$150,000 remodel for tenant on $6,000 a month lease?

[Mark Ferguson]

I have ventured into the commercial world this year buying a small shop for storing materials (I have 20 flips going and need a lot of space) and cars, a 7,500 square foot office building, and a 1,600 square foot industrial/retail building.

I have also been looking at much larger projects. I had a $2.6 million dollar deal fall apart earlier this year. I am looking at another multimillion dollar deal. 70,000 square feet, 4 acres, in a great location. My question is about tenant finishes and if they are worth it. 

The current owner had a $36.15 per square foot tenant allowance for remodeling. It is a restaurant that generated $6,000 or so a month in rent and NNN costs. The space is over 5,000 square feet, which means the owner gave the tenant over $150,000 to remodel right?

That $6,000 a month or $72,000 a year adds $500,000 plus to the building. But it still takes over two years to get that money back. Is that worth it? What if the restaurant fails and you never get the money back, then have to tenant finish again? How common is it for the owner to spend that much to get a tenant?

This property has another tenant interested, who needs major renovations of $250,000. They are will to sign on for a 7 year lease around $70,000 a year. It would add value to the building, but again it takes 4 years to get your money back. 

What are others thoughts on tenant finishes? I could see it being worth it if the owner planned to sell right away, because they would get that money spent back. If the owner is holding for cash flow, that seems so risky to me. Isn't it smarter to get a tenant to pay less and do less renovations? Or is the problem that tenants expect renovations to be done and you can't get a tenant without them?

Thank you for anyone who has sone thoughts on this!