Tenant Improvements?

[Soterik]

Own an old commercial building (small) with 4 ground floor retail tenants, and 2nd floor office space. Its in a very vibrant community in Seattle. One of my retail tenants wants to do some upgrades, and we are midway on a 3 year lease, and she's looking for a contribution. Her business is so-so, but my other 3 tenants are doing very well, and the community is very strong.

Is there any factor of tenant improvements you do mid lease? I can't find anything online that indicates anything a "percentage" annually or anything like that. I've helped her in the past on a lighting upgrade (2 years ago).

Other notes: Just got through doing a major upgrade on the 2nd floor, including refinishing floors, new wallboard, major wiring upgrade to attract high tech tenants, and we've almost filled it back up in the last 6 months. All this was major $.

Currently all the rent $ goes to the 24/7 care of my 92yo father with dementia (mild for now). All improvements are coming out of my backpocket and dad's holdings, and we've broken the bank in the last year on the 2nd floor work. But it all needed to be done. No mortgage on the property.

Nobody else in the building asks for $, I do fixes quickly (bathrooms, electrical, heat etc).

Any help appreciated on a formula, or?

Thank you!

[ckelly78z]

I would say sorry, we can talk when the lease is up, right now, money is tight. Until we get the 2nd floor office space fully occupied, We have to watch our expenses.

The truth is always the best option.

[dad911]

Most of our leases were tenant responsible for fit-up, approval required by landlord. Mid-lease would be strictly on the tenant. Fitups by owner (us) were factored into the rent. So if they are improvement to the building, that you would like done, I'd suggest make improvements but financed by an increase in monthly rent.

[nvr2mny]

If she's an asset as far as a tenant goes you can always renegotiate her term, and rates to offset any TI she's asking for. With a good occupancy rate and no mortgage (especially if her term is extended) I would imagine those improvements would be easily financed. The bank rates today continue to be pretty favorable for commercial improvements considering debt to income ratio, which is very low in your case. It could be a net zero depending on costs as to not diminish the monies needed for your pop. To answer your original question, NO it is not common (or even reasonable IMHO) for a tenant who A) only signed a 3 year lease and B) is half way + or - through it, to ask for LL contributions on improvements - as long as though "improvements" are not considered LL required maintenance. Just my .02

[Eric Coffey]

Originally Posted by Soterik

Is there any factor of tenant improvements you do mid lease? I can't find anything online that indicates anything a "percentage" annually or anything like that. I've helped her in the past on a lighting upgrade (2 years ago).

Typically, TIs are negotiated prior to signing the lease, and from an owner/landlord's perspective, it's usually based on the length and type lease (as well as the tenant worthiness/reputation/solvency). In other words, if a national/corporate tenant approaches you to lease out your vanilla-shell space for 10 years NNN, but wants standard office build-outs, it is a much easier pill to swallow than if some unknown small biz tenant wants the same TIs, but is only looking to go 2 years MG.

In your situation, the only way I would consider any (significant) TIs would be with an extended lease and/or higher monthly rent, and/or higher yearly increases (or going NNN if it's currently MG). That said, happy tenants are usually good tenants. So if you want to be a nice(r) guy, I guess you could negotiate some sort of rent credit if they do their own TIs. However, I'd want to have full control/approval of what they intend to do (and require receipts/invoices for work done).

Whatever you do, make sure to put it in writing.

[nzporsche944s2]

You don't mention the cost of the upgrades or whether the current lease is a better deal for you or her.

One way would be that you could fund it at your cost in return for an extension of the lease and an agreed increase at intervals during the term of the lease such as annual reviews based on the official inflation rate or CPI (if you don't already have such a clause). That way you have the security of the longer lease and a price movement mechanism.

[1990C4S]

I do not help my tenant with lease-hold improvements. Ever. They rented it, they knew what they were getting. Any change in circumstances is their issue.

And I am very careful about allowing any work to be done. You need to review all the drawings and approve contractors.