The Other Guy’s Shoes – The Five T.I. Priorities Developers, Architects and Landlords Should Keep in Mind
Walking a mile in the other guy’s shoes means that one is familiar and empathetic with the problems that a person may encounter in life. It is a dignifying characteristic to be able to see things from another’s point of view. For those who may need Tenant Improvements, three others must work together in order for the final deliverable to be achieved. In today’s post, we consider the point of view of the Lessee.
To start, a Tenant Improvement occurs whenever work is to be completed in a pre-existing space to accommodate a new tenant.
Ultimately, the lessee is the reason a Tenant Improvement is completed. Although it is true that the lessee would not have a place to go without the Landlord or the developer, both Landlord and developer have the goal of acquiring lessees that will pay the rent and thereby serve as the basis for funding the development. Making the lessee happy with the facility that he will inhabit is necessary and vital to the long term success of the endeavor. The ultimate goal is a “Win, Win, Win, Win” situation, where lessee, landlord, developer and Architect are all happy with the results of the project. For everyone to be happy with the end product requires patience, effort, communication and diligence… it doesn’t happen by accident.
Therefore, understanding some of the critical needs of the lessee is critical for the Architect, Landlord and Developer.
Here are a few critical points that are necessary in order to comprehend the priorities of the lessee:
1. The location of the development as prioritized with his needs and revenue generating potential – Will the location generate sufficient traffic – foot or otherwise – to be able to generate a profit sufficient to maintain the enterprise?
2. The cash that he will pay over the life of his rental of the space – Both the short and long term costs of the space are the ultimate driving factors for the lessee. This amount includes the rent and all other operating costs relative to its location. Does he or his employees have to pay for parking as a component of the big picture of what it means to rent at a certain location? If so, this will impact his choice. The amount of cash spent over time is the critical driving factor for him; not merely the first cost.
3. The cash he will need to pay to initially construct the TI (also known as ‘Build-Out’) – Working closely with the architect and general contractor, he may be able to control the costs, but the finishing of the space in a manner that is consistent with both functional and aesthetic priorities is critical.
4. The date of completion of the project, and when he may thereby occupy the space – If his calculations are that he must be in the space by June, and the process is delayed until October, he has missed potential revenue for five months. Streamlining the process is critical for the owner to make a profit.
5. The tax depreciation of the construction over time; even if the lease expires – The requirement to account for depreciation is necessary from a tax viewpoint.
6. The reinforcement of his image or brand – See our series on commercial architecture in order to understand the concepts of branding and image.
In order for everyone involved to treat each other as they would like to be treated, it is necessary for the tenant to have a list from the Landlord of all of the things that he will be responsible for in advance. This list will allow him to be able to plan in order to accommodate the needs of the landlord via the contractual agreement.
One of the overlooked items, for example, that a lessee may not have in mind when considering a space is parking. It is important that in the rental space selection process that the Tenant understands that parking is required in order to complete the design. Therefore, if he has the target number of occupants of his space, he would be able to assess and see if the space he wants to go into has the capacity to service his needs.
Finally, the most critical thing for the Tenant is his early negotiations with the Landlord. A part of this negotiation includes who pays for what… how the costs are amortized or not.
By keeping these areas in mind, the Landlord, Developer and Architect will be able to greatly serve the Tenant in pursuing his endeavors and thereby reach their goals as well.