My First Building!

Hi Everyone,
I recently purchased my first commercial building. (offices on the second floor and two storefronts on the first). I have someone interested in renting one of the store fronts, however, she seems to want me to pay for all of renovations. In most instances does the tenant or owner pay for fit up, design, etc? I have told her at this point that everything is negotiable but I want to make sure I am not paying for things I don't have to.

[ Edited by newowner on Date 07/22/2006 ]

Hello NewOwner,

I'll let others who have experience answer your question, but I didn't want to let the opportunity pass to welcome you to the forum and thank you for posting your question.

We all learn when others ask and then get their answers publicly. That's why this is a great forum.

Thanks, and welcome. [addsig]

Yes the owners pay for renovations usually getting a favorable lease to cover their costs as you say it's negotiable

thanks, what generally happens with office space? the space we have now is great but I am considering making a purchase where the offices are ok but not in the great as shape. Do office tenants ever "foot the bill" or is that something one see primary with retail and entertainment?

I worked as a consultant in a deal for a group of doctors, where the landlord provided a T.I. allowance for the first $150,000, on a 10 year lease. I would say it's based on the length of the lease.

There are two options that we use on commerical property. First, is to provide a "plain, vanilla box", that is four painted walls and bare concrete floor. We do provide a complete tiled restroom. This option allows the tenant to do the entire buildout themselves. I like this option because a tenant is more likely to stay for the entire lease term if they have money tied up in renovations. The second option is complete the build-out yourself to the tenant's specs, and incorporate the costs into the monthly rent. For example, if you have $12,000 in buildout costs on a tenant with a 60 month lease. The rent will be an extra $200 per month. The draw backs are the upfront costs that you won't recoup until the entire lease term is completed, and a tenant is more likely to terminate a lease early if they don't have any money in the property. Unless the property is in substandard condtion, we do not make renovations to the interior of the unit for a tenant at no charge. Because, regardless of the layout of the unit, the next tenant will want a different one. Then, all you will be doing is different buildouts each time you get a new tenant.