We’ve got three 2025 rollovers totaling 42k SF, and I need to decide whether to trade higher TI for a 4–6 month abatement without breaking the five-year budget. If you’ve run this lately, did a tighter OPEX cap and a restoration clause in the renewal rider offset giving up TI dollars, or did the cash hit up front hurt NOI more than it helped retention?
On our 2025 renewals (about 40k SF), trading TI for a ‘4–6 month abatement’ penciled only after we pushed the free rent to months 7–10, fixed the OPEX cap at 3% (non-compounded), and narrowed restoration to non-BB work. Would your team tolerate back-loaded abatement if you also convert some TI into landlord spec scope so it’s capitalized? That combo preserved year-1 NOI and still stayed inside the five-year budget.
And one thing that’s worked for me is converting a chunk of TI into an amortized rent credit (6–7% yield) and pushing the “4–6 month abatement” to months 13–16 tied to delivery/acceptance, which keeps year‑1 NOI clean while staying inside the five‑year budget. Caveat: if the tenant’s credit is light, cap the rent‑credit amount and add a hard restoration ceiling; curious if your lender will sign off on amortized TI for those 2025 rollovers.
I’ve had success making 30–40% of the TI a vesting rent credit that unlocks around month 24 if they’re clean on defaults, which keeps our cash burn down while still showing value; @david_gre13 did your lender treat that better than straight abatement?
I’d lean to @baker37’s “push it later” idea but make the concession base-rent-only and 50% instead of zero, so they’re still covering NNN and your cash bleed is slower; pair that with LL-performed TI on an NTE and sweep unused dollars to reduce rent near the back end, plus a 3% cumulative OPEX cap and restoration limited to specialty work over $20/SF. Would your tenants bite on base-only relief?
For the 42k SF, use LL-turnkey with GMP/10% retainage and an expense stop; stretches the five-year budget — ok with that, @baker37?
I’ve kept NOI steadier by converting part of TI into an amortized improvement note that starts around month 24 and pairing it with a short abatement, so you avoid the big day-one cash bleed but still show value; cap OPEX on controllables only and swap the restoration clause for a modest cabling/patch-paint escrow that funds. @baker37, would you price that surcharge fixed or float it off SOFR?
I’d run a two-option menu priced to the same NPV: “as‑is + touch‑up” TI with 3 months base‑rent abatement (NNN still paid) versus richer TI and no abatement, paired with a year‑1 OPEX cap that burns off by year 3 and a TI escrow that sunsets if unspent. That keeps day-one outlay controlled while giving them choice; if they’re sub‑IG, I’d also add a restoration spec limited to cabling and supplemental HVAC so you’re not underwriting a full rip‑out. @baker37 have you modeled the burn‑off cap versus a hard cap for the full term?