One form of a shell lease, a warm shell is a commercial or residential building with a minimally finished interior, a heating and cooling (HVAC) system, drop ceilings, plumbing and restrooms, and interior lighting. Warm shell improvements, which are necessary to upgrade the building from a base shell or cold shell state, may also include interior walls and a concrete floor. "Warm shell" and "vanilla shell" are usually considered to be synonymous. A warm or vanilla shell is considered ready to lease and ready for tenant improvements (TI). In many cases, the landlord will offer financial incentives in the form of a tenant improvement allowance (TIA), which pays for or at least partially defrays the cost of any improvements necessary for the tenant to occupy the building itself. Tenant improvement allowances do not usually include furniture, fixtures, and equipment (FFE) necessary for the tenant to conduct business. Usually, vanilla shell improvements (VSI) are not completed until the lease agreement between the tenant and landlord has been negotiated and executed.
Same as Vanilla shell, Warm lit shell, Lit shell, Warm vanilla shell, or Tropical shell.
Discussion: Like many real estate terms and phrases, those associated with shell leases (e.g., vanilla shell, base shell, cold shell, warm shell, etc.) differ by location and situation, sometimes even within the same region or municipal area. As they say, the devil is in the details. The lease or sales contract should clearly and exactly specify the degree to which construction of any sort of "shell" building has been or will be completed prior to tenant occupancy.
Shell leasing and its various forms (warm, cold, base) are used primarily in commercial real estate, but are gaining popularity in upscale condominiums and townhouses and other high-end residential real estate transactions. The idea is to attract either tenants or buyers, or both, by offering customizable living units. Financial incentives in the form of tenant (or buyer) improvement allowances afford new residents the opportunity to select nearly all aspects of interior decor, including relatively large projects such as plumbing and fixtures, wiring, and interior walls.
Terms, Definitions, and Concepts: Real Estate, Construction and Building, Appraisal, Auction, Finance and Investment, Management
Added: Fri May 02 2008
Last Modified: Thu Jul 10 2008