Commercial interior buildout can be a bit of a confusing term at times.
For example, I once prepared an estimate for a gentleman who was opening a new pizza place.
The space he was renting had to be carved out of a larger space. It required a new, 2-hour fire wall the length of the space to accomplish the division, a new 400 amp electrical service, new plumbing, fire sprinkler modifications, and the glass storefront had to be modified to create a new front door.
All of this had to be done just to make two suites out of one, before even starting to build his store.
He saw our estimate and had sticker shock. He said he wasn’t going to have the most expensive build cost in their chain.
I understood completely. The investment to open the location has to align with the projected profits from the business.
While I got where he was coming from, his comparison of his project to other new stores in the chain wasn’t apples to apples.
If he had leased a space in whitebox condition, the first dollar spent would go toward his improvements, and my estimate would have been very different.
But unfortunately, subdividing a larger space into two smaller units is a standalone project by itself, making the division plus the buildout about the most expensive path he could have taken. I don’t think he really understood how big of a difference this made.
Sometimes landlords will give larger tenant improvement allowances for projects like this, but still be careful.
Often, the TI allowance is actually a reimbursement after the space is completed, construction is paid for, and the location is open.
So the tenant is still effectively financing and performing the work to get the landlord’s space into whitebox condition. And I would argue there is no ROI on this part of the investment beyond the TI money.
So the pizza operator thought his estimate was out line because he wasn’t seeing the cost to get the space to a whitebox condition as a separate project, in addition to the interior buildout of his business.
The finished restaurant was the finish line, and was comparable to other units in his system. However, his starting point was very different and made his cost look very different.