Hi all,

I am a small business owner and own 50% of the business. My business partner, who owns the other 50% of the business, also owns a real estate company and is currently building a new office space that we might move into.

The question and the conflict that we are now facing is the other owner is nearing retirement and using his real estate as retirement income. He is trying to make our business pay for most of the cost of the build, to reduce his real estate expenses. The business that we own does require fairly specific requirements for our build, but what is the average cost/sq foot or tenant improvement allowances for a new build? I would likely agree to a long term (over 10 yr lease) if we move into the new space, but don't want to over pay for the build out and rent on a new building.

Any input or commercial real estate brokers would be helpful.

Thanks!

What city? What is unique about the build out?

Start at $90psf for white box and can go up to hundreds psf for medical or high end office.

Edit: I miss read the post. TIA in Central TX on 10 year terms are topping at $50 unless it's a new restaurant chain coming in then they can get up to $70

Assuming it's shell space, we're seeing $60-$70/sf TIA on 10 yr terms in Houston.

Landlords will probably do $7 to $8 per SF per year of term on lease for the Allowance based on how the building is underwritten. So you'd be looking at $70/SF to $80/SF range Allowance probably. Build costs could be $80/SF to $120/SF depending on size, density, level of finish, etc. That's exclusive of design costs, technology, furniture, etc. which typically "out of pocket".

We are a dental office, so the plumbing and electrical that we need are specific as well as the overall design and materials I want for the office.
We're in NW Houston.

Thanks

I totally understand why your partner wants to do this - makes perfect sense for his retirement. However, it may or may not make sense for you. You have to look out for yourself in this situation.

Just an idea - - get a typical broker-assisted lease analysis done for your needs, keeping all the components consistent. I'd shoot for two viable bids from third parties, and if your partner is in that ballpark, you'll feel much better about it than if you had no realistic comparison. If the third party bids are more attractive financially, ask your buddy to match it, or you're not pursuing his path. Pay no more than market rates - this goes for lease renewals 5-10 years down the road, as well. Tell him "sorry, it's just business".

How many square feet? Right now, its definitely a renters market. The upfront TIA is also directly related to the rent amount. The more TIA; the higher the rent.

In Dallas, you could easily get $100/ft for shell space at a rent in the mid $30/foot.

Additionally, you could share in the tenant rep commissions.

Depending on the specialty build out, you may need to spend more than $100/ft for the finish out.

Edited to say... Dental finish out is expensive. Its also important to pick the right location/property for signage, parking, etc.

Depends on the rent. End of the day, you are just amortizing the TI into the rent payments.

Spaceship said:

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Landlords will probably do $7 to $8 per SF per year of term on lease for the Allowance based on how the building is underwritten. So you'd be looking at $70/SF to $80/SF range Allowance probably. Build costs could be $80/SF to $120/SF depending on size, density, level of finish, etc. That's exclusive of design costs, technology, furniture, etc. which typically "out of pocket".

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You must work in a different market than most of us! With typical office rent, I would say most LL's would be at about half of that for a TI contribution, perhaps pushing $50 psf for a 10 year lease.

Tell him you want ownership interest in the property for paying for most of the buildout.

Honest question here, what does tying the company to this other company do for you? It helps him, but doesn't help you. And its honestly a bad business partner deal. He's trying to disadvantage you to help himself.

There's nothing about commercial real estate the past 3 years that puts anything in favor of landlords. He's looking for a stable base tenant to get his project cash flowing quickly.

If anything, he needs to be funneling you to more favorable terms that the market because he can trust your business.