Tenant Improvement Allowances [What They Are And How They Work]
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- Опубликовано: 1 июл 2020
- Today, we’re going to be talking about tenant improvement allowances when leasing commercial real estate: what are they and how do they work?
If you have ever started a search for commercial real estate, you likely know that your new space will require some form of build-out. It’s almost guaranteed. Whether you are searching for retail, office, or industrial property, it is important to plan for construction and the costs that are associated with retrofitting a space. Although looming construction costs can be intimidating, tenants have the option to push for a tenant improvement allowance in order to help mitigate the costs associated with a build-out.
Tenant improvement allowances, also known as TI, TIA, or TA, are a pre-negotiated sum of money that a landlord will provide the tenant in order to cover all or a portion of costs to build out the space.
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Tyler Cauble is Founding Principal and President of The Cauble Group, an East Nashville-based commercial real estate brokerage serving the Greater Nashville Area. He's a native Nashvillian that has not only been a witness to the city's tremendous growth, but is also involved in it through his developments, renovation projects, and volunteer work.
As President of The Cauble Group, Tyler helps bring together buyers, sellers, landlords, and tenants in retail, office, industrial, and multi-family real estate. He’s committed to helping business owners understand the market so that they can grow their business and be part of Nashville’s future. Cauble is also the best-selling author of Open For Business: The Insider's Guide to Leasing Commercial Real Estate.
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Great video! Really informative.
I appreciate that, Christian! Happy to help
Solid! Just did this with what you detailed.
Nice! Glad you liked it
I love these videos so much!
I appreciate that!
Hey Tyler, idk if this real estate agent is clueless but she’s saying the owner will “finance” me the money to build out the space but I will have to pay it back. Wtf? Shouldn’t he be paying ME to build out the space? It’s down to the studs inside, no drywall no floors. The ad listing itself says optional tenant improvement allowance, but the Real Estate Agent is really throwing me off.
Yep - unfortunately, that's a relatively common practice. Landlords will deliver the space in white box condition and offer a tenant improvement allowance to help build it out further. At the end of the day, most landlords are just baking that additional construction cost into the rent payments to recoup their costs. I highly recommend getting a good CRE broker and attorney on your side to help you navigate that process
Have any specific questions about TIA? Ask away!
Are bids and estimates for the build out typically done before the LOI is given or after?
Typically, a tenant will be working with a contractor from the moment they have interest in the space and could have a bid or estimate prior to signing the LOI but it could come after (hopefully, before signing a lease!)
@@neandertull6777 Good question - they want to incentivize the right tenant to take the space and know that in most cases, tenants aren't willing to pay an extraordinary amount to build out a space for the landlord. So, the landlords will typically offer some tenant improvements in order to help the tenant outfit the space and, as a result, they'll get some write offs for the capital invested and better rental rates than if they leased it as-is.
@@neandertull6777 hahaha yes pretty much
Will the landlord give you the TIA allowance money immediately, or will you have to pay for it yourself first and then present the landlord with all of the receipts for the expenses to receive the money?
Typically, they will have you pay for everything up front and will reimburse you upon completion of the work with receipts and lien waivers
Tyler, I need advice on how to go about purchasing a hair salon business. The business is actually owned by the landlord. What can I negotiate with the landlord in this situation? Keep in mind that I will be purchasing the business from the Landlord and become his tenant. Thanks in advance for your help.
Unfortunately, I don't know much about acquiring companies since that's very different from buying commercial property. I would recommend talking to a business broker in your area that could walk you through the process
Is it possible to have the contractors build the space out before the abatement months began. Let's say the landlord gives you three months abatement starting in January. Can they allow the construction to start like November or December prior to the abatement months?
Thanks
Yes! It absolutely is - it just comes down to how the negotiations go during the LOI / leasing phase and what your landlord is willing to do
So I have a community advocate that is part of a group that is looking to buy a building in an up-n-Coming neighborhood in Baltimore. We have an alcoholic beverage company that is looking for a bottling facility and outdoor rooftop tap garden for the company and this building is perfect for that. We want to ask for complete turn key refurb of the building and building of the deck for the rooftop from the Landlord as TI. It could take $500k to complete. Think we can pull off this negotiation?
I think it’s certainly possible - at the end of the day, the negotiations are basically a math equation for the owner. The landlord is likely to push back with a rent abatement period or an increase in rent to help offset those initial costs. It’ll also depend on how strong the tenant’s credit is. Anything you can do to paint yourselves as a strong, rent-paying tenant will certainly help you get close to it. Good luck!
Can we get an update please
An update on what?
@@TylerCauble the limo build
@@TylerCauble on the Lincoln limousine please man 🤘🇨🇦