CRE glossary
Amortization (TI / build-out)
TI amortization is a structure where the landlord finances additional tenant-improvement costs above the standard allowance, with the tenant paying back the financed amount as additional rent over the lease term. Amortization typically uses an interest rate (8–10% is market) and is a way to deliver more upfront TI without changing the headline allowance.
When tenant build-out costs exceed the landlord's TI allowance, the gap can be paid three ways: (1) Tenant cash, tenant writes a check at the end of construction. (2) Lease amendment, increase the base rent to cover the gap. (3) Amortization, landlord finances the gap, tenant repays as additional rent at a market interest rate.
Amortization is typically structured as: (excess TI cost × interest rate) ÷ remaining months = monthly additional rent. A $100k excess at 8% interest over 84 months produces ~$1,300 of additional monthly rent. The interest rate matters; some landlords charge 12%+ on amortization, which is loan-shark territory. Push back to 7–9%.
The amortization clause should specify three things: (1) Interest rate methodology, fixed or pegged to a published index. (2) Repayment schedule, straight-line or front-loaded. (3) Treatment on lease termination, if tenant breaks, is the unamortized balance accelerated. Without clarity on these, the amortization can become a default trigger.
Example
- Standard TI allowance
- $80/SF × 12,500 = $1M
- Build-out cost
- $100/SF × 12,500 = $1.25M
- Excess TI to amortize
- $250k
- Amortization at 8% over 84 months
- ~$3,900/month additional rent
- Per-SF impact
- +$3.74/SF/year
Broker perspective
When the tenant needs more TI than the landlord initially offers, amortization is often the fastest path. The math: an 8% interest rate over 7 years adds roughly $0.60/SF/year to the rent. If the extra TI is worth more than that to the tenant (it usually is for tenants doing creative office buildouts), the deal works.
Frequently asked
People also ask
What's a typical amortization rate?
8–10% for most institutional landlords. Above 10% is high; under 7% is rare. Pegged to Treasury + spread is common in larger deals.
Can I prepay amortized TI?
Sometimes, depends on the lease. Negotiate prepayment rights at LOI to avoid being locked in.
What happens to amortization at lease termination?
Usually accelerated to the tenant. If tenant breaks the lease early, unamortized balance becomes due. Specify in the lease.
Amortization vs adding to base rent?
Mathematically similar. Amortization keeps the base rent number lower (better for comp record). Adding to base rent is simpler operationally.
Related terms
Tenant improvements (TI / TIA)
Money the landlord contributes toward customizing the space for the tenant, usually expressed as $/SF.
Build-out (fit-out)
The construction work to customize a leased space for the tenant, paid via TI allowance, tenant cash, or both.
Base rent
The headline rent before pass-through expenses, usually quoted in $/SF/year and the starting point for every comp.
Letter of intent (LOI)
A non-binding outline of the major business terms, rent, term, TI, options, that becomes the basis for the binding lease.
See amortization (ti / build-out) extracted from a real lease.
Drop a 60-page lease, get a 38-field abstract in 90 seconds, every value cited back to the source page.