Work Letter Disbursement Gap Calculator

Tenants float build-out cost while waiting for landlord reimbursement.

Total work letter allowance

Monthly tenant burn

Reimbursement lag days

Cost of capital %

Gap financing cost

$7,397

Avg float balance

$250,000

Effective % of allowance

0.01%

How the math works

Float = monthly burn × (lag/30). Gap cost ≈ (avg float × COC × lag/365) + half of allowance × COC × lag/365.

$125k × 2 mo float = $250k × 9% × 60/365 ≈ $3.7k + $500k × 9% × 60/365 × 0.5 = ~$7.4k all-in gap cost.

How to Use

Enter total work letter allowance.
Enter monthly tenant burn rate.
Enter reimbursement lag days.
Enter cost of capital %.
Read financing cost of the gap.

Frequently Asked Questions

What's a work letter?

A work letter (or TI allowance) is landlord's contribution to build out the tenant space, typically $20-150/sqft depending on asset class and market. Tenant spends first, submits invoices with lien waivers, landlord reimburses on a schedule. Lag between spend and reimbursement averages 30-90 days, sometimes 120+. Tenant must float the cost with working capital or construction loan.

Why do landlords lag?

Landlords typically require (1) lien waivers from all subs before release, (2) inspection of completed work, (3) final approval of change orders, (4) receipt of sworn statement. These protections are legitimate but can be slow. Sophisticated tenants negotiate (1) monthly draws on progress, (2) retainage schedule (hold 10% until substantial completion), (3) cure timeline if landlord missed deadline. Institutional tenants demand this; small tenants often don't.

What's the cost of the gap?

Tenant's cost = allowance × (interest rate) × lag time. On a $500k build-out with 60-day lag at 10% cost of capital: $500k × 10% × (60/365) = $8,219 effective financing cost. Plus hidden cost: construction loan origination fees, personal guarantees, admin friction. Total all-in cost of the gap often runs 2-4% of the allowance. Factor into rent negotiations.

How do sophisticated tenants minimize this?

Landlord-direct contracting (landlord hires GC, pays GC directly, no tenant float). Monthly progress draws with 10 business-day turnaround requirement. Dispute resolution timeline in writing (AAA arbitration not lawsuit). Interest-bearing escrow for retainage. Accepting allowance as rent abatement instead of cash (no lag, no friction). Large tenants use these; mid-market often doesn't ask.