(Texas) How much TI allowance should I ask for in my offer?
I’m buying into a retail franchise (2500sf) in Austin and a prime location in a power center sharing a wall w a National high end grocer is available.  We will be taking over another retail space which is still operating so vanilla box buildout shouldn’t be too costly.  They are quoting a competitive rate and TI allowance.  I’ve seen higher rates and been offered $10psf TI in worse centers.  My broker suggested we go a dollar or two under asking, $15psf and 4 mos free rent and 10 years.  I’m inclined to offer the rate they are asking and make up the difference in concessions ie 6mos rent, and $20psf bc if I don’t make a deal that stands out, I’ll lose the space to bigger pockets.  I’m wondering if asking for $20psf is reasonable.  Rent will be $50psf including NNN.  Prime location…easy to sell and rent.  If the business fails, it won’t be bc of the real estate.
[{"id": "i4ygrcy", "text": "Your broker is correct. \n\nIf you meet their asking price off the jump you have no wiggle room. \n\nIf you go out at asking price, ask for more than $20 PSF in TI. Because if you don\u2019t, you\u2019re only going to get nickel and dimed off that. \n\nGo out $2 below ask and $30-$40 PSF in TI and go from there.", "replies": [{"id": "i4yu92k", "text": "If the LL is expecting us to go under asking, wouldn\u2019t meeting asking get their attention?  We\u2019re trying to do a deal pre market bc if it hits market, I\u2019ll likely lose out to someone else much more capitalized than me.  The real estate is just too good.  I do like the idea of asking for more TI as another poster pointed out LL favor TI over free rent.", "replies": [{"id": "i4ywzqn", "text": "I mean a lot depends on your financials too. \n\nI know nothing about you or your business.", "replies": [{"id": "i53849d", "text": "I\u2019m on the startup end of my career w near perfect credit and some cash in the bank that I plan to put towards the franchise.  Most of my net worth is in my house.  Roughly $500k net worth.  Not the greatest financials but not the worst.  I have a business plan and a solid resume in the same industry doing the same thing, building up the market and business and operating million dollar stores.  The only thing is I was making someone else rich (family business), so that\u2019s why I left to start my own. I\u2019ll likely tap the equity in my house to help fund the business. \n\nWhat can I expect the LL to look for when they qualify me?  They want this type of use for their center, so they say.  My broker knows my resume with over 25 years of history of doing deals for my family and has worked w these asset managers before, but I don\u2019t know to what extent that gives me an advantage over someone better capitalized.", "replies": [{"id": "i538nr9", "text": "In light of what you\u2019re telling me, I understand why you want to get this wrapped up ASAP. \n\nGo out at ask + TI and get it done. \n\nWe both know if LL gets a deal from a credit tenant he\u2019s taking that deal over yours. \n\nHappy Easter! Let me know if you get the space", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "i4yhbqy", "text": "You should get some bids for all the work you need/want done, and determine what TI allowance that you need based upon that. I\u2019m not able to interpret the deal points based upon your description, but also a lot will depend on the credit of the business or guarantor (your credit). \n\nRule of thumb: The LL will always prefer to give TI instead of free rent because TI improved the space (which helps the property), while free rent is just lost revenue. \n\nWould typically recommend you listen to the broker, because they should have a knack for getting deals across the finish line.", "replies": [{"id": "i4ylkky", "text": "Great feedback.  My credit is over 800 so that\u2019s reassuring.  The only issue is we are trying to get a deal premarket.  Its not ideal not being able to inspect the space as a potential tenant, but I may lose the opportunity if I\u2019m not assertive enough.  I will definitely require a thorough inspection before signing a 10 year lease though.  Tricky situation.", "replies": [], "depth": 2}], "depth": 1}, {"id": "i4z4fz8", "text": "Are you in a position to amortize any overage on TI's? For example, you could hit the $15 psf, ask them to amortize the extra $5 (if you need it) over the 10 years. Sweeten the deal by perhaps staggering the free rent to months 1, 13, 25, 37 etc..\n\nu/pirate mentioned getting bids, that would be the key here so you don't get over your skis on the overage amount.\n\nMy issue is your long-term lease and what seems to be a relatively low amount of TI that might depreciate in condition pretty quickly. We typically look to increase the TI amount on some sort of commensurate scale with the term.. So a three-year deal will get us carpet and paint..a 10-year deal would get a much more durable build-out. I don't know your details but something to consider.", "replies": [{"id": "i5371nf", "text": "I\u2019ll ask my broker.  It\u2019s premarket and the current tenants are still open and operating.  They don\u2019t know the space is going on market yet and I\u2019ve got to put an LOI Asap or I\u2019ll lose this prime peace of RE.  I\u2019ve worked on other projects that cost roughly $60K to build out a vanilla box.  Could I use that as my guide?", "replies": [{"id": "i542bam", "text": "$24 psf to vanilla seems reasonable, very broadly. It also depends on what you'll reuse from the current tenant. My experience here is more office not retail, but I'm assuming you might have a higher amount of TI finishes because of a public facing component or restaurant etc..\n\nIt's such a wide range of costs (I've seen ranges from $15 - $85 psf) you really should speak to a space designer, architect and/or construction manager to help get it right.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]