4 Big Mistakes Landlords Make When Bringing on New Tenants

If you own commercial real estate, you know that bringing new tenants into your building is both the most exciting and the most frustrating part of managing your investment. Negotiations can string along for months, and the tenant improvement process is full of potential pitfalls. But if you have the right advisors at your side, you can avoid the following big mistakes: 

1. Don’t lead with your tenant improvement allowance. 

When you first meet a potential tenant, it can be tempting to tell them your typical tenant improvement allowance (TIA) rate up front. But not every tenant needs a full renovation before they move in, and some spaces in your building could be a great fit with just a few modifications. At Culmen Real Estate Services, we suggest that you first ask the tenant what they need out of a space, and if none of your spaces will work as-is, then move into discussions about your TIA.

2. Don’t let tenants use the TIA for anything that doesn’t directly benefit the building. 

We’ve seen tenants ask to use part of their TIA for things like furniture or technical equipment. But since the TIA is cash that comes out of the landlord’s pocket, we always recommend that the landlord limit its use to investments that improve the property itself.

3. Don’t agree to a turn-key lease without defining your terms. 

Tenants often ask for a turn-key lease, meaning they don’t want to pay anything out of pocket to get their space ready to move in. Depending on what they need, that may be a reasonable request, or completely unrealistic. The key is to precisely define the terms of the lease after you’ve priced out all of the work, otherwise you might be writing a blank check. For example, if you plan to cover the renovations, but not any costs related to moving the tenant in or setting up special services like cabling or refrigeration, then you need to spell that out in the lease. 

4. Don’t let the tenant control the build-out. 

As a landlord, you always want to maintain control over all of the contractors who will work on your space, and closely manage the work that gets done. If a tenant hires a low quality contractor to try to stretch their TIA further, they could end up doing poor quality work that impacts the rest of your building. At Culmen, we’ve also seen landlords face problems when  third-party architects try to design a space from afar, relying only on floorplans instead of walking through and measuring. Their designs might fit the space on paper, but in not in reality. It’s always safer to work with a designer you trust who knows your building.

When you work with a Culmen representative, you gain the benefit of decades of experience bringing new tenants into properties. We’ve seen every kind of pitfall and know how to avoid them and protect your investment. 

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