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!

glassey06 said:

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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!

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This answer can vary in multiple different ways and there is not nearly enough info to make a guess. My recommendation would be to check loopnet for brokers that have listings of similar properties in your area and call them and ask your questions. They might not have time for you and might not be willing to provide info for free, but you will have a much better chance than most on here could give you. You might start with calling Jamie at Red Pear, as he comes from a CRE background and has experience in a lot of different sectors. He might also be able to point you to someone who can help.

You will need a broker involved to establish what market lease terms would be.

If I were you, I'd happily agree to pay for all the finish-out so long as the rental rate was reduced a commensurate amount. That would be the TI allowance you would have been provided amortized over the term.

You can split the cost with him upfront and forego any interest rate you'd be paying. And on the renewal, you can probably renew on a favorable rate to you given the initial rent was low.

Your partner has a less valuable building and missing out on healthy interest payment just to save a quick buck.

I would find out what a reasonable market rate for comparable useable pace is. Then discount that rate, or free rent by however much the buildout is that would normally be covered by the LL.

Landlords with shell space should provide enough TI to finish the necessities of the space out, but special buildout beyond the white box is typically is the tenant's responsibility.

Landlords provide TI in excess to finish out the shell and amortize that costs over the lease to inflate the rental rate. This is the opposite, which artificially suppresses the rental rate to the market.

As said above, you need a commercial broker to help you out who is familiar with your market. I've had an office where the owner nearly paid for my full build out and ones where they paid for nearly nothing. It's all market dependent.

Jay Magness at Newmark

John.Magness@nmrk.com (goes by Jay)

He's a stud and does office tenant rep/build out advisory for a living.