Polling Landlords & Brokers on T.I.

[Robert T.]

Very specific question for those that are familiar on this process i.e. CRE brokers & LL. We are delivering a shell building for a national chain QSR franchisee. What have you seen LL offer for Tenant T.I. assuming 5 years lease with 3 options. Any insights appreciated.

[Joel Owens]

I look at over a thousand properties a week nationally for clients. You have a larger problem then the TI. Is this a free standing building STNL? If so QSR's hardly ever do only a 5 year primary term lease. Most are 15 to 20 years with fixed increases.

As a developer you do not have a salable asset with only 5 years of guaranteed rent on it. Lenders will do very short financing amort. and a ton down from a buyer which will kill their cash on cash returns.

Even Starbucks does 10 years primary lease with 10% bumps every 5 years.

NOW if you are talking a shell space INLINE in a strip center then 5 year primary leases are common but you have many businesses in one center. Free standing 5 years is not common and rarely seen.

You might want to revisit the lease that was drafted as there might be a ton of mistakes in there before executing it.

TI would be very minimal on only a 5 year lease especially with a franchisee guarantee for credit.