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Tenant improvement (TI) allowance amortization calculator
Work out what it costs to repay a landlord-funded build-out through the rent: the total allowance, the level monthly and annual payment over the lease term at the rate you enter, the amount per square foot per year, and the interest included. Works in Canadian or US dollars; nothing leaves your browser.
Results
- Total allowance
- $240,000
- Monthly payment
- $2,786.60
- Annual payment
- $33,439.24
- Amortized TI per sq ft per year
- $5.57
- Net rent incl. amortized TI
- $29.57
- Total repaid over the term
- $334,392.42
- Interest included
- $94,392.42
| Year | Paid | Interest | Balance |
|---|---|---|---|
| 1 | $33,439 | $16,256 | $222,816 |
| 2 | $33,439 | $15,013 | $204,391 |
| 3 | $33,439 | $13,681 | $184,633 |
| 4 | $33,439 | $12,253 | $163,447 |
| 5 | $33,439 | $10,722 | $140,729 |
| 6 | $33,439 | $9,079 | $116,369 |
| 7 | $33,439 | $7,318 | $90,248 |
| 8 | $33,439 | $5,430 | $62,239 |
| 9 | $33,439 | $3,405 | $32,205 |
| 10 | $33,439 | $1,234 | $0 |
Works in Canadian or US dollars: enter every amount in the same currency. Calculated in your browser; nothing is sent or saved.
How it’s calculated
- Allowance
Allowance = area (sq ft) × TI per sq ft - Monthly payment
Payment = allowance × i ÷ (1 − (1 + i)^−n), with i = annual rate ÷ 12 and n = term in months - Per square foot
Amortized TI per sq ft per year = payment × 12 ÷ area - No interest
At 0%, payment = allowance ÷ n (straight-line)
Worked example (illustrative numbers)
- A tenant leases 6,000 sq ft of office space for 10 years at $24.00/sq ft net. The landlord agrees to fund $40.00/sq ft of improvements, $240,000 in total, and recover it through the rent at 7% a year.
- The level payment is $2,786.60 a month, or $33,439.24 a year: $5.57/sq ft/year on top of the net rent, which makes the rent including the amortized TI $29.57/sq ft.
- Over the 120 months the tenant repays $334,392.42, of which $94,392.42 is interest.
- At 0% the same allowance adds $4.00/sq ft/year ($2,000.00 a month). Over a 5-year term at 7% it adds $9.50/sq ft/year ($4,752.29 a month).
Illustrative figures for a fictitious lease; they are not market TI allowances, rents or interest rates for any building, property type or city.
Base allowances and amortized improvements
Office, medical office and retail leases often include money from the landlord toward the tenant's build-out. A base allowance is usually part of the deal and is already reflected in the face rent. When a tenant needs more than that, a common arrangement is for the landlord to fund the extra and recover it as additional rent over the term, at an agreed interest rate, as if it were a loan repaid in level monthly instalments.
This calculator shows the cost of that amortized portion. Enter only the amount being repaid through the rent, not an allowance the landlord is giving with no repayment.
What changes the number
Three inputs drive the payment: the amount, the rate and the term. A shorter term repays the same amount faster, so the payment per square foot rises sharply; a longer term lowers the payment but adds interest. The rate reflects the landlord's cost of money and risk, and is negotiated like any other lease term.
Leases also differ on what happens if the tenant leaves early. Many require the unamortized balance to be repaid on an early termination or default; the year-end balances in the schedule show what that balance would be at each anniversary on these inputs. Check the lease for how interest is calculated and when payments start.
Comparing offers to lease
Face rent alone hides the value of incentives. A deal with a lower net rent and no allowance can cost a tenant more than a higher rent with a generous build-out, once the tenant's own improvement costs are counted. Brokers usually compare offers on the net effective rent, which spreads free rent, allowances and other inducements over the term; our net effective rent calculator does that from the landlord's side.
Arithmetic only. This is not an appraisal, a valuation opinion, or financial, legal, tax or accounting advice. Lease accounting and tax treatment of allowances and improvements depend on the jurisdiction and the parties; ask an accountant.
Showing allowances in a lease brochure or OM
In a for-lease brochure, state the asking net rent and the additional rent estimate, and describe the allowance or build-out the landlord will consider, rather than a fixed figure, unless the landlord has authorized one. In an offering memorandum for an investment sale, buyers want to know about allowances still owing to tenants and any amortized improvements built into current rents, because both affect the income they are buying. In OfferingStack, lease abstract pages show the terms and rent schedule you enter for each tenant, so an amortized TI line or an outstanding allowance can be listed there with its amount and dates.
Questions
What is a tenant improvement (TI) allowance?
Money a landlord contributes toward building out a tenant's space, such as walls, finishes, lighting, washrooms or specialized systems. It is usually quoted per square foot of rentable area and paid against invoices or on completion, as the lease sets out.
How do you amortize a TI allowance?
Treat it like a loan: the monthly payment is the allowance × i ÷ (1 − (1 + i)^−n), where i is the annual rate divided by 12 and n is the number of months in the term. $240,000 over 10 years at 7% is $2,786.60 a month, or $5.57 per square foot per year on 6,000 sq ft.
Is the amortized TI part of base rent or additional rent?
It depends on the lease. Some leases add it to the base rent, others collect it as a separate line of additional rent. The cost to the tenant is the same; what matters is how the lease defines it, including whether rent escalations apply to it.
What happens to the unamortized balance if the tenant leaves early?
Many leases require the remaining balance to be repaid on early termination or default. The schedule in this calculator shows the balance left at the end of each year on the inputs you enter.
Is my data saved?
No. The calculation runs in your browser and nothing you type is sent to OfferingStack.
Related
Put the numbers in a finished offering memorandum.
Upload your fact sheet or rent roll, add the NOI and price, and review a watermarked preview of the financial and pricing pages before you buy anything.