Commercial Tenant Build Outs

6 Replies

Hello,

I own a commercial building with storefront space. The building itself is historic, but has had updates to plumbing, electrical and HVAC to suit office space needs. I have a tenant who owns a coffee shop who would like to put their business in one of the store fronts. I feel so way over my head! I had them fill out a very basic LOI which laid out their renovation needs for the space. We are now trying to help them find a contractor who is not just fairly priced but has time to do the job. Am I going about this correctly?

They are going to finance the construction they need done to make the space up to code for their coffee shop use. At what point am I responsible for upgrades? Or is it just all negotiable?

I feel like some costs I should cover, like anything that is foundational, electric and plumbing. Help!

@Danielle Zimmerman it’s all negotiable. Typically as the owner you would not get involved in the actual construction unless you want to. It’s always best to let the tenants do their own work.

The typical structure is landlord offers a certain amount of TI money and has to approve the plans and specs prior to the tenant starting work. You also want a construction deposit and a qualified GC with proper insurance etc.

Hi @Greg Dickerson ,

Thank you for the response. I was just looking at your profile/website, you look extremely knowledgeable and where I am trying to be in my own business someday.

 Would you say that there's a typical price per square foot offered for TI money? Or should I wait till their construction bids start coming back? The market is softer, so I don't want to lose them. 

Originally posted by @Danielle Zimmerman :

Hi @Greg Dickerson,

Thank you for the response. I was just looking at your profile/website, you look extremely knowledgeable and where I am trying to be in my own business someday.

 Would you say that there's a typical price per square foot offered for TI money? Or should I wait till their construction bids start coming back? The market is softer, so I don't want to lose them. 

Thank you for the kind words. I checked out your site as well and seems we are very similar in types of projects and business model. I’ve just been at it quite a bit longer.

Allowances vary and depends on the tenant, type of use, demand for space, rent structure etc. you definitely want a qualified tenant and need to underwrite them thoroughly. The more you offer the longer the term and higher the rate.

I would be happy to discuss in detail anytime.

Originally posted by @Greg Dickerson :

@Danielle Zimmerman it’s all negotiable. Typically as the owner you would not get involved in the actual construction unless you want to. It’s always best to let the tenants do their own work.

The typical structure is landlord offers a certain amount of TI money and has to approve the plans and specs prior to the tenant starting work. You also want a construction deposit and a qualified GC with proper insurance etc.

 With the caveat that their workers don't decrease the value of the building, don't disturb other tenants, or otherwise upset the landlord. The Lease will detail everything that you need to be protected, if you don't have a commercial broker, definitely look for an attorney to represent you. 

Also, do you have debt on the property? Lease must comply with terms of your loan agreement.

Hi @Ronald Rohde

Thank you for your comments. I think the contractor that is going to end up being used is a contractor I'm using on another property, but he will be dealing with the tenants directly on the subject commercial space. I do have a very small amount of debt on the property, thank you for mentioning this. I didn't even think about looking into the terms of the loan agreement. I will reach out to my lender. 

Regarding construction deposit, would you explain this a little more?