reps use of the escalation clause in a commercial space lease is a common one. These clauses provide for increases in rent over a specified period of time. Often, these increases are determined not by actual increases in the landlord’s operating costs, but are instead keyed to an index, such as the consumer price index (CPI) or the London Interbank Offered Rate (LIBOR).
When financing commercial real estate deals, interest rates are key points of negotiation. Veteran brokers know that few basis points in one direction or the other on a sale negotiation over an office building or shopping center can make the difference between iced champagne buckets and cold feet.
Where do these rates come from? Interest rates are the price of money. So who determines how much money costs? To some degree, the holder of that money does. But in a wider sense, the job falls to a global market set up by the planet’s top exchangers of money. Of course, these entities are called banks.