Regarding TI Allowance

[Manas Joshi]

I'm a landlord and I want to bring 5 years or more term for the tenants. So how is the TI allowance calculated?

[Ty Coutts]

Hey Manas,

The Tenant Improvement (TI) allowance is typically negotiated between the landlord and tenant and is used to cover the costs of customizing or renovating the space to fit the tenant's needs. Here’s how TI allowance is commonly calculated:

Determine Total TI Cost:

Estimate the total cost of improvements needed for the space. This includes construction, materials, labor, permits, and any other associated costs.
Negotiate TI Allowance:

Landlord and tenant negotiate the TI allowance amount based on the estimated total cost of improvements. The allowance is often expressed per square foot of the leased space.
Per Square Foot Basis:

TI allowance is typically calculated per square foot of the leased area. For example, if the negotiated TI allowance is $20 per square foot, and the leased space is 1,000 square feet, the total TI allowance would be:
TI Allowance = $20/sq ft \times 1,000 sq ft = $20,000
Lease Term Consideration:

Longer lease terms (such as 5 years or more) can sometimes result in a higher TI allowance because it provides the landlord with stability and longer-term rental income.
Special Considerations:

In some cases, TI allowances may be structured differently, such as a lump sum payment upfront or spread out over the lease term. The specifics should be clearly outlined in the lease agreement.
Documentation and Approval:

Document the TI allowance in the lease agreement, specifying any conditions or restrictions. Ensure both parties agree on the scope of improvements covered by the allowance.

Feel free to reach out to me directly if you need!

[Evan Polaski]

@Manas Joshi, I would talk to local leasing brokers for your property type.  I.e. there are retail leasing specialists, office, industrial, etc.  They will likely know of your property, or at least be able to get an idea and let you know what they are seeing in your market for your quality of space.

As for how to calculate, there is no set strategy. Tenant type will matter, tenant's financial wherewithal, condition of your space, etc.

To take a vanilla box and turn it into a restaurant could be $500k-$1mm.  But turning a former restaurant space into a new restaurant space may cost nothing, or could need a full rework.  A cold dark shell will cost more than a vanilla box.  A shoe store may want a vanilla box, with minimal TI.  Steve and Barry's built their business on huge TIA checks from Landlords.  They signed on anchor store spaces and asked for millions in TI, typically to do modest updates to physical property, a lot of it for merchandise, and rumors are the rest went into Steve's and Barry's pocket.