Guide · Medical Office Leasing

A Guide to Tenant Improvement Allowances for Medical Office Space in Michigan

A practical guide for Michigan healthcare practice owners: what the allowance covers, when funds become available, and how to evaluate it alongside the full lease.

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Opening, relocating, or expanding a healthcare practice in Michigan? A landlord’s offer to help pay for the buildout can be welcome news. But the size of the tenant improvement allowance is only part of the equation. How much will your practice still have to spend to open, and when will it need that money?

This guide is written for owners and operators of medical, dental, optometry, physical therapy, and other outpatient healthcare practices. It explains how to look beyond the headline allowance and evaluate what the offer means for your space, budget, and opening timeline.

A tenant improvement allowance, or TI allowance, is a landlord contribution toward preparing leased space for a tenant’s use. It is often stated as a dollar amount per square foot or a total budget. It is not the same thing as the total cost of opening your practice. [1]

What TI allowance should you expect in Michigan?

Start with property-specific proposals, not a statewide rule of thumb. The amount depends on the building, local competition, lease length, rent, your financial profile, and the work being proposed. Those variables make a generic number a poor substitute for comparing actual offers. [1]

This guide deliberately does not present an unsupported “Michigan average.” A quote without its space condition, lease term, cost assumptions, and payment conditions leaves out too much to be a useful negotiating target.

For a practice looking in Novi, Troy, Ann Arbor, or elsewhere in Southeast Michigan, the assignment is the same: compare feasible locations on a consistent budget, then evaluate the complete lease package.

Price the space before judging the allowance

A former medical suite, a conventional office conversion, and an unfinished shell are different starting points. Clinical plumbing, electrical and mechanical capacity, equipment requirements, accessibility, and the layout can materially change the work involved. A previous medical use is not proof that the space fits your specialty. [5]

Ask your design and construction team to distinguish usable existing improvements from items that must be replaced. For a dental practice, a preliminary equipment layout can help test whether the space supports the intended clinical work and workflow before committing to a lease. [4]

Then separate the landlord’s promised delivery work from improvements funded by your allowance. The comparison should show who is responsible for each item, not just a single buildout total. The choice between an independent architect and a design-build team is a separate project decision; neither label replaces a clear scope and budget.

Count only dollars you can actually use

The lease determines eligible expenses. Do not assume architecture, engineering, permits, equipment, signage, or other non-construction items qualify just because they are necessary to open. Unused money may expire or receive another negotiated treatment; it is not automatically a rent credit. [2]

Build the budget in three columns: landlord-funded work, eligible allowance spending, and practice-funded expenses. Put every material cost somewhere. An unassigned cost is a question to resolve, not a saving.

A useful question for each proposal is: “Which items in our actual project budget would this allowance pay for?” That is more revealing than asking whether the allowance is “good.”

A bigger allowance can still leave a bigger funding gap

The following is a hypothetical comparison—not a Michigan market survey, construction quote, or Skylark client transaction. Assume two 3,000-square-foot spaces, all construction shown qualifies for reimbursement, and both allowances are fully collected.

Illustrative construction funding only
Item	Space A	Space B
Agreed area used for allowance	3,000 SF	3,000 SF
Landlord allowance	$35/SF	$60/SF
Total landlord contribution	$105,000	$180,000
Illustrative eligible construction cost	$255,000	$420,000
Practice construction contribution	$150,000	$240,000

Space B offers $75,000 more from the landlord, but the practice still contributes $90,000 more toward construction. The allowance is larger; the funding gap is also larger.

This does not prove Space A is the better location. Space B might offer benefits that justify the additional investment. It proves something narrower: you cannot rank two locations by the TI allowance alone.

This example excludes rent, operating expenses, design and permit fees, equipment, financing costs, taxes, contingency, and working capital. Those belong in the full comparison. And the practice’s eventual contribution is not necessarily the cash it must advance during construction.

An allowance is not the same as cash available today

Some leases reimburse after completion; others permit construction draws. Required documentation, payment deadlines, retainage, and submission cutoffs determine when funds become available. A reimbursement-only arrangement can leave the tenant funding construction before the landlord pays. [2]

Using Space A above, the final practice contribution is $150,000. But under a hypothetical arrangement requiring the tenant to pay the entire construction bill before collecting $105,000 from the landlord, the project needs access to $255,000 first. The ultimate cost and the peak funding requirement are different numbers.

Review that timing with your lender before signing. Put contractor payments, expected landlord reimbursements, loan funding, and opening costs on the same calendar. A promised contribution that arrives after your cash runs out does not solve the problem.

Compare the allowance with the rest of the lease

Rent and lease length can affect the contribution a landlord offers. A larger allowance should therefore be evaluated alongside the rent commitment, not in isolation. [1]

For illustration, an extra $2 per square foot in annual base rent on 3,000 square feet equals $6,000 a year. Across ten years with no increases, that is $60,000 of additional nominal rent. If the corresponding allowance increase is $30,000, that trade deserves a closer look.

It is not a complete financing comparison: timing, escalations, taxes, discounting, and the value of preserving cash are excluded. It is a reminder to ask what the extra allowance costs elsewhere in the deal.

Keep the Michigan approval process in the schedule

Michigan LARA states that building permits are required for construction and for changes in use or occupancy, with exceptions for ordinary repairs. The correct enforcing agency may be the state, county, or local government. Verify the applicable jurisdiction and requirements for the actual project. [3]

Ask the project team to identify the approvals, inspections, and design work your intended use requires before promising an opening date. A landlord’s consent to the plans is not a substitute for governmental approval.

Have your attorney align the construction provisions with the lease’s deadlines. Keep possession, rent commencement, required approvals, and reimbursement timing distinct. Ask what happens to each if the landlord’s work, permitting, or construction is delayed; do not assume a delay automatically moves every deadline. [2]

The objective is a workable opening budget—not the biggest headline

Before choosing a space, your comparison should answer three questions: What does this practice need to build? What will the landlord actually fund? What money does the practice need, and when?

Those answers should sit alongside location, patient access, the lease commitment, and room for growth. A favorable allowance cannot rescue a property that fails the practice’s basic requirements.

Skylark Commercial Realty helps healthcare practices evaluate medical real estate in Michigan, compare locations, and negotiate lease business terms. On tenant-representation assignments, we represent the practice’s interests and coordinate with its attorney, lender, and project team. [5]

Comparing spaces or reviewing an allowance proposal? Start a conversation with Skylark before the headline number becomes the basis for your decision.

By Noah Bradley, Founder & Principal Broker, Skylark Commercial Realty

This guide provides general real estate information, not legal, tax, lending, architectural, or construction advice. Your lease controls the parties’ obligations. Have the appropriate professionals review the actual documents, design, budget, and financing.

Sources and further reading

The examples are illustrative calculations, not market benchmarks. References support the general leasing, space-planning, and permitting background; their inclusion does not imply an affiliation or endorsement.