How Strategic Underpricing Can Increase Your Retail Property Sale Price
Marc Perlof • May 25, 2026
By Marc Perlof | MarcRetailGuy
CA #01489206
May 25, 2026
If you own retail real estate, here’s what just changed for you.
Some pricing strategies are rarely explained but can significantly impact your final sale price. The way your property is positioned can create competition, increase buyer activity, and change the outcome.
Most owners never see how these strategies are actually used.
More advanced pricing strategies are being used to control how buyers engage with a deal. In today’s market, demand is not assumed. It is created.
What is causing it?
Buyers are more selective and underwriting more carefully. Strong assets still attract interest, but only when they are positioned correctly. The difference is no longer just the property. It is how the deal is structured.
How do advanced strategies impact your property value?
They influence how many buyers engage and how those buyers behave. More activity creates competition. Competition leads to stronger offers and better pricing.
What separates strong results from average ones?
The ability to create that competition early in the process. Deals that rely on one buyer tend to settle. Deals that create multiple buyers competing tend to outperform.
When should you use off-market strategies?
Use them when discretion is important or when targeting specific buyers.
When should you use controlled pricing approaches?
Use them when you want to manage how buyers engage with your property and control how pricing is perceived in the market.
Deals that generate early buyer competition are achieving stronger pricing than those relying on a single negotiated offer.
Pricing strategy is not about exposure alone. It is about controlling the process and how buyers respond.
Bonus: Strategic Underpricing
Strategic underpricing involves positioning the property slightly below expected market value to increase early buyer activity.
The goal is not to sell low. It is to create competition.
When more buyers engage at the same time, the dynamic shifts. Buyers move faster, adjust their assumptions, and compete more aggressively on both price and terms.
Some buyers may initially assume the pricing reflects distress or a motivated seller. That is why positioning and process matter. When the deal is presented correctly and buyer activity is visible, that perception shifts from “opportunity” to “competition.”
This strategy only works under specific conditions. The pricing range, timing, and how buyer activity is managed during the process all need to be aligned.
When used incorrectly, it can lead to weaker offers instead of stronger ones. That is why it is applied selectively and structured carefully.
Most owners never see how this is actually executed.
If you want to see how this strategy is structured in a real transaction, including pricing ranges, timing, and how multiple offers are managed, I put together a short guide you can request. Send me a message and I will share it with you.
Are you creating competition or negotiating with one buyer?
Call or DM me for more information.
Based in Los Angeles. Serving Southern California. Active across California. Advising clients nationwide.
#RetailRealEstate #InvestmentSales #NNN #CRE #ShoppingCenters #StripCenters #LosAngelesRealEstate #CommercialBroker #PropertyValue
Disclaimer
This post is for information only. It is not legal, tax, or financial advice. Always check with a licensed professional before making decisions.
© 2026 Marc Perlof Group. All rights reserved.
By Marc Perlof | MarcRetailGuy CA #01489206 August 17, 2026 If you own retail real estate, here’s what just changed for you. A tenant asks for a $100,000 tenant improvement allowance. The landlord thinks the request is unreasonable. The tenant thinks it is necessary to open the business. Who is right? Possibly both. The problem is that landlords and tenants often look at tenant improvement allowances, commonly called TI, from different points of view. The tenant sees money needed to build and open the business. The landlord sees money being invested into a property and a lease. Both sides may be looking at the same $100,000 but thinking about it very differently. The TI amount matters, but it should not be negotiated by itself. Rent, lease term, annual increases, free rent, tenant strength, guaranties, options, and TI are all connected. The real question for an owner is not simply, “How much TI am I giving?” It is, “What am I receiving in return?” The Tenant Sees the Cost of Opening Opening a retail business can require a large investment before the first customer walks through the door. Depending on the business and condition of the space, the tenant may need to pay for construction, equipment, signs, permits, inventory, employees, and marketing. From the tenant’s point of view, the TI allowance helps reduce the cash needed to open. That is why the tenant may focus heavily on the TI amount. The landlord, however, has a different concern. The Landlord Is Investing Capital For the landlord, TI is real money going into the lease. The owner should ask what the property receives in return for that investment. Is the tenant signing a longer lease? Is the rent strong? Are there annual increases? Is the tenant financially strong? Is there a guaranty? Will the improvements have value if the tenant leaves? The same $100,000 TI allowance can create very different risks. A $100,000 investment into a strong tenant signing a long term lease may make financial sense. The same investment into a tenant with limited financial strength, a weak guaranty, and improvements with little value to the next tenant may be much riskier. The amount is the same. The investment is not. TI, Rent, and Free Rent Are Connected A lease negotiation often includes several economic items. A tenant may ask for TI, lower rent, free rent, or some combination of all three. An owner should look at the total package because each option affects the property differently. TI requires capital upfront. Free rent delays cash flow. Lower rent can reduce NOI throughout the lease and may affect the property’s value. This does not mean one structure is always better. The answer depends on the lease term, rent increases, tenant strength, cost of construction, cost of vacancy, and the owner’s available capital. The mistake is negotiating each item as if it has nothing to do with the others. A Simple Example Assume a tenant is negotiating a 10 year lease and offers the landlord two choices: Option 1: $100,000 in TI with $10,000 per month in starting base rent. Option 2: No TI with $9,000 per month in starting base rent. At first, Option 2 may look better because the landlord keeps the $100,000. But the $1,000 monthly rent difference equals $12,000 per year. Before considering rent increases or other lease terms, the lower starting rent creates $120,000 less base rent over 10 years. There is another issue. Lower NOI may also affect the property’s value when a buyer underwrites the income. This does not automatically make Option 1 the better deal. The owner still needs to consider the timing of the $100,000 investment, the tenant’s financial strength, default risk, rent increases, the value of the improvements, and whether the owner has the cash available. The point is simple: saving money on TI does not automatically create the better financial result. Free Rent Is Also Part of the Investment Free rent can also be misunderstood. A tenant may view free rent as time to complete construction, hire employees, stock inventory, and open the business before paying full rent. For the landlord, it is income that is not being collected. Assume the monthly base rent is $10,000 and the tenant receives four months of free base rent. That is $40,000 in base rent the landlord does not collect. Depending on the lease, the tenant may still pay NNN expenses during the free rent period, or those expenses may also be reduced or delayed. The details matter. An owner who gives $100,000 in TI and $40,000 in free rent is making a larger investment than the TI number alone suggests. Leasing commissions, landlord work, and other concessions can increase the total investment further. This does not mean free rent is bad. It means the owner should measure the full cost of the lease package. More TI Should Be Supported by the Lease If an owner is being asked to invest more capital, the rest of the lease should support that investment. That may mean a longer lease term, stronger rent, annual increases, better security, a stronger guaranty, or other terms that reduce risk. If the tenant wants more TI, more free rent, lower rent, limited guaranties, and flexible options, the owner should ask whether the total package still makes financial sense. Occupancy alone does not make a lease a good investment. A Simple Payback Test One useful screening test is how long it takes the owner to recover the total lease investment. That should include TI, free rent, leasing commissions, landlord work, and other concessions. As a rough guide, an owner may want the total lease investment recovered within the first 25% to 40% of the firm lease term. On a 5 year lease, that usually means about 1 ½ to 2 years. On a 10 year lease, that may mean about 2 ½ to 4 years. This is not a perfect rule, but it is a useful warning sign. If most of the lease term is needed just to recover the upfront investment, the owner may be taking too much risk. Look at the Whole Deal The highest rent does not always create the best deal. A tenant offering higher rent may require more TI, more free rent, a larger leasing commission, or more landlord work. Another tenant may offer slightly lower rent but require much less capital and have stronger financials. That is why lease negotiations should be viewed as one investment decision, not a collection of separate deal points. Final Thought Landlords and tenants often misunderstand TI allowances because they are looking at the same money from different sides. The tenant is trying to reduce the cash needed to open. The landlord is deciding how much capital to invest and what income, security, and long-term value will be received in return. Before agreeing to or rejecting a TI request, owners should ask one question: What is the total investment I am making, and what am I receiving in return? If a tenant offered you a choice between higher TI and higher rent or no TI and lower rent, would you know which deal creates the better result for your property? In next week’s blog, How TI Decisions Affect Retail Property Value and Buyer Underwriting , we will look at how buyers review tenant strength, remaining lease term, future TI costs, lease rollover, and the durability of a property’s NOI. #RetailRealEstate #CommercialRealEstate #RetailLeasing #TenantImprovements #TIAllowance #CommercialLeasing #MarcRetailGuy Based in Los Angeles. Serving Southern California. Active across California. Advising clients nationwide.
Retail sales post biggest drop since 2025 as spending momentum fades U.S. retail sales sank to their lowest in over a year in July as consumers pulled back on online shopping and vehicle sales. Retail purchases, not adjusted for inflation, fell 0.6% in July from the previous month in the biggest decline since May 2025, according to the Census Bureau data released Friday. Excluding gasoline and auto, retail sales dropped 0.2%...
By Marc Perlof | @MarcRetailGuy CA #01489206 August 10, 2026 If you own retail real estate, here’s what just changed for you. A landlord and tenant agree to a $50,000 tenant improvement allowance. The lease is signed. Does the landlord immediately hand the tenant a $50,000 check? Usually, no. Agreeing on the amount of a tenant improvement allowance, commonly called TI, is only part of the negotiation. The lease and work letter should also explain what the money can be used for, who controls the construction, when the landlord pays, what documents are required, and what happens if the project costs more or less than expected. These details matter because TI is not just a lease concession. It is real money being invested into a tenant’s space. A TI Allowance Is Not Always Paid Upfront One of the biggest misunderstandings about TI is when the money is paid. In many lease structures, the tenant completes approved work and the landlord reimburses the tenant after certain requirements are met. For larger projects, payments may be made in stages as construction progresses. Before releasing funds, the landlord may require paid invoices, lien releases, proof of permits or approvals, evidence that the work was completed, and confirmation that the tenant is not in default. The exact requirements depend on the lease and work letter. For the landlord, the payment structure matters because paying the full allowance before work is completed can create unnecessary risk. What happens if construction stops, contractors are not paid, or the tenant never opens? For the tenant, waiting until the end of construction for reimbursement can create a cash flow problem. The tenant may need to fund the project before receiving the landlord’s contribution. Both sides should understand the process before the lease is signed. Construction Draws Can Spread Out the Payments Larger projects may use construction draws instead of one payment. For example, assume a landlord agrees to provide $150,000 in TI for a retail buildout. Instead of paying the full amount at the beginning or waiting until the entire project is complete, the landlord may release funds in stages as work is completed. The tenant may submit invoices, evidence of completed work, and required lien releases with each request. The landlord then reviews the request and funds the approved amount according to the lease. This can reduce the tenant’s need to finance the entire project upfront while protecting the landlord from releasing all the money before the work is completed. The process should be clear. Slow approvals or unclear requirements can delay construction and create conflict. Who Controls the Construction? Another important question is who manages the work. In some leases, the tenant controls construction and the landlord reimburses approved costs. In other situations, the landlord agrees to complete specific improvements before delivering the space. Some deals use a combination of both. Tenant controlled construction gives the tenant more control over design and contractors, but the landlord still needs to protect the property. The lease may address approved plans, contractors, insurance, permits, and changes that require landlord approval. Landlord controlled work gives the owner more control over the improvements but also creates greater responsibility for construction costs, scheduling, and delivery. Neither structure is automatically better. The right approach depends on the property, scope of work, tenant, and experience of the parties involved. What Can the TI Allowance Be Used For? The lease should clearly define eligible TI costs. A tenant may assume the allowance can be used for anything related to opening the business. The landlord may believe the money is only for permanent improvements to the property. Depending on the lease, eligible costs may include construction, electrical work, plumbing, flooring, lighting, HVAC, restrooms, architectural plans, engineering, or permit costs. Other expenses may be excluded or limited. The important issue is clarity. A tenant should not complete work expecting reimbursement only to later learn that some costs do not qualify. What Happens When the Budget Changes? A TI allowance is generally a maximum landlord contribution, not an unlimited construction budget. Assume the landlord agrees to a $75,000 TI allowance and the project ultimately costs $110,000. The lease should make clear who is responsible for the additional $35,000. The opposite can also happen. If the tenant completes the approved work for $55,000, what happens to the remaining $20,000? The answer depends on the lease. The unused amount may disappear, or the lease may allow another agreed use. The tenant should not assume that unused TI automatically becomes a cash payment. This is why the exact lease language matters. An allowance of up to $75,000 can mean something very different from an obligation to pay the tenant $75,000 regardless of the actual cost of the work. Construction Delays Can Affect Cash Flow TI payment and construction timing are closely connected to rent commencement. A tenant may believe rent should not begin until the business opens. The landlord may expect rent to begin on a specific date or after an agreed construction period. The lease should address what happens if construction is delayed and whether the delay was caused by the tenant, landlord, contractor, permit process, or another issue. For example, a two month delay on a space with $10,000 in monthly base rent can mean $20,000 in delayed base rent before considering NNN reimbursements and other costs. For an owner, construction delays are not only construction problems. They can directly affect property cash flow, NOI, and debt service. The TI Amount Is Only Part of the Risk Owners often focus on negotiating the lowest possible TI allowance. The amount matters, but the payment and construction process also create risk. A smaller allowance with an unclear process can lead to delays, disputes, unfinished work, or a tenant that cannot complete the project. A larger allowance with a clear scope, experienced team, strong tenant, and controlled payment process may create less risk. The goal is not simply to spend less money. The goal is to invest the right amount of capital into the right lease with a process that protects the property. Final Thought Agreeing to a TI allowance is only the beginning. The landlord and tenant should understand what costs qualify, who controls construction, when payments are made, what documents are required, who pays for cost overruns, what happens to unused funds, and how construction delays affect rent commencement. If those issues are unclear, a TI allowance that looked simple during lease negotiations can become a source of delays, disputes, and unexpected costs. For the owner, the goal is not to make the payment process difficult. It is to make sure landlord capital is released through a clear process that supports the lease and protects the property. If you agreed to fund a TI allowance today, would your lease clearly explain exactly when you have to pay and what needs to happen first? In next week’s blog, Why Landlords and Tenants Misunderstand TI Allowances , we will look at why both sides often view TI differently and why rent, lease term, free rent, guaranties, and other concessions should be negotiated as part of one economic package. #RetailRealEstate #CommercialRealEstate #RetailLeasing #TenantImprovements #TIAllowance #CommercialLeasing #MarcRetailGuy Based in Los Angeles. Serving Southern California. Active across California. Advising clients nationwide.
