Negotiating leases, TI concessions, etc

I’m in the middle of writing a business plan and getting an accurate picture of start-up costs appears impossible.

This seems like a classic chicken/egg problem.

For instance, the asking price on one spot is $2/sf +nnn on a 1250sf pad. The space is “new” (though built in 2009) in cold shell form and I believe has some existing hvac. The landlord said right off the bat that they can bring it up to “vanilla” for me.

How will I ever know what the costs of improvements will be without a city approved plan? How would I get plans approved before signing the lease? Without plans I can’t get bids. How can I negotiate a lease without knowing the costs of improvements? :?

One general contractor I spoke with suggested I pay him $1000 to do a feasibility study on a property I hadn’t even signed the lease on. Is this normal? He said this would include a “bubble plan” that I could use to negotiate my lease. In addition, part of my $1000 would go toward finalizing the plans and blue prints should I decide to proceed.

Upon reading more about tenant improvement concessions I also encountered another term which is “upfitting allowance” – are these the same thing?

Finally, is there any hope in doing some improvements myself? I have carpentry and electrical skills and understand the plan/review process with the building department. But for commercial/restaurant, can I write my own plans and get approval for a half-wall or bar with/without electrical or will the city laugh at me when I tell them I’m not a pro? If I had someone like George Mills do my plan, can I bring it into the building department myself, do the work, and go through the inspection process, etc?

Sorry for all the questions and thank you very much in advance if you decide to reply.

Yikes… where to begin.

  1. Why are you considering a building that does not already have basic restaurant buildout in place? In most places, restaurants turn over often enough that I would never consider doing a build out from scratch. (Certainly not as a newby that has to ask what common terms mean!)

  2. “Vanilla” is a meaningless term with no specific standard. You need to have specific agreements regarding what is being done.

  3. Most LL’s will not allow you to do work yourself unless you are a licensed and insured contractor.

  4. I have no idea what the going rate for a lease in your area might be. (I suspect you are on the west coast due to quoting your rent in monthly price per foot) but a place that has been sitting unfinished for three years had better be cheap!

  5. If $2 per foot is the going rate for a lease on finished space THE LANDLORD SHOULD PAY TO FINISH IT.

PM me and we can talk. I am a licensed broker with experience in commercial leasing (it is what I did for a national retailer) who ows a pizza business.

I would never lease new space for a restaurant. Too many of them come up for lease with all the mechanical requirements in place.

To answer your last part about doing some improvements yourself. I think you’re going to have to speak to your local government (supervisor or inspector). In my situation we can do all the construction, all the electrical, but have to have a licensed plumber do anything with gas lines and water plumbing.

I always thought that was a joke, a licensed plumber, yet I can literally hang extension cords with duct tape across the ceiling and that’s not a problem? (and no…I haven’t)

Hi Alp:

Your question

If I had someone like George Mills do my plan, can I bring it into the building department myself, do the work, and go through the inspection process, etc?

Reply:

Up until the last few years our plans were sufficient for a contractor or the owner to draw permits for plumbing and electrical work and installation of food service equipment. That did not include changes to bearing walls or other structural components a architect or engineer had to certify and seal plans for that.

Currently most all jurisdictions require sealed drawings for just about anything. The part that frustrates is that most architects do not have food service layout and design experience. In most instances an architect will have a food service facility designer do the floor plan, a plumbing and electric rough in plan and a ventilation and air balance plan and then incorporate those plans into their sealed plans.

Most architects will do their part at a reduced fee if the buyer has a food service designer’s plan to give them to use.

As to doing the work your self I believe that in most jurisdictions that is ok but your work must pass all the same inspections that are done by the local jurisdictions,Building Dept,Health Department and Fire Marshall.

George Mills

There are two issues with doing the work yourself:

  1. Legal. As pointed out by other posters, many jurisdictions will allow it with certain restrictions.

  2. Landlord. The LL is not obligated to allow it. You need to cover this with them before agreeing to anything. Many LL’s will require a licensed and insured contractor even if the local building dept would allow you to do it yourself.

Do you have a commercial broker working with you on your lease and advising you what local lease rates are? They should also be able to help negotiate TI allowances etc… An attorney is also good to have on your side, but in my experience they bring little to the table with regard to getting a better deal. (They do protect your interests, but they generally have no idea about what the market for lease rates and allowances is)

DO NOT do a lease negotiation without professional advice!