Shell Office Commercial Loans

Looking to purchase a commercial office space for your own business or as an investment opportunity? While it may seem like many commercial spaces are the same, there are several types of subcategories to consider— including shell office spaces.

What is a shell office space?

In short, a shell office refers to a commercial space that has an unfinished interior. A property that is in “shell condition” will have most basic construction elements completed, but few interior improvements or finishes. At a minimum, you can expect to have:

• All exterior walls
• A roof
• An unfinished floor, usually concrete

Features like interior walls, heating and cooling systems, lighting, and ceilings may or may not be included in a shell office. Shell offices typically aren’t move-in ready and will require a good deal of work before you can expect to conduct business.

Types of Shell Conditions

In the real estate industry, you might hear about different types of shell offices— warm shells, cold shells, vanilla shells, and more. This is because shell spaces can be further classified based on what features they contain.

Cold Shell

Cold shell refers to the barest possible condition that a property can be in. A cold shell building will NOT include:

• Electrical wiring
• Plumbing
• Insulation
• Finishes
• Elevators

You will generally find bare stud walls, unfinished floors, and no ceiling. Most notably, cold shell spaces lack an HVAC system, which means that they are unable to be heated or cooled.

Cold shell is often used interchangeably with gray shell. Dark shell is another condition similar to cold shell, but specifically indicates the lack of lighting or electrical wiring.

Warm Shell

Warm shells will have, at a minimum, an HVAC system to heat or cool the space. They may also include other features such as electrical closets, restrooms, mechanical rooms, and more.

Warm shells can still, however, lack finishes like flooring, drywall, ceilings, and more.

Vanilla Shell

These are the most turnkey and move-in ready of all shell spaces. Vanilla shell offices typically have completed bathrooms, lighting, flooring, plumbing, and drywall installed. These spaces require the least amount of work, but will still require paint, furnishings, and finishing touches.

A warm vanilla shell refers to a space that has both warm shell and vanilla shell properties.

Pros and Cons of Owning a Shell Office

Shell properties come with a unique set of advantages and disadvantages, both for business owners looking for space to move into and for investors hoping to rent out the space.

Advantages and Disadvantages for Business Owners

Shell offices can be really appealing for a few reasons, but cost and customization are two of the biggest advantages. From the perspective of a business owner and tenant, here are some of the most common pros and cons.

Pros	Cons
They are flexible. Because they don’t have any interior improvements, shell spaces are flexible on what they can be used for. This can be appealing to both business owners who have a specific vision for their property.	Shell spaces can be expensive to build out. Though they may be cheaper upfront for business owners, you can’t overlook the cost of building out the interior of a shell.Depending on the space you’re trying to build, this can add a substantial amount to your costs.
They are less expensive upfront. Since they are cheaper to build, shell offices are less expensive than office spaces that are fully built out. This may be an attractive option for buyers looking to buy now and build out the interior as they go.	Preparing the property can be time-consuming. If you’re looking to get your business up and running quickly, a shell space may not be the best option. Building out these spaces can take a while, and oftentimes, the time-table is outside of your control.

Advantages and Disadvantages for Investors

Your experience with shell offices is going to be different than that of a business owner. As shell office spaces become more and more popular, it’s important to fully understand the pros and cons of a low-cost, customizable real estate investment.

Pros	Cons
For landlords, they offer less responsibility. In many cases, landlords are only responsible for what they provide their tenants.With a shell office, landlords provide very little, which translates to fewer responsibilities. For instance, if an investor leases an office in cold shell condition, they probably won’t be responsible for fixing a broken HVAC system that the tenant had installed.	It can be hard to find a tenant. For investors, it can be hard to find a tenant that is willing to take on the work needed to transform shell offices into a usable space.The more barren your property is, the more trouble you may have finding a tenant.
There are fewer expenses overall. For investors, shell offices often come with fewer expenses.	Landlords may have to offer tenant improvement allowances to make the property more lucrative to tenants. Not many tenants will want to move into a space where they have to foot the bill for improvements made on a property they don’t own.Because of this, landlords offer tenant improvement allowances. This is money paid by landlords to tenants to assist with the build-out process.
Certain tenants may be looking for completely customizable spaces. The flexibility offered by these offices is attractive to tenants who have special setup and layout needs.

Financing Shell Offices

Don’t have the funds on hand to purchase a shell office with cash? Commercial financing can be used to purchase shell spaces, just as you could with a traditional office space.

A local commercial lender will be able to help you craft a loan that meets your needs, whether you’re an owner-occupant or an investor. Furthermore, if you need funds to pay for a build-out of a shell office, you can use a commercial construction loan to help cover the costs.

Finance Your Shell Office with Amplify

Shell offices can be a great opportunity for business owners and real estate investors alike. With lower upfront costs and enormous amounts of flexibility, this type of commercial property can fit the needs of many types of businesses. If you’re ready to start your search for a shell office, contact us here at Amplify to learn more about your financing options. We can help you navigate the commercial loan process, along with some of the regulatory requirements around building out a commercial space.