Potential commercial tenant wants incentives for renovating a space, has anyone done this
potential tenant, wants to know if we are willing to give her anything, or lower the rent for a space she is looking to rent.   The space is in a prime area, and isn't in rough shape.   I just can't justify giving incentives, if they leave, and the next person wants a completely different space i'm in the same boat
[{"id": "ir12vbt", "text": "What kind of Reno? If it\u2019s niche then no, if it\u2019s universal then it may be worth a discussion.", "replies": [], "depth": 1}, {"id": "ir16g6u", "text": "Don\u2019t do it , it\u2019s best not to", "replies": [], "depth": 1}, {"id": "ir1854m", "text": "This is very common", "replies": [], "depth": 1}, {"id": "ir198lr", "text": "Tenant improvements should've been factored in during acquisition. Did they not think of it or did they just assume it'd be zero?", "replies": [], "depth": 1}, {"id": "ir1cd07", "text": "Very common, should be factored into rent rate though.", "replies": [{"id": "ir2iyrh", "text": "Was about to type this out. Great move", "replies": [], "depth": 2}], "depth": 1}, {"id": "ir1e27v", "text": "It is very standard practice for a landlord to provide a tenant improvement allowance to a tenant.\n\nPSA please familiarize yourself with leasing or get a commercial broker before you own and lease out commercial properties", "replies": [{"id": "ir1i86r", "text": "Nearly post I read in this sub seems to be someone with zero knowledge of how CRE functions. Do these people inherit buildings and think they can magically figure it out??? Increase the rent and a new 10 year term with PSF increases based off a 10% (or more depending on credit of said tenant) return on your money and spread the contribution over the duration of the new 10 year term. You also want to define where that money goes (removable vs non-removable) and potential increase rent escalations. Do yourself a favor and hire someone who does this everyday or you will make costly mistakes. Learn from that person and eventually you might be able to handle items yourself one day.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ir1g9iu", "text": "As u/_Floriduh_ said, if it's specific to a specific business then no, if the next tenant could benefit from it then sure you could work something out.  \n\n\nIn any case, instead of just saying \"No\", I find that a better tactic is to tell them that you're open to paying for \"X\" percent of the cost of renovation and that will result in an increase in the rate by \"Y\". You have the apperance of working with them even if you're just shuffling around how they pay for it. Perhaps they don't have a lot of money so up-front costs are a pain point for them. Give them reduced rent for a few months and increase the rate to compensate.", "replies": [{"id": "ir2cdhp", "text": "Yep. Offer two opens. One as-is and the other with TI at a higher rate.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ir1hjh3", "text": "Standard to have some. What the number is\u2014not as easy.", "replies": [], "depth": 1}, {"id": "ir1i3qa", "text": "This is very common. You would bake the amortized cost of any incentives (with interest, since this is essentially a loan) into the base rent. You should make sure your lease gives you the right to require them to remove all tenant improvements before surrendering the space at the end of the term, but this is often negotiated so that only non-standard improvements need to be removed, or that you will tell them up front what needs to be removed before they build it into the space.", "replies": [{"id": "ir1ibvs", "text": "Also want to add that I highly recommend using a lawyer with commercial leasing experience, since they will have standard forms for all of this.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ir1j2rm", "text": "This is called a Tenant Improvement Allowance or TI Allowance, sometimes referred to as a Cash Allowance. \n\nIt's very common in most markets - particularly in retail or office tenancy negotiations. Generally landlords will charge a higher lease rate in return for a TI because of the present value of that cash transfer. You can play with a present value calculator to determine NER at various TI values, free rent periods and lease rates.\n\nJust like free rent or fixturing periods, it's just another lever that both parties can use to make a deal work.", "replies": [], "depth": 1}, {"id": "ir1yfla", "text": "If the improvements are going to help you net higher rental rates in the future, then there is a case to be made for you giving them some TI allowance, free rent, lower base rate etc. Depends on what they're doing, how much it cost and how much benefit you'll get from it in the future.\n\nIf its very Tenant specific buildout and you're likely going to need to teardown/remove the renovations then its best to let them walk, let them pay for it upfront or amortize the buildout cost into the rent (with interest, 6-8% roughly.)", "replies": [], "depth": 1}, {"id": "ir20f6k", "text": "You need a commercial broker.\n\nIf the tenant is providing capital improvements that will last beyond their tenancy such as HVAC systems, ceiling insulation, new storefronts, updated restrooms, etc, then a rental rate or free rent concession may be warranted.\n\nIf you are asking for top of market rent with zero tenant improvement allowance, concessions may be warranted. \n\nIf the improvements are all tenant specific and your rent is already below market, tell the tenant to pound sand.", "replies": [], "depth": 1}, {"id": "ir2h0l9", "text": "Yeah. It\u2019s common and reasonable.", "replies": [], "depth": 1}, {"id": "ir33dmp", "text": "All good answers here but also depends on creditworthiness and business history.  You don't want to be stuck with paying for improvements and the tenant leaving in 10 months, even if you get a personal guarantee (which you should do in most cases anyway).", "replies": [], "depth": 1}, {"id": "ir3bdoc", "text": "TI\u2019s are normal", "replies": [], "depth": 1}, {"id": "ir3drny", "text": "We often offer a \"Rent Holiday\" on month 3 or 4 so the new tenant can get their invective but not move in, do demo or build out and fail with no money to the landlord.\nIf the lease is broken the amount of the holiday can be called and if e then due.", "replies": [], "depth": 1}, {"id": "ir446fv", "text": "Are her improvements generic enough to work for any tenant? If so, contribute, assume they have decent financials", "replies": [], "depth": 1}, {"id": "ir50vgq", "text": "Yeah trade TI for slightly higher rent and longer term", "replies": [], "depth": 1}, {"id": "ir5bcax", "text": "Very common, I'd say very uncommon to not have some incentives.  Has to make sense deal wise to you.  Typically, you'd want to spell out what the Tenant Improvement Dollars can be used for and what they can't be used for.  For example, if you are updating finishes like installing new LED lighting, replacing old carpet/flooring, etc. some of that likely has residual value to you and is not necessarily tenant specific.  If the requests are tenant specific and you feel would need to be ripped out once this tenant departs as they'd have no further value, then that should not be part of the TI's.", "replies": [], "depth": 1}, {"id": "ir5n1fl", "text": "Common, but very much depends on the market, location, type of space, etc.", "replies": [], "depth": 1}, {"id": "ir65jio", "text": "Yes I believe it\u2019s called Tenant Improvements and often is written into the lease.", "replies": [], "depth": 1}]