Dallas tenant improvement allowance concessions vary by property and landlord. Many tenants assume that’s is free money that they can use for construction but like any offer it is connected to the base rental rate in accordance with the market.
Most landlord’s have a desired return that they want for their investment. They will preform a calculation of the expected income that the lease will generate over the lease term. Then they will calculate the money that they need to invest to generate the income and calculate the return on that investment.
We’re are all intelligent people. Instinctively we know that an investor must make a market return to justify an investment. Some tenants look at a space that is in disrepair and assume that the owner will do whatever it takes to improve the premises. They don’t understand that an owner isn’t going to spend $200,000 in a Dallas tenant improvement allowance for a lease that generates $175,000 in income.
Here are some important issues that I have come across when negotiating Dallas tenant improvement allowances. Below I have generated two different lists. One from the landlord’s perspective and the other from the tenant’s.
Dallas Tenant Improvement Allowance – Landlord’s Perspective
- If the building is new construction or recently purchased the landlord generally has access to funds for tenant improvement dollars form the lender but each lease must meet the lender’s criteria.
- Is the market a strong landlord market? If so the landlord will not be as generous with an improvement allowance. The opposite is true in a tenant’s market.
- When the Landlord is positioning the building for sale. An occupied building has a higher sale value. The landlord may offer a stronger Dallas tenant improvement allowance to encourage a prospect to sign a lease. Obviously the converse is if the building is a long term hold then there is less incentive for the landlord to reduce his return on investment by increasing the TI allowance.
- The prospective tenant’s credit and ability to pay the lease for the entire term is important since the allowance given is basically a loan that is included in the tenant’s rent. If the tenant defaults the landlord could loose a significant amount of money. The better the credit the more Dallas tenant improvement allowance will be given and the worse the credit less or none will be given.
Dallas Tenant Improvement Allowance – Tenant’s Perspective
- Generally after a tenant identifies a location a space plan will be completed. One use of the plan is to get construction pricing. The goal is to have the landlord provide the funding for the entire construction project. While the pricing is occurring the landlord will ask for the tenant’s finacial statements. It is a good idea to have them ready before the landlord asks so that you can immediately present them when asked. Physiologically this makes a good impression on the landlord.
- Understanding there is a correlation of the lease amount paid and the amount of the Dallas tenant improvement allowance helps the negotiator . Consider if what you are asking makes economic sense for the landlord.
- The length of the lease term is important. It has an impact on the rental rate in the lease. Just like financing an automobile your tenant improvement allowance is being financed by your rent. So if you have a there year car loan your monthly payment will be high than a seven year loan. The same concept applies with TI allowances. The general rule of thumb is a three year term will get new paint and carpet. A five year term will give additional improvements depending upon the landlord’s position with the property.
- Understand that if you are a new business that the landlord will see you as a potential risk. They may ask for a personal guarantee for the construction allowance, a larger security deposit or a letter of credit.
- The best option for any tenant is to locate a space that is build to your specifications and the only work required is paint and carpet. Generally this will give the tenant a chance to ge more free free instead of additional TI allowance.
As this article makes clear. It is important to understand the landlord’s needs when negotiating the tenant improvement allowance. It is also helpful to have an understanding of the type of person the landlord and their representative are when negotiating. It is hard to do this without a good working knowledge of their reactions to requests and positions. Working with a qualified Dallas tenant representation broker will help you get the best Dallas tenant improvement allowance possible.