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By AZ Advisory Team, February 17, 2010 1:51 pm

Build-out a space, making it as generic and functional as possible. The tenant and buyer can then go in and add more offices if they want. The use of modular furniture is popular in these instances. It shortens that six-month period to where they can take immediate occupancy.

Other landlords identify a niche sector where the building and location will fit in best and target tenants in that niche to keep improvements at expected controlled levels eliminating major costly improvements for both landlord and tenant.

This concludes our topic on Ways to Reduce the Cost of Tenant Improvements. Feel free to contact us to discuss this with you further or for any other topics you are interested in.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 16, 2010 1:32 pm

Another strategy is to buildout a space using modular furniture, even floor-to-ceiling, movable walls with doors to create flexible office space rather than immovable walls. They can use that allowance in their furniture budget vs. construction budget. If they have more of a budget for furniture, it’s a good option for people. This open office setup might include a couple of traditional offices but the rest is comprised of cubicles and furniture. If a company with modular furniture moves to another space, it can take it with them. It’s pricier on the front end, but it gives them even more flexibility with their space.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 15, 2010 12:11 pm

Reducing Costs

All players involved in tenant improvements, from the contractor to the tenant, are looking at ways to save or get the best value for their money. Tenants are trying to be efficient with their space planning and that they are looking at any way they can keep down the costs.

This value engineering analysis oftentimes involves tenants determining what TIs they must have and what TIs they want. Some ways tenants and landlords are cutting TI costs are by reducing or eliminating built-in cabinets, 4- to 6-foot-high divider walls, and any unnecessary frills, such as sidelights on doors and windows next to doors.

The trend is away from multiple coffee stations and back to one central break room, to avoid the costs of multiple sinks.

Tenants are spending more money on the highly visible, public places, typically lobbies and conference rooms, while keeping the remainder basic. As far as interiors and finishes, color schemes that will last 10 or more years are popular. Tenants are moving away from a lot of color – such as pink – and toward the use of neutral shades that won’t go out of style.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 12, 2010 1:49 pm

Construction costs and therefore tenant improvement costs are high, and are continuing to rise. Due to this, tenant improvement allowances are also increasing.

The high costs of TIs are driving some companies to forego new and opt for second, third- or fourth-generation space. Consequently, a surge in retrofitting of older buildings is taking place. The increased demand in these older buildings is driving up their lease rates, too.

The high costs of carrying out TIs are affecting lease lengths. Most often, landlords require a five-year minimum lease because they need that time to amortize the cost of the tenant improvements. Because tenants typically want only a three-year lease on second- or greater-generation space, landlords typically spend less money on those TIs.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 11, 2010 7:10 pm

Tenants or buyers are ultimately responsible for the cost of tenant improvements. However, with leased property, the landlord may provide an allowance that pays for some, or all of them. In those cases, the tenant funds the remainder. The financial arrangement can get worked out in a number of ways, which often depends upon the tenant’s credit worthiness.

The landlord may pay for all TIs but insist upon a 10-year lease. When the landlord and tenant share the TI expense, the landlord may request the tenant pay the tenant’s portion up front. The landlord may allow the tenant to pay half at the outset and the rest over the lease term, with interest added for the amortized share. Or, if the tenant has strong financials, the landlord may amortize the entire amount over the lease term, along with an 8 percent to 12 percent interest rate.

You might get a $30 per square foot allowance, but have to move into a gray shell and buy everything, or you might get a $15 per square foot allowance and get painted walls, a ceiling, slab and a bathroom.

When a landlord contributes to the TI costs, the landlord usually wants to control how the money is spent and ensure the improvements are done to code.  In the case of a purchase, however, the developer only oversees a few issues, such as whether and how anything will be attached to the shell. Otherwise, buyers may do whatever they wish inside.

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.

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By AZ Advisory Team, February 5, 2010 1:39 pm

Commercial tenant improvements, often referred to as TIs, are modifications made to a leased or purchased space for the tenant or buyer. They include doors, carpeting, paint, walls, restrooms, lighting and much more. Frequently, TIs are critical to whether or not a deal on a piece of property is made. When a company takes a space, they have a specific use in mind  If the space does not work for them in all respects, they’re not going to take it.

Oftentimes deals involve negotiated tradeoffs. For example, if a space offers a particular company all the right amenities, but it lacks offices, the addition of offices will be negotiated. Every deal is different. Your landlords’ personalities, your tenants’ personalities, the tenant improvement buildout – everything is different in every deal.  The negotiated tenant improvements are detailed in a work letter, a document attached to the lease.  It can get as detailed as including the texture on the walls.

Standby for the continuation…

Alex Zylberglait provides commercial real estate investment advisory as well as research, estate planning, asset allocation, valuation, financing, special assets services, transaction advisory and commercial property acquisition and disposition services.