What does the 'TI allowance' typically impact in a lease pro forma?

• A. Affects debt service coverage ratio directly
• B. Is a one-time grant reducing the initial rent burden
• C. Amortized over lease term, reducing effective rent or shown as a credit
• D. Increases CAM charges in year one only

Answer: (C)

TI allowance is money a landlord provides to fund tenant improvements. In a lease pro forma, this benefit is typically spread over the lease term through amortization, rather than taken as a single upfront reduction. This means you recognize a fixed amount each year (the total TI amount divided by the lease term) as a rent credit or reduction in nominal rent, effectively lowering the tenant’s rent-cost in each period. The idea is to align the benefit of the improvements with the period over which the tenant uses them, producing smoother cash flows. It doesn’t directly alter debt service calculations in a one-time way, and CAM charges are separate and usually not driven by the TI amortization. For example, a TI allowance of 600,000 on a 10-year lease would reduce annual rent by 60,000 (shown as a credit or offset) each year over the term.