TENANT IMPROVEMENTS
COST SEGREGATION
What qualifies for tenant improvements (TI’s)? And why does that matter for cost segregation?
What Tenants Assume
- The entire amount agreed upon goes into the construction of their space.
- Monies are available ala a construction draw. Unused allowances can be applied to rent, furniture or technology infrastructure.
- Reimbursements will occur as soon as they are submitted to the landlord.
How Landlords Treat TI’s
- Available amount may be computed on usable square footage (sf) not rentable sf, which reduces funds.
- Agreement may allow landlord to charge supervisory and permitting fees, as well as complete ADA and code required upgrades.
- TI’s represent a long-term value enhancement of the building. Improvements to a tenant’s space are only part of the allowance.
- Reimbursement is often withheld until invoices, lien waivers, inspection reports, budget updates and architect certifications are provided.
Cost Segregation Impact
Allowances for equipment, security systems, and technology infrastructure are critical for maximizing the benefits of cost segregation. For certain medical, restaurant, laboratory and more complex industrial projects, what is covered by TI’s is most pertinent to a cost segregation analysis. These types of personal property should be enumerated in the allowance agreement.