I get a lot of calls from people who want to build out a space for their retail or restaurant, and are leasing a cold dark shell (no power, HVAC, nor plumbing) for their new business.  Is it a good idea to rent a space in this raw state?  

The short answer is – possibly.

Every cold dark shell has minimum fixed cost associated with simply making it inhabitable such as:

  • Electricity
  • Heat and air conditioning
  • Bathroom(s)

These cost don’t change much within a general size range of the space.  For instance, the cost of building a pair of bathrooms doesn’t change much whether the space is 2,000 SF or 10,000 SF. 

So be especially attentive of TI allowances on small spaces, even if it sounds like a lot on a square footage basis.  

We recently white boxed a 775 SF cold dark shell and spent over $30k ($38/SF) just getting the first light to come on and a toilet to flush.

Remember, when a landlord wants to lease a cold dark shell, they are asking you to get their space inhabitable before you even start your upfit.  

Be absolutely certain you’re getting properly incentivized to take on the extra effort, cost, and construction time (read “zero revenue from another month”).  

Since TI is usually reimbursed after construction is complete, not only are you spending your time on the extra work, you’re probably financing the work for the landlord as well.

So if you’re looking at a small space, cold dark shells probably don’t make sense.  If you come across one you like a lot, I suggest asking the landlord to whitebox the space for you, or find another spot.

However, larger spaces may make sense as a cold dark shell as there is a larger area to distribute the additional fixed cost over. 

If you have any questions about a space you’re considering, or anything else, email me.