With the increase in sophisticated logistics systems in today’s market, modern landlords must deal with more building preparations than ever before. And that begs the question – who is paying for them? It’s a significant component to the lease negotiation process and because both have a big impact on the cost to the occupancy, it’s comparable even to the attention given to the base rent.
The most ideal scenario is this: the tenant gets what he needs at the best value and at the right property. But while it may seem easiest and most cost-effective to simply ask the landlord to bankroll the updates and improvements at the perfect facility, don’t be fooled. This could lead to higher rental rates. Instead, consider the following:
- Which improvements will upgrade the property over the long term? Which won’t – and how will both options impact the negotiation?
- Which tenant improvements would be necessary for almost any occupant? Which ones are particular to a particular occupant?
- What kind of impact will these improvements have to the property as a whole?
- Is the landlord in a financial situation that allows him to accept tenant improvement costs?
And then there’s the matter of how tenant improvements payments will be handled.
- Will the tenant write a check or pay the landlord back through increased rent?
- Will the tenant be expected to pay interest on top of the actual improvement costs in exchange for using the landlord’s funds?
- And since it’s the tenant who will enjoy the benefits of all these upgrades and improvements, does that mean he should pay an increased rent for the entire occupancy or just until the “loan” has been paid off?
Unfortunately, there aren’t easy answers. That’s why the experience of an industrial real estate professional is so important. If you understand the value of having someone to help you successfully navigate this and other factors of the industrial real estate leasing or purchasing process, we appreciate the opportunity to discuss your options with you.