Making the investment: how commercial tenant improvements can transform your business

One of the simplest ways to add value to a property is to make small improvements that make the building more appealing to tenants, but these don’t have to cost an arm and a leg.

Categories of commercial improvement

These improvements can fall into one of two categories: 1) Leasehold or 2) Building Improvements.

Leasehold improvements include benefits for the tenant, whereas Building Improvements include benefits that you do for the building. It’s important to understand what you own and what improvements are available in your commercial property before making any decisions about whether or not to make an investment in tenant improvements (TIs).

Leasehold Improvements vs. Building Improvements

Any owner of commercial property must understand the difference between a tenant improvement and a building improvement. A commercial tenant improvement (TIs) is a direct one-time expenditure for an individual commercial tenant. These improvements typically add value to specific business operations within the commercial property, such as by adding more space, modernizing the work environment or other modifications that benefit only that commercial tenant.

For example, if a commercial tenant wants to add more space to their suite because it’s growing, they may need to make changes to make that happen. However, these improvements must be made in compliance with the commercial lease agreement between the commercial owner and commercial tenant. The cost of TIs is typically included in the commercial lease commercial tenant’s rent.

A commercial building improvement (BI), on the other hand, is an improvement to the commercial property itself, which may include items such as adding commercial lights or making common area improvements. These types of commercial building improvements do not specifically benefit one commercial tenant over another commercial tenant within a commercial property. This means that commercial property commercial owners can decide to make commercial building commercial improvements at their discretion, and commercial tenants must pay for their own commercial tenant commercial improvement (if there is one).

Deciding Whether or Not to Improve a Commercial Property

With all other commercial property factors considered, deciding whether or not you should incur the cost of TIs comes down to one commercial question: Is your commercial building worth it?

Commercial owners should consider these factors before deciding to commercial invest in commercial TIs because, unlike residential TIs, commercial TIs do not directly benefit commercial renters and must pay for them.

One commercial way owners can gauge commercial TI value is by evaluating building capitalization rate, also known as commercial CCR. The commercial return on investment for a business owner is the commercial property's net income, after adjusting for all of the various expenses, divided by two. Commercial CCR indicates the net income that commercial owners can expect in return for their investment.

If a commercial property's capitalization rate is 10 percent and the total TI improvement cost is $10,000, then that

For example, if you're a small home business owner looking to expand your operation, you'll want to pick a facility that's designed for businesses. If franchisees are already operating from there, choose one with plenty of room so that you may practice and develop your product. On the other hand, choosing a commercial industrial business company manufacturing producing production plant(100% x $10,000 = $1,000).

If you are looking to make some changes to a commercial property, contact Builders Innovation Group.  We look forward to renovating your commercial property and working with you.