News & Research Archive

Streamlining the Tenant Improvement Process for Large Property Owners

Nov 14, 2011

 

Having worked as the landlord's architect for the likes of Equity Office Properties, The Irvine Company, and Bank of America, we have established an efficient assembly-line approach for office tenant improvements. Starting with having a master agreement with pre-established unit pricing, a structured process must be put in place to allow a landlord account to run like a well-oiled machine.

Office building landlords have a constant turnover of tenants, most of which have 5-year leases. When a suite becomes available, we meet with a prospective tenant with an existing floor plan, tracing paper, and a black felt-tip pen in hand. We interview the prospective tenant about their business needs, their "program". As part of the leasing team, our goal is to entice the tenant to want to lease space in our client's building. In the initial meeting, if time allows, we sketch some possible floor plans. If the suite is large, we might sketch the space plan options after the meeting back at the office. Per our client contract, we typically have about 1 to 2 days to complete a space plan after the client meeting.

It is our responsibility to coordinate directly with the prospective tenant to obtain their approval on a space plan. Therefore, it is most effective to sketch the plan and simultaneously get the client's approval in the initial meeting. Once a space plan is approved and the landlord approves proceeding with a preliminary pricing plan, we typically have about 2 days per the client contract to complete the preliminary pricing plan. We "field-verify" the existing conditions at the suite with a standard checklist of items to observe, measure, and document. Back at the office, we add the necessary notes to the plan. A quality review is completed and redmarks are quickly corrected, then the preliminary pricing plan is distributed to a standard distribution list that includes all of the subcontractors, so there is no lag time in getting the pricing effort underway. We call the general contractor to schedule a job walk immediately, because the general contractor, by contract, only has 1 week to provide the cost estimate.

The client's in-house leasing directors or consulting brokers eagerly await the pricing, because they cannot negotiate a lease without knowing what it will cost to renovate the space per the prospective tenant's requirements. When they receive the preliminary pricing, they can structure a deal. The leasing rate and TI allowance they offer a prospective tenant take the construction cost into account, as well as the architectural and engineering fees to complete the project. Many leases in the recent market are "turnkey", meaning the deal includes all of the tenant's desired renovations to the space. More typical in my experience, however, is a Tenant Improvement allowance. An average TI allowance is about $25 per square foot for "second generation space." If the construction and architectural costs exceed the TI allowance, the tenant must come out of pocket for the balance.

At this point, the project goes on hold from our perspective for anywhere from one to three months while the lease is negotiated. We continually check in with the client to see how close they are to executing a lease in order to predict when the next phase, construction documentation, will commence. Once a lease is signed, we proceed with construction documents. The pressure is now on, as the tenantís move-in, rent commencement, and the brokers' commissions are all pending the completion of our services. Contractually, we usually have 2-weeks to complete construction documents, which is swift compared to a full-service tenant improvement project of the same size which has a 4 to 6 week turnaround time. Fortunately, for most of our landlord accounts, we utilize templates for each of the client's buildings. Because we're working with known general contractors that have a good relationship with the client, our construction drawing templates include only five drawing sheets, each with standard notes. Working with the same one or two contractors for all of the client's projects allows the construction documentation to be minimal. Additionally, having pre-established "building standards" for each building which outline the product specifications,which we were previously retained to author, means that products do not need to be selected, specified, or shown on the drawings.

Once the construction documents are complete, we distribute them to the standard distribution list of subcontractors and general contractor, and all other interested parties. The general contractor again has a week to provide final pricing. Simultaneously, we submit the drawings to the building department for permit approval. The contractor gears up to start construction, and everyone await permit approval. It takes between one and eight weeks to get a permit approved depending on the jurisdiction.

Once construction starts, the leasing director fades away, and the client's in-house construction manager comes to the forefront to oversee the contractor, manage client changes, and deal with unforeseen problems. A typical construction time frame is eight weeks. Upon completion, we host a punch walk and provide a punch list, the list of items the contractor still needs to complete. The entire process from start to construction completion takes about six to eight months.

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Written by: Garcia Architects

E-mail: Elisa@garciaarchitects.com


Starboard TCN is posting this article on its website and blog with the approval of Garcia Architects.

Garcia Architects specializes in commercial interiors & construction management.

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