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Guidance Corporate Realty Advisors

COMMERCIAL TENANT AND BUYER REPRESENTATION

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Corporate Real Estate Improvements: Turnkey Buildouts

turnkey build-out architect

turnkey build-out consulting

turnkey construction interior

Most commercial office Lease transactions involve some sort of interior Tenant Improvement ("TI") construction.   The project can be as minor as installing new paint and carpet to spruce up a tired space, or as extensive as a full office build-out from a "shell condition".  Unless a space is specifically offered "as-is", Landlords typically provide some sort of TI Allowance - usually dollars/Rentable Square Feet ("RSF") - as part of the Lease package offered to prospective Tenants.

Distinctions

In other cases, a corporate real estate tenant may negotiate, as one of its key Lease terms, that a Landlord provide the Tenant with a "Turnkey" Build-Out of the Tenant's desired interior layout.  With this type of agreement, the Landlord pays the full costs of the architectural and engineering services, construction, construction management and any required permits or fees.  The costs of the TI construction are incorporated into the agreed Lease rate and the Tenant has no direct costs for this construction.  The Landlord assumes the management responsibility for the project and, except for Tenant caused delays, assumes the schedule risk for the project.  The Tenant is essentially handed the keys to its new space when the construction is complete.

The Process

With a Turnkey Build-Out, the process often begins with an interior architect working with the Landlord and Tenant to create a Pricing Plan.  A Pricing Plan will show the Tenant's required build-out (walls, doors, millwork, etc.) and will contain keyed notes providing details about finishes (paint, carpet, counter surfaces), electrical issues (lighting, outlets, dedicated circuits), notes on the plumbing required for break rooms or coffee bars, and numerous miscellaneous notes required for the proposed construction.  If the Landlord approves the Pricing Plan, it is provided to several general contractors experienced with office TI construction to obtain preliminary pricing for the proposed TI Construction.

If the preliminary prices are acceptable, things can move forward.  However, if the preliminary prices are too high, the Landlord may refuse the cover the full costs.  At this point, the Tenant may: continue to negotiate or walk away from the deal; modify its plans to lower the costs; or agree to pay some portion of the costs, either as a cash payment of through higher rent payments.  If an agreement is reached, the Landlord will authorize the architect to prepare detailed Construction Drawings.

Ensuring Good Results

The key for both the Landlord and Tenant is developing plans that clearly identify what will be built and delivered to the Tenant.  Misunderstandings over this process are usually avoided with detailed plans, good communication between all parties involved in the negotiation and design process and strong oversight of the general contractor by the Landlord.

In the next issue, we will explore the issues related to structuring an effective Work Letter, usually an attachment to the Lease, spelling out the responsibilities of Landlord and Tenant, including the allocation of costs, responsibility for decision making and numerous other details related to the Tenant Improvement construction.

For expert advice on Turnkey Build-Out for corporate real estate, contact Guidance.

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Guidance Corporate Realty Advisors provides Corporate Tenant / Buyer Representation services to corporate real estate users in the Denver metropolitan area including Boulder, Colorado.  Guidance also provides these services in all major U. S. markets, as well as markets in Canada, Asia, South and Central America, and Europe.  To contact: (303) 442-5400 ext 2; Email for Information; 521 Valley View Drive, Boulder, CO 80304; 5231 Monroe Street, Suite 200, Denver, CO 80216.

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Boulder, CO 80304
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Denver, CO 80216
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