Avoid Cost Overruns -
Improvements and Furniture
TENANT IMPROVEMENT MONEY PIT
One of the biggest sources of cost overruns in tenant relocations are costs incurred due to change orders or additional work required by the tenant AFTER they sign off on the initial architectural plans.
Real world stories on this subject could fill volumes of books so we'll just try to limit ourselves to a few.
THE TI PLANNING PROCESS
The first thing we recommend in order to save money on TI overruns is that you take a look at the process your potential landlord is taking you through during the negotiations. Did you read the article where when we discussed the three parts to a deal negotiation? Maybe we should have made a bigger issue of the hidden TI costs in that chapter than we did. Well, here's our chance so follow carefully. This really happens!!
Here's the scenario….You finally narrow down your choice to the building of your dreams. It’s one of THREE buildings of your dreams. Your broker presents you with general deal points that appear to be both market value and acceptable terms. In most cases, it's the nine or ten "deal" points most brokers tend to limit their proposals to. Number four or five on the list states something about a tenant improvement allowance or what specific improvements the landlord will make prior to commencement. With that, you sign the lease and wait patiently for the landlord to tell you it's time to move in.
You forgot one thing!
Do you know exactly what you're getting? Did you sign off on any WRITTEN plan? Do you have a list of specific improvements to be done and materials to be used? "Oh you want another electric plug where?"
Also, hidden somewhere in the Work Letter or possibly the base lease is a little statement that says the landlord or is management company receives a percentage of the TI costs as an administration fee. I've even seen an additional percentage tacked on to the cost of change orders too. Think about getting a great $25 PSF allowance on 10,000 Usable Square Feet (not Rentable-check your lease to state if the "Load Factor" is mentioned because it affects your parking and TI's). $37,500 of that allowance may be paid to the management company for doing what?
Here's the deal. DON'T SIGN THE LEASE UNTIL YOU KNOW:
· WHAT YOU ARE GETTING IN THE WAY OF TI'S
· YOU ARE GETTING WHAT YOU NEED AND EXPECT
· YOU NEGOTIATE DOWN ALL THE LANDLORD EXTRA FEES RELATED TO TI'S
· YOU TRULY BELIEVE YOU DON'T NEED ANYTHING ELSE
BE REAL PICKY. IT'S YOUR MONEY
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