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Tenant Improvement ROI Calculator
Landlord-funded tenant improvements (TI) only make economic sense if the present value of incremental rent exceeds the upfront cost. This calculator computes the NPV, simple cash yield, and payback on TI investment — letting landlords decide whether to fund the build-out, ask the tenant to amortize it, or walk from the deal.
Above market base case
TI NPV
-$77,459
PV of incremental rent
$442,541
Simple cash yield on TI
16.35%
Payback (years)
6.12
How the math works
TI ROI compares the present value of incremental rent (above what landlord would have earned without the build-out) to the upfront TI cost. Positive NPV at the landlord's cost of capital means the TI is value-creating; negative NPV means the deal is being subsidized.
$520K TI yielding $85K incremental rent over 7 years at 8% discount delivers ~$443K PV — a NPV loss of ~$77K. Either negotiate higher rent, longer term, or smaller TI to make the deal accretive.
How to Use
- Enter total TI cost (landlord's cash outlay).
- Enter incremental annual rent — what TI delivers above the no-TI base case.
- Enter lease term and landlord discount rate.
- Read NPV, PV of rent stream, simple cash yield, and payback period.
Frequently Asked Questions
What discount rate should I use?
Use landlord's weighted cost of capital — typically 7-10% for institutional, 10-15% for entrepreneurial. Above 10% TI rarely pays unless lease term is 7+ years.
What's incremental rent?
The rent uplift attributable to the TI vs the same lease without TI. If tenant insists on TI, the offset is they'd otherwise demand free rent — value the gap.
Negative NPV — should I do the deal?
Sometimes yes — to fill vacancy, retain a long-tenured tenant, or attract a credit anchor that lifts surrounding rents. The NPV captures only direct economics.
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