What's a standard % of TI Allowance on a shell retail space?

7 Replies

Good evening,

I'm leasing out a 2000 SF shell retail space on downtown strip that's been used for retail for the past 15+ years. Stripped down to shell since last tenant. It's useable with minimal build-out as-is but any long term tenant will likely want to bring it to a more cosmetically pleasing state and spend a little money doing so.  What is an appropriate Tenant Allowance to Gross Rent Ratio for a 4-5 year lease (in terms of range)?  

Lastly, should this % be different if we decide to lease to a restaurant on a longer term (7-8 years)?

Currently sits as concrete floors and concrete walls, with fairly dated electrical / lighting and ceiling tiles. 

Thanks in advance for the help.

Originally posted by @Account Closed :

Good evening,

I'm leasing out a 2000 SF shell retail space on downtown strip that's been used for retail for the past 15+ years. Stripped down to shell since last tenant. It's useable with minimal build-out as-is but any long term tenant will likely want to bring it to a more cosmetically pleasing state and spend a little money doing so.  What is an appropriate Tenant Allowance to Gross Rent Ratio for a 4-5 year lease (in terms of range)?  

Lastly, should this % be different if we decide to lease to a restaurant on a longer term (7-8 years)?

Currently sits as concrete floors and concrete walls, with fairly dated electrical / lighting and ceiling tiles. 

Thanks in advance for the help.

There is no standard or gross rent ratio it’s usually calculated by the square foot based on costs. It all depends on the tenant and what they are after and what their needs are. Usually the more they ask the higher the rent for less they ask the better deal you cut on tent. A lot of this will depend on your location and current construction cost as well. Office and retail average cost around $30-$50 a square foot restaurants can be $100-$300 a square foot to build out.

What kind of TI's you pay and when if any can depend on the tenant. National, regional, mom and pop, etc. can carry various levels of risk and also the value of the lease can be different when you sell.

Typically the longer you can get the lease term signed the better because when you sell they loan rate and term a buyer can get is often tied to the length of the primary lease term and not the options. You want in the lease for smaller tenants to definitely have to disclose ongoing sales and financials. You want tenant strong that is opening in the space and for the concept to not have high levels of competition for saturation in the area. You want tenant to have great net worth so they can FLOAT the business or location while getting it working optimally for service and profitability. The mean reason for business failures are usually undercapitalization meaning they run out of money before they can figure out a system and successful process for growing and scaling while maintaining healthy profit levels.

TI's can vary greatly. Sometimes for instance if a former coffee shop is replaced by another the TI could only be 10 to 15 bucks a foot. If however the shell needs to be totally converted to a new concept all together the costs could rise a lot. Some landlords give free rent for so many months in replacement of fronting heavy TI's for a mom and pop tenant that might not make it and let the tenant pay for the TI's. The tenant would have to use certified contractors etc. and follow a process.

No legal advice given.       

Originally posted by @Account Closed :

Good evening,

I'm leasing out a 2000 SF shell retail space on downtown strip that's been used for retail for the past 15+ years. Stripped down to shell since last tenant. It's useable with minimal build-out as-is but any long term tenant will likely want to bring it to a more cosmetically pleasing state and spend a little money doing so.  What is an appropriate Tenant Allowance to Gross Rent Ratio for a 4-5 year lease (in terms of range)?  

Lastly, should this % be different if we decide to lease to a restaurant on a longer term (7-8 years)?

Currently sits as concrete floors and concrete walls, with fairly dated electrical / lighting and ceiling tiles. 

Thanks in advance for the help.

 TI is just another investment. You need to calculate your total all-in vs the length of time for repayment. Assume minimal value upon lease termination. Restaurant equipment can get some $$$ at wholesale, but contract language on fixtures can and has caused many lawsuits.

@Ronald Rohde @Greg Dickerson @Joel Owens  

For those following this thread, we ended up doing a 5-yr lease on this space. Triple net. T.I. budget was set at 25% of first years annual gross, plus first 2 months rent waived. Space was a shell and older building in need of attention. Seems like a fine deal. Gives the tenant a chance to get up and running and had help building out to his needs.  Annual escalations.  Also includes a 5-yr renewal option with escalations. 

Love it / Hate it?

Originally posted by Account Closed 

For those following this thread, we ended up doing a 5-yr lease on this space. Triple net. T.I. budget was set at 25% of first years annual gross, plus first 2 months rent waived. Space was a shell and older building in need of attention. Seems like a fine deal. Gives the tenant a chance to get up and running and had help building out to his needs.  Annual escalations.  Also includes a 5-yr renewal option with escalations. 

Love it / Hate it?

 Sounds reasonable

5 year leases primary are okay for retail strip centers. 7 to 10 is better most of the time.

Free standing STNL single tenant minimum 10 years and better is 20 years primary. Most tenants do 15 or less primary term now because of FASB accounting rules changes for counting debt obligations on the lease.