Tenant Improvement Allowance – part 2 Negotiate an Allowance That Covers Your Build

Part Two: Tenant Improvement and the different property types

Missed part one about Tenant Improvements? Read it here!

In part-one of this series we focused on the Tenant Improvement Allowance. In part-two we will dig into the three primary types of properties:

Across North Texas, finish-out costs vary widely from one property type to the next: a white box needs everything above the slab built out, a second-generation space usually needs the previous tenant’s layout reworked, and an existing space you already occupy needs only the changes your business has outgrown.

Understanding how the tenant installation allowance is structured helps business owners plan accurately and negotiate smarter lease terms before committing to a space.

1. Cold dark shell - this is the most basic option where the builder/developer has only provided the exterior shell of the building. The inside of the exterior walls are exposed and there is no HVAC, electric, or water.
2. White box - the owner has paid to bring in HVAC, electric, and water for you. They have likely provided a restroom and installed drywall on the four walls inside your space.
3. Second generation or pre-finished - someone else has already built-out the space. It is now available for a new tenant and will frequently need remodeling and updating.

Each property type comes with its own unique advantages and disadvantages. Understanding these differences in advance will help you and your Realtor focus your time on the type of properties that will work best for you. Time is money…

To help you in your quest, here are a few of the pros and cons for each.

Pros:

1. Cold dark shell -
2. Provides you with a clean palette and offers the greatest finish out flexibility. You can build rooms wherever you need them.
3. Landlords are usually, but not always, willing to give healthier Tenant Improvement Allowances to help you with finish-out costs.
4. White box -
5. Provides a wide-open space with great finish-out flexibility. Although the restroom is in place, you can still build-out the rest of the space to meet your needs.
6. These properties are great for retail stores needing plenty of open floor space.
7. The most expensive items are typically in place already: HVAC, electrical, plumbing. This can lower your costs and it definitely shortens the construction process.
8. Second generation/pre-finished -
9. Because the space is already finished-out, it may be ready to move into right away.
10. Little to no out-of-pocket expense required.

Cons:

1. Cold dark Shell -
2. This option is the most complicated, takes the longest to complete, and can seem overwhelming if you’ve never been through the process before.
3. While the Landlord typically provides a Tenant Improvement Allowance, you will still have to come out of pocket for a large portion of the improvements.
4. White box -
5. Most office environments will require additional finish-out. These costs will likely need to come out of your pocket.
6. The finish-out process can extend your move-in date several months.
7. The Landlord has invested in the MEP’s (Mechanical/HVAC, Electrical, & Plumbing) and may not be willing to contribute any further. Be prepared to come out of pocket for finish-out costs.
8. Second generation/pre-finished-
9. Chances are good that a remodel will be necessary. You may need to move walls and doors or upgrade lighting, flooring and fixtures.
10. We never know what is behind the walls until we open them up. Thus, remodels may have unpleasant and costly surprises to discover.
11. The Landlord may not want to pay for additional changes to the space. Therefore, you may have to pay for any changes and/or repairs yourself.

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NorthStar Commercial Interiors, LLC

972-813-9190

Watch this video to find out more about how small business owners succeed when building new facilities. Office, Retail, Medical Construction.