TENANT IMPROVEMENT

TI is the money that the landlord gives to the tenant to build out or refurbish their unit before moving in or signing a lease renewal.

The landlord offers TI funds because they need to lease the space and want to create favorable conditions for the tenant (especially tenants who might bring high customer traffic to the area). Often, smaller tenants don’t have upfront funds for renovations, especially when they have other business expenses such as purchasing furniture, equipment, décor, and hiring employees. Typically, when a landlord provides TI, they may increase the rent, which benefits the property’s value in the long run.

Tenants can generally request TI if they have good credit, experience, reputation, a personal guarantee, and a long-term lease. Anyone can ask for TI, but the decision and the amount depend on the landlord. 😊

This depends on the condition of the building/unit. There are three types of buildings in commercial real estate:

• Cold Shell: Only includes the roof, floor, walls, and basic electricity and plumbing.
• Warm or Vanilla Shell: Adds walls (drywalls), HVAC (heating and cooling system), restroom, flooring, etc.
• Full Build-Out or Turn Key: Fully finished, so the tenant just needs to move in and add décor.

The amount of TI depends on:

• The value the tenant brings, such as attracting good traffic to the shopping center or commercial area.
• The tenant’s financial capacity, creditworthiness, and experience. Landlords are more likely to provide TI if they know the tenant will positively impact their commercial property.

Tenants should aim to negotiate with the landlord to cover tenant improvements (TI). If you end up paying for the improvements, ensure you secure a long-term lease with renewal options so that the initial costs can be amortized over several years, making the investment worthwhile.

Investors need to pay attention on what type of building condition when you purchase because you may have to spend lots of money to build out or give your tenants TI allowance.

Landlords should be flexible on TI allowance to help small business owners get started and fill up your space. Giving TI allowance would give you negotiable power for increasing the rent which will increase the property value in the long term.