Retail Shopping Centers - How do white boxing of spaces get booked in the budgeting process: as part of a capex or leasing cost?
And how much would you budget per space?  Is $18K in SoCal typical for white boxing a retail space of approx $2,500-3,000 sf?
[{"id": "grvkxum", "text": "The tenant should be required to deliver 'shell' condition in the lease when they leave.", "replies": [{"id": "grvlki4", "text": "Typically only broom-clean, right?", "replies": [], "depth": 2}, {"id": "grvmsoq", "text": "Not always that cut and dry. \n\nAll leases are different, all terms are negotiable.\n\nSometimes tenants want to be able to pack up and leave without worrying about alterations/improvements (especially if there\u2019s a bunch of cabling/ IT equipment) and are willing to pay a higher rate for this. \n\nSometimes you acquire an asset with a bunch of space that needs to be whiteboxed.", "replies": [], "depth": 2}], "depth": 1}, {"id": "grvl3d6", "text": "Have a lot of fixtures been left behind? How about cabling? In the Midwest but $6 psf doesn\u2019t sound completely crazy to whitebox depending on what all you\u2019re removing. \n\nWe would book this as capex (or rather, as owner expense for tax purposes if we can) Leasing costs are tied to a specific tenant/ deal.", "replies": [{"id": "grvlhfy", "text": "How much do you budget PSF for a relatively empty space?  And how much do you budget when fixtures are left behind?", "replies": [{"id": "grvmc96", "text": "It really depends on the space. We usually just get a pocket bid if we think we want to white box. \n\nIf we\u2019re ripping up flooring, patching walls, repairing lights, replacing stained ceiling tiles\u2014 $2-3 psf is probably reasonable. \n\nIf we\u2019re removing a bunch of furniture, taking down walls, and painting, could easily be $5+ \n\nIf we\u2019re fucking with the HVAC, doing electrical and plumbing, could be $10+", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "grvrhz2", "text": "Definitely a leasing cost. WHEN it's a leasing cost is another question. Theoretically all leaseholds are tenant, so if you grant a tenant non-restoration rights in their lease, you better include removal costs in your proforma. \n\nObviously it's pretty common to end up getting back a space that needs some work, in that case, the cost the deliver it to a \"market standard condition\" is capex or non-recoverable leasing cost depending on the item(s). How do you determine if it's market or not? How much less rent would you get by not completing the restoration work? If it won't make a difference to your rent, then probably not justifiable to do it and not market.", "replies": [], "depth": 1}, {"id": "grvzsvr", "text": "Budget Process:   White boxing is definitely a leasing cost as the condition you deliver in might not be the condition you get it back in, so it is typically depreciated with lease.  Additionally, some tenants would prefer a shell and a higher TI so you want your leasing agents to have flexibility with the leasing capital to switch between TI and delivery condition to make the best economic deal. That being said, leasing costs are coital expenses (according to GAAP) so the balance sheet for the property does not care how you budget it.\n\nCost:   The cost to white box has so many factors, not the least of which is the definition of a white box.   A national tenant might define a WB as new drywall, floors and ceilings, where as a local tenant might just define it as walls floors and ceilings in good condition.    The starting conditions and prior use come into play (switching from a \u201cwet\u201d use to a \u201cdry\u201d use  vice versa is always more costly), as does changing codes (does the electric/lighting need to be upgraded?, is the restroom(s) ADA compliant and to code?), and don\u2019t even get started on HVAC costs which are currently out of control.   I\u2019ve seen a WB cost anywhere from $5 PSF to $50 PSF depending on all the condition and definition.    I\u2019m not sure where you are located, but , your $18K feels extremely light in my opinion, as I typically budget $15 PSF on average for spaces on the east coast (without any intel on the condition), and with the current price of building materials, I\u2019m over $20 PSF+ in some markets.\n\nGood Luck!", "replies": [], "depth": 1}, {"id": "grw3qar", "text": "This is a below the NOI line expense as tenant improvement for retail. \n\nLooking closer to $50/ft on first generation space to perform the work, but who pays for that scales up and down based on the negotiated deal.", "replies": [], "depth": 1}, {"id": "gryeqho", "text": "capex.  I would budget depending on the prior lease and condition.  \n\nIs there no value for second gen space?  Consider that too.  \n\nIt won't cost a lot to white box say a cell phone store.  Med office will be substantial.", "replies": [], "depth": 1}]