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Garcia Architects: The ABCs of the Tenant Improvement Process

There are ways to minimize the cost and time required when remodeling commercial space

Entering into a new lease on a commercial space can be simultaneously exciting and scary. Remodeling that commercial space to meet your specific needs is even more so.

Ideally, start looking for space one year before you plan to move in, because if a remodel is necessary, the process takes anywhere from about six months to a year. And while you want to identify and negotiate your lease early, you want to delay the start of rent payments until your move-in date, if at all possible.

Most landlords will want rent payments to begin shortly after the lease execution, so a compromise may be necessary. A real estate broker can facilitate this negotiation on your behalf.

Once you’ve identified one or more spaces you’re interested in, consult with an architect or commercial interior designer. First, they’ll develop a program, based on your ideal workflow, brand and other requirements necessary to maximize functionality and profitability. The architect can help determine whether any of the spaces identified require a remodel, and what level of remodel.

I always investigate if we can accomplish the tenant’s goals in a way that doesn’t require a permit in order to reduce the cost and schedule of the project. For example, flooring, paint, cabinets or countertops can be changed, and furniture partitions or screens can be added, without requiring a permit. However, adding any new walls or changes in the electrical or mechanical infrastructure will require a permit.

In Santa Barbara, this process usually takes about six months, including the time for architectural services required for the permit submittal for an interior remodel. Construction can begin once a permit is obtained. Construction on a relatively small interior project (about 4,000 square feet) may take anywhere from one month to six months, depending on the scope of work. If everything within the space is demolished and rebuilt from scratch, the construction time frame may total nine months for a space this size. Construction time frames in Santa Barbara are longer than most other cities, such as Los Angeles, where contractors and resources are more readily available.

If there is any exterior work involved, the design must be submitted to the Planning Department and/or Design Review Board for approval before the construction drawings for permit submittal can be started. In Santa Barbara, this process can take anywhere from six weeks for a small change to a few months for a larger one.

A wholesale remodel of the exterior may take about one year to obtain preliminary approvals. If the proposed exterior work is minor and the tenant can live through the construction, I often recommend that the exterior work be permitted separately and completed as a second phase, so it doesn’t delay occupancy. Santa Barbara’s Design Review Board hs very particular and specific requirements, so it is important to retain an architect with local experience.

When permitting a project, the city will require that existing code violations be corrected. This may add cost, indeed, even double the cost of your project if it’s in an older building. The architect or designer will be able to estimate construction costs at the beginning of the project before you commit to a lease.

Once the design is partially complete, the architect may ask a general contractor to provide a more accurate cost estimate of the project, which most will do for free in the hopes of being hired for the project. When the construction drawings are complete and submitted to the building department, they are given to one or more general contractors to provide a hard bid, a process the architect can help facilitate. Additional costs, called change orders, may arise, so it is recommended to add a 10 percent cushion to the original bid.

The good news is that you may not have to pay for 100 percent of the project’s cost. Landlords often provide a tenant improvement (T.I.) allowance that can be applied to your remodel costs as an incentive for you to lease their space. This allowance is actually more like a loan than a gift, as the money fronted to you at the beginning is tacked onto your monthly rent. It is not uncommon for landlords to offer an allowance anywhere from $10 to $25 per square foot for second generation space, or as much as $50 per square foot for shell space in which much of the allowance must go toward mechanical and electrical infrastructure.

An allowance is more common when it is obvious a space requires a remodel; however, if a space is in “move-in” condition, then an allowance may not be offered. A real estate broker can assist with your allowance negotiations as most interior commercial remodels will exceed an allowance, and minimizing your out-of-pocket cost will undoubtedly be your goal.

Even if a remodel is not required, it is often worthwhile to make one or two minor improvements to the space, such as the addition of a focal point that will attract customers.

In summary, it is important to identify spaces early, determine what improvements you’d like to make and hire qualified professionals to assist you.

— Elisa Garcia is the owner of Garcia Architects, 122 E. Arrellaga St. Click here to read her blog, in which she writes about architecture, design, interiors and management. Garcia can be reached at 805.856.9118 or .(JavaScript must be enabled to view this email address).

 

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