I am currently representing a client for his produce market and found a gutted out retail space. Put in an LOI with 10 yr terms and TI at owner's sole expense along with all the other terms and conditions. got a counter offer with attractive rent rate with 18 months free rent but TI's at tenants sole expanse.
I havent talked with my client about this but i get the feeling that he still wants the TI solely paid by the owner.

should i accept this offer or should i counter on this?
if my client still wants the TI's, how should my counter offer be?

thank you

Many owners (not all) are cash strapped so this owner may not have the ability to pay all of the TI. From his perspective, if he can't pay TI, then free rent makes the most sense. He may agree to a middle ground, where you both pay for a portion of the build out costs. Also, he may agree to TI but will want a little more in rent then...which is common. Since your client is open to a 10 year term, the LL may be more willing to give some TI dollars so he can amortize the expense over the 10 years.

How many SF is the space? Also, define more clearly your term for "gutted out." With the 10 year term, did you get two 5 year options as well? What type of build out does your client require? Keep in mind, to fit out a space can run $150/sf +/-....so even on small space (1500 sf) you could be looking at $225,000.

Also, what was the original asking rent? What did you counter on your LOI? And how much TI in $/SF did you ask for? What rent # did LL counter with?

thanks for responding El Luchador!
the space is 4400sf and it used to be a pizza place. when the pizza place moved out, LL took out everything from ceiling, wall, and everything in between. so it's in a cold shell condition. originally, we asked for $.90 gross and they countered with $1.00 psf gross with 3% increase after 18 months free rent. in the original LOI, i didn't put the figure for the TI's but gave them a list of items to be done in the space.
I've talked with my client his partner about this and they were surprise about the generous offer however, they feel that it will be too much of burden for them to fork out huge amount of monty to fix up the place. so they have decided to have contractor take a look at the space and see what the estimate will be. I figured this is the logical step and decide what to do next.

what do you think i should do next?
i know that it will cost a lot of money and time for tenant to bear at this point since they don't have much to spend on the space.

the only thing i can think of at this point is that if the cost is too much for tenant, then, share the cost with the landlord.
you know, either increase the rent a little or cut all the free rent except the rent abatement (3 to 6 months).

Or, start thinking about finding another space since it's the tenants market.

let me know what you think.
thanks.

oh! by the way. do you think the listing broker is expecting something back from me since we are in a beginning stage of the negotiation. i know that when i put in a LOI, we went in with the minimum rent that could be possible for my tenant along with all the other terms and conditions that would be favorable to my tenant. Usually, when they get an offer far end of rangement, they usually counter with far end of the other end and we negotiate down to middle.

Am I reading your post correctly? the gross rent is $1.00/sf?? If that's the case, the LL probably won't be willing to give much of anything at all in TI dollars.

Retail in my region probably starts at $15/sf NNN for space in old strip centers. Based on this scenario, I would say counter with something like 6 months free rent, LL to give $10/sf in TI dollars, and LL to provide the space as a vanilla box (everyone's definition is a little different - but generally dry wall up, drop ceiling & lighting in, cement slab down, electrical roughted in, and an ADA bathroom provided.

But if the rent is a buck a foot, you may be able to horse trade some of the free rent for a little TI money but not much else.

Please clarify the rent.

Probably is breaking it down into per month which would be 12.00 PSF

Rent in Nevada and California is typically stated per month rather than per year.

TI's are typically a tenant expense for retail in my market. This can work out to several hundred thousand dollars very quickly with the lighting, refrigeration, water fixtures etc. El Luchador is right that many landlords don't have cash right now, which makes it harder to get them amortized into rent that may not get a payback to the landlord for 6-12 months. Also with businesses dropping left and right in the retail sector, from a Landlord's perspective it is a high risk tenant that can't afford the initial cost of doing their own Tenant Improvements.

Very interesting - was not aware of the that - thanks for the info. It really compresses the scale down of the numbers! For me it seems odd to negotiate a nickel or a dime off the asking rent...