Help with a Capital expenditure decision

[Jeremy Mahoney]

I own a medical office space that I rent out to a orthodontist. It is time to renew his lease and its increasing quite a bit (old lease didn't have any escalation and is way below market). Tenant is asking that I replace the windows in the unit because he spends a lot on heating/cooling. He only wants to sign a three year lease (I had originally presented 5) and then he plans to leave. It sounds like it is going to cost me $6500 to replace the windows. I'm trying to decide if it will be more beneficial to me to just give the tenant a credit of $100/mo rather than pay the $6500 to replace the windows. On the one hand if I replace the windows, it should add value to the building and I should be able to write off the expense for tax purposes. On the other, it would be cheaper to just offer the incentive to the tenant. I may sell the property in 3 years after he leaves and I don't know that I will get the value that I put into it. Its not like the windows look bad, they just aren't super energy efficient.