Can an Office or Industrial Landlord cause you to overspend your Tenant Improvement (TI) Allowance?
Absolutely. Yes, it happens to Commercial Tenants more often than you think.
And when it does, Tenants get left holding a bag filled with an unexpected and un-budgeted tab costing thousand of dollars.
How It Happens Under Your Nose
Commercial Landlords or their Property Managers may waste your TI Allowance by using low-quality construction materials or by not actually completing all of the agreed-upon Scope of TI Work.
Additionally, Landlords or Property Managers can unnecessarily inflate the cost of your Tenant Improvements and cause overages as a way of increasing a your overall rent at a building.
To avoid this, you should thoroughly review and negotiate the terms of the TI Allowance before signing a new Lease or Lease Renewal. Tenants should also keep detailed records of the improvements that are made and the costs associated with them.
To ensure that improvements are completed to your satisfaction and within the TI Allowance, a Tenant might also consider hiring an independent contractor, like a Construction Project Manager (CPM or PM) or a third party Interior Architect to mind the store.
Watch Landlord’s Space Planner Carefully
While it’s not always the case, if you are an Office Tenant larger than, say, 5,000 RSF, working with a Landlord’s Space Planner (or Interior Architect) and the Landlord’s General Contractor (GC) frequently causes your TI Costs (and your rents) to get unnecessarily inflated.
Even if a Landlord doesn’t like it, obtain the very best Tenant Improvement value + keep your rents down by bringing in an outside, highly qualified Space Planner/Interior Architect to design your space and then competitively bid out detailed Pricing Plans with keyed notes among three (3) or four (4) experienced Commercial GCs.
It pays to patiently vet your TI Costs with a keen eye, even in a supposedly “turnkey” situation, where you believe the Landlord is supposed to pay for all of your TI Costs. Proper due diligence of your TI Costs is so important because it usually directly affects your rental rates and, therefore, your ultimate bottom line for years.
Bring in Your Own Space Planner
With MacLaurin Williams as your Tenant Representative, we will persuade competing Landlords to pay for your outside Space Planner/Interior Architect to develop multiple Space Plans at your shortlist of most preferred buildings. Next, we will extend that process to your Pricing Plans and keyed notes, instead of using the Landlord’s biased Space Planner. For smaller Tenants, we can seek to accomplish the same thing; however, Landlords can be less cooperative based on the lesser total dollar value of a smaller Tenant’s lease.
MacLaurin Williams will also help you to select the right General Contractors to bid competitively on your build-out. Please keep in mind that the lower the cost of your Tenant Improvements, the lower your rents are likely to be over the entire duration of your lease term.
Why a Space Planner Matters
A smaller Tenant we know (sub 2,500 RSF) recently got forced into using its Landlord’s Interior Architect and Mechanical, Electrical and Plumbing (“MEP”) Engineers to design its new Office space. The Tenant got charged a whopping $4.91/RSF for this phase of its TIs. By comparison, an outside, qualified Interior Architect, whom we know, quoted the project at $1.60/RSF…. that’s 67% less for the same work.
The Landlord’s Project Manager then bid out the Tenant’s Pricing Plan and keyed notes with two (2) of its “approved” General Contractors. The lower TI Bid came back at $43.63/RSF. Our veteran Tenant Rep alarms went clanging off! Why so dang high?
Under the circumstances, we just didn’t believe $43.63/RSF was correct or even fair or reasonable. Timeout!
MacLaurin Williams took the extra time to fight hard and persuaded both the Landlord and its Project Manager to bring in a highly qualified, third General Contractor. The third GC’s TI Bid came in at $35.04/RSF…. 20% less. As a result, the Tenant’s lease was completed successfully… without our Client having to write a big upfront check to the Landlord for TI Cost overruns.
Give William Gary, MBA, MIM, a call at cell +1 303-901-1108 or you can email him at wgary@MacLW.com to discuss your situation confidentially. As 100% Tenant Representatives, MacLaurin Williams Worldwide and our offices can advise you in nearly eighty (80) major markets.