Face Rent, Free Rent or TI? How Downtown Brooklyn Class B Office Owners Should Build a Concession Package

A Class B office owner in Downtown Brooklyn called me after losing a 3,500-square-foot suite to a building two blocks away. His asking rent was $4 a foot lower than the competition. His free rent was the same. The tenant still left. When I asked what the other building had offered, the answer was a larger tenant improvement allowance and a shorter wait for the space to be ready. He had priced the lease. His competitor had priced the move.

Every Class B owner in Downtown Brooklyn, Boerum Hill and Fort Greene faces some version of this decision. A prospective tenant wants value, and the owner has three levers to give it: face rent, free rent and tenant improvement dollars. They are not interchangeable. Each one costs the owner a different amount, at a different time, with a different effect on the building's value. In this article I walk through how I help owners build a concession package deliberately instead of reacting to each proposal as it arrives.

Why the concession package matters more than the asking rent

An asking rent is a headline. The package is the deal. Two leases with the same face rent can differ by tens of thousands of dollars in what the owner actually collects, depending on how many months are free, how much cash goes into the space and how long the term runs.

Tenants understand this better than most owners assume. A tenant comparing three buildings will usually build a simple spreadsheet that converts every offer into an effective rent. An owner who only thinks in face rent is negotiating against someone who has already done the math. My first job with a new owner is to run that same math from the landlord's side, so the owner knows what each concession really costs before anyone asks for it.

The goal is not to give less. The goal is to give the right thing. A concession that wins the tenant at a modest cost beats one that costs more and wins nothing.

Understand what each lever actually costs you

Face rent is the cheapest lever to hold and the most expensive to give. Every dollar you cut from face rent is gone for the entire term, and it also lowers the number a buyer or lender will capitalize when the building is appraised. Reducing rent by $3 a foot on a 4,000-square-foot suite costs $12,000 a year, and an appraiser applying a cap rate to that income will see a value reduction many times larger.

Free rent is a one-time cost with no lasting effect on the rent roll. Three months free on a five-year lease at $48 a foot costs $12 a foot in total, but the lease still shows $48 a foot for appraisal and refinancing purposes. That is why owners with upcoming loan maturities should favor free rent over a lower face rent, a point I come back to below.

Tenant improvement dollars are a cash outlay at the start of the lease, usually amortized into the rent in the owner's own underwriting. They leave behind a built space that may help re-lease the suite later, which free rent never does. They are also the lever where an owner needs the most discipline, because the cost is real money out of pocket, not rent never collected.

The cheapest concession is the one that costs you cash flow today but leaves the rent roll and the building's value untouched.

Match the concession to the tenant, not the market average

Owners often ask me what the market is giving. That question is useful but incomplete, because the answer is an average of tenants who want different things. In Class B office space around Downtown Brooklyn, I see three kinds of tenant, and each cares about a different lever.

A small professional-services firm, such as an accountant, a law practice or an architecture office, tends to care about monthly cost and move-in speed. These tenants rarely want a long construction timeline. A modest allowance, a few months free and a space delivered in clean condition often outperform a bigger allowance that requires a six-month buildout.

A creative or technology tenant of 8 to 25 people usually cares about the space itself. They want exposed ceilings, a pantry, a conference room and a reception area that looks right. A larger TI allowance and a longer term tend to win them, and free rent matters less.

A nonprofit, healthcare-adjacent or government-funded tenant usually has a budget cycle and a fixed buildout standard. They may value certainty and a clean lease more than any single concession, and they can be strong credit.

When I build a package, I start by asking which of these three the suite is most likely to attract, based on its layout, light and floor. Then I price the package to that tenant rather than to a generic average.

Run the effective-rent math before you counter

Before an owner counters any proposal, I convert it to a net effective rent. The method is simple. Take total rent over the term, subtract free rent, subtract the TI allowance and any broker commission the owner is paying, then divide by the number of months and by the square footage.

Here is a working example. A tenant proposes a 3,000-square-foot suite on a five-year term at a face rent of $50 a foot, with four months of free rent and a $40-a-foot allowance. Total face rent over sixty months is $150 a foot per year times five, or $250 a foot across the term. Subtract four months of free rent, which is about $16.67 a foot, and the $40 allowance. The owner is left with roughly $193 a foot over five years, an effective rent of about $38.67 a foot per year. The owner has a headline of $50 and a real number closer to $39.

Now run a counter. If the owner holds face rent at $50, offers three months free and a $30 allowance, total concessions fall to about $42.50 a foot. The effective rent rises to roughly $41.50 a foot per year, which is $2.83 more per foot, or about $8,500 a year on this suite, with the building's rent roll unchanged.

I build a short table for each owner showing three or four packages side by side. It does not need to be elaborate. What matters is that the owner sees, in plain numbers, what each trade costs before the conversation starts, so a request in the room does not become a concession on the spot.

Tie every concession to term length

Concessions should scale with the tenant's commitment. A tenant who signs for three years has not earned the same package as one who signs for seven. Owners who give a long-term package on a short-term lease absorb the full cost of the buildout and then re-lease the space in 36 months.

I use a simple rule of thumb. Free rent and TI are earned over the term. A package that works for a seven-year lease should be scaled down, roughly in proportion, for a five-year lease and scaled down more sharply for a three-year lease. If a tenant wants the longer package, the term should follow.

I also ask owners to protect themselves if the tenant leaves early. That means the unamortized portion of any TI allowance and any free rent is repayable if the lease ends in default. A tenant who defaults in month fourteen has received the concessions without delivering the term. Without that language, the owner has paid for a space the tenant no longer occupies. Many owners tell me they have never asked for this. It is a reasonable request, and sophisticated tenants expect it.

Case study: a 9,000-square-foot floor in Downtown Brooklyn

A Class B building near Borough Hall had a 9,000-square-foot fourth floor vacant for fourteen months. The owner had been quoting $46 a foot with six months free and a $60-a-foot allowance, offered in the same form to every inquiry. He had received eleven tours and no signed lease.

I reviewed the tour history and found that nearly every prospect had been a small firm of 8 to 15 people looking for 2,500 to 4,000 square feet. The full floor was too large for them, and the large allowance was attached to a buildout they did not want. I recommended dividing the floor into three suites and changing the package for each. I covered that decision in Should You Divide That Floor?, and the same test applied here.

For each new suite, I replaced the six months of free rent with three, cut the allowance to $35 a foot, and offered to deliver two of the three suites in finished condition so that small tenants could move in within thirty days. Face rent stayed at $46. The owner signed two tenants within ten weeks, at five years and four years, and the third suite followed in the fourth month. Combined effective rent rose roughly 25 percent over the original quote, and the floor was fully leased at a face rent that had not moved. The change was not generosity. It was matching the concession to the tenant who was actually looking.

Use free rent when a loan is on the horizon

If your loan matures within two to three years, the way you give a concession matters as much as the amount. A lender or appraiser values the building from in-place rents and the lease terms. A lease with a high face rent and several months free will usually be underwritten at the face number, with the free rent either treated as a one-time item or deducted from value at closing. A lease with a lower face rent is capitalized at the lower number for the life of the term.

That difference can be significant. A $3-a-foot reduction in face rent across 30,000 leased square feet is $90,000 a year of income. At a cap rate in the range of 7 percent, that is more than $1.2 million of value. The same dollars given as free rent might cost the owner $45,000 once. I walk through this reasoning in more detail in my piece on hold, sell or refinance decisions for Class B office.

I am not a lender or an appraiser, and an owner should confirm treatment with the lender before relying on any of this. But the principle is consistent: when value matters, protect the face rent and give concessions that do not permanently lower it.

Build a one-page concession ladder

The most useful tool I give owners is a short concession ladder. It lists, for each suite, the first offer, the fallback and the walk-away point, in effective-rent terms. The first offer is where the owner opens. The fallback is where the owner is willing to land for the right tenant on the right term. The walk-away point is the lowest effective rent the owner will accept before leaving the suite vacant or restructuring the space.

With a ladder, the owner is not deciding in the moment whether a request is acceptable. The decision was made when the numbers were calm. Many owners find that having a walk-away number changes how they negotiate, because they stop treating every lost tenant as a failure and start treating it as a price they chose not to pay.

The ladder should also assign a trade to each concession. If the tenant wants more free rent, the owner asks for a longer term or a larger deposit. If the tenant wants a bigger allowance, the owner asks for a higher face rent or a repayment clause. Every give has a get. I describe the same discipline in Pricing a Manhattan Loft Floor, and it applies in every submarket.

Where to start

Begin with the suite that has been vacant longest. Write down the three most recent proposals, convert each to an effective rent, and compare them with the package you offered. If the proposals asked for the same thing and you offered something different, the package is the problem, not the market.

Then build the ladder for that suite and test it on the next inquiry. Across 100+ landlord engagements and 13+ years of daily work in New York real estate, I have seen more vacancies caused by a misshapen package than by a bad asking rent. Fixing the shape often costs less than cutting the rent.

If you own a Class B office building in Brooklyn and want a second set of eyes on your concession package, I can build the effective-rent comparison and the concession ladder as a fixed-fee engagement, with no commission, no listing and no long-term contract. You keep every decision, and you make it with the numbers in front of you.