Tenant Improvements (TI)
Tenant improvement (TI) allowances are funds a landlord provides to build out or customize leased space — flooring, partitions, fixtures — negotiated into a lease and typically quoted per square foot. Lenders on office and retail deals underwrite a TI/LC (leasing commission) reserve to fund allowances and broker commissions needed to keep the property leased over time.
TI and leasing commissions are capital costs, not operating expenses, so they don't reduce NOI directly — but they're a real cash drain lenders account for separately, typically through an upfront or ongoing reserve sized to the property's rollover schedule and market-typical allowance levels.
Allowances typically run higher for new tenants building out raw or vacant space than for renewing tenants simply refreshing existing improvements, and they vary widely by asset class and market — office and retail carry meaningfully higher TI/LC costs than industrial or multifamily space.
A new office tenant might receive $60–$80 per square foot in TI allowance, versus $15–$25 for a renewing tenant.