Definition: A guideline that suggests the minimum required reserves for tenant improvement and leasing commission replacement reserves (TILC) for the proposed loan. Lenders usually base this guideline on numerous factors including property type, loan amount, proposed loan to value and debt service coverage, and numerous physical, financial and tenancy factors identified in the proposed loan. Unless manually adjusted by the Originator or Lender, this guideline is used as the default value to calculate loan results. Tenant Improvements refers to the expense to physically improve the property to attract new tenants to new or vacated space which may include new improvements or remodeling. May be paid by tenant, lessor, or both. Typically, tenants are provided with a market rate TI allowance ($Isq. ft.) that the owner will contribute towards improvements. The tenant must pay for amounts above the TI allowance desired by the tenant. A Leasing Commission is an amount, usually a percentage of the total lease transaction, earned by a real estate broker or leasing agent for his services. Combined, the annual projected cost of tenant improvements and leasing commissions (TILCs) are deducted from the net operating income prior to determining the net cash flow available for debt service coverage.
