Tenant Improvement Allowance on a new construction.
I know that there a lot of factors that go into how much a landlord will provide for tenant improvement allowance. But in general, would the tenant improvement allowance be higher for a new construction versus an existing commercial building due to the developer factoring this cost into the overall construction cost? Or is this allowance typically the same whether it's a new construction or existing location?
[{"id": "fhf84f9", "text": "Likely higher for new construction.  Some of the stuff may be usable if its already been built out for a prior tenant.", "replies": [], "depth": 1}, {"id": "fhfh348", "text": "Lots of variables to consider, but generally much higher in new construction. Existing buildings will typically have a landlord looking to backfill the space with a similar use, or a tenant that has a low TI requirement, which obviously minimizes their lease-up cost. A notable exception would of course exist for credit long term tenants or an initiative by the landlord to redevelop the center or drive higher rents. Most landlords factor in a modest TI allowance to induce a suitable tenant to fill the space, but it is not always a given. Conversely from the perspective of the tenant, 2nd gen space may have significant improvements that outweigh TI provisions, such as existing restaurant equipment, data wiring, HVAC capacity, etc. \n\nThe same principals may apply to new construction, it is largely a function of how the developer pro forma'd the deal. There is typically a larger allowance provided for new space, but it is provided with the expectation of the tenant finishing out certain elements of the space, i.e. delivering the space in vanilla shell condition and providing TI for flooring, paint, etc. - elements that might be provided with a 2nd gen space. This number goes up for a number of factors such as the credit of the tenant, type of buildout (general vs. specialized improvements), term length, etc.\n\nIn theory, the one of the most ideal situations regarding TI allotment, is for the tenant to receive the unit pre-construction, in \"grey-shell\" condition, with TI credits for future improvements (in addition to a buildout allowance) which allows them to layout the unit in their preferred configuration without the need to spend money retrofitting the unit to their use. You'll probably need a good GC quote and broker to get the best value out of a deal like this.", "replies": [{"id": "fhfwhsg", "text": "Thank you for the detailed reply.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fhfw9uy", "text": "Cold shell or warm shell?\n\nhttps://www.investopedia.com/terms/s/shell-lease.asp", "replies": [{"id": "fhfwill", "text": "Warm shell", "replies": [{"id": "fhfwx2d", "text": "Ok, so you already built it out mostly then. TI's are generally higher for new construction and depending on the market and the building and the tenant. Usually you can factor in those higher TI costs over the life of the lease, as new construction will generally have higher lease rates than older buildings. Part of that higher price is to compensate the tenant for building out the space, basically improving the landlords building. \n\nThe next tenant conceivably gets to free ride off the work the first guy did, so TI's will be lower for him.", "replies": [{"id": "fhfy11z", "text": "Makes sense.  Thanks.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fhgck80", "text": "I would say they wouldn\u2019t differ to much. It all comes down to deal economics and the NER net effective rent.  Higher TIs means landlords want longer terms and higher basic rents. Lower TIs means landlords may be willing to accept lower basic rents and short terms. This is holding all other factors (cost exclusions, management fees, landlord work, other revenue) constant.", "replies": [], "depth": 1}]