Tenant allowances a chore to understand

Tenant allowances a chore to understand

We keep hearing that landlords are bending over backwards — beyond offering low lease rates — to retain and recruit tenants. Details over recently awarded allowances for tenant improvements indicate that some property owners are more flexible than others.

A case in point is this week’s disclosure that Boston Properties Inc. gave the Federal Home Loan Bank of Boston $4.86 million — equal to $90 per square foot — in allowances as part of its move from its current headquarters at 111 Huntington Avenue to the Prudential Tower. That award is more than double the $40-per-square-foot in allowances promised to the law firm Foley Hoag this summer by Pembroke Real Estate, the property-investment and management arm of Fidelity Investments. That deal involved 197,000 square feet of space at 155 Seaport Avenue.

Now we’re hearing from multiple sources that Wilmer Cutler Pickering Hale & Dorr won an allowance of $65 per square foot — nearly $18 million — for its soon-to-be-retrofitted office space at 60 State St. in Boston. That space, some 272,000 square feet, is locked up for a 20-year term.

Clearly there are multiple factors to account for. Location, for example, might explain why FHLB (Back Bay) would be able to command more than WilmerHale (Financial District) and Foley Hoag (South Boston Seaport). And don’t forget, FHLB’s still got to move, while WilmerHale and Foley Hoag are, aside from some trimming of space here and there, staying put.

Then there’s square footage to consider. Certain lease improvements are standard, even fixed, while others are not. FHLB’s allowance is spread over 54,000 square feet. WilmerHale’s new layout is five times that amount. The same $10,000 investment in a new receptionist area is going to favor, on an allowance-per-square-foot basis, FHLB over WilmerHale.

Rents and lease durations are probably the biggest factors that go into determining up-front allowances. Foley Hoag will pay between $38 and $46 per square foot over its 12-year contract. FHLB is on the hook for rents ranging between $43 and $47 during its 12-year deal.

While WilmerHale and its landlord, Equity Office, have been tight-lipped over rents, although The Round Up is hearing through the rumor mill that the law firm will pay in the low $50s early on and is obligated to fork over as much as $63 per square foot towards the end of the deal.

Read more: Tenant allowances are a chore to understand | Boston Business Journal

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