The quick read: There is no standard per-square-foot answer. On an office loan the lender sizes the tenant improvement and leasing commission (TI/LC) reserve from the rent roll: every lease that expires before the loan matures, priced at what it would cost to renew or replace that tenant and weighted by the odds the tenant stays. The money is held back at closing, collected monthly or trapped from cash flow when a lease event hits. In October 2026 the Federal Reserve reported office tenants seeking allowances alongside longer terms in the Minneapolis District, and on our illustrative five-year loan, moving from probability-weighted to full re-tenanting sizing changes day-one proceeds by $547,200, about four times the $137,500 of extra interest a quarter-point rate gap costs over five years.
How much will a lender hold back for tenant improvements and leasing commissions on an office loan?
A lender holds back about what it would cost to re-lease every suite that expires before the loan matures, so a building with little near-term rollover may carry a small reserve while a building losing a large tenant in year two can give up a real share of its proceeds. The rent roll sets the size.
The OCC's Comptroller's Handbook on commercial real estate lending (version 2.0, March 2022) says office re-leasing costs include leasing commissions, calculated as a percentage of total lease payments, and tenant improvements, which run higher for new tenants than for renewals and vary widely by market and building class. It adds that re-leasing costs can be projected from the rent roll using an assumed renewal probability, and that office lease terms are typically three, five or seven years, so a five-year loan on a multi-tenant building usually has rollover inside its term.
Leasing commission on a new lease (OCC underwriting assumption): 4% of total lease payments
Leasing commission on a renewal (OCC underwriting assumption): 2% of total lease payments
Typical office lease terms (OCC handbook): three, five or seven years
We found no published, market-by-market figure for a typical TI/LC reserve per square foot, so every per-foot number below is our labelled assumption. Ask separately whether the lender will also hold back for allowances and free rent already owed under signed leases, a separate line that can sit on top of the rollover reserve.
How is a TI/LC reserve calculated from the rent roll?
A TI/LC reserve is calculated lease by lease: for each tenant whose lease expires before maturity, the lender prices a renewal and a replacement, weights the two by an assumed renewal probability and adds the results. A lender can also size a large tenant at full replacement cost, because its departure alone could break coverage.
Illustrative example (our assumptions and arithmetic, not a quote or a lender offer): a 100,000-square-foot multi-tenant suburban office building asks for an $11,000,000 five-year loan. Three leases covering 30,000 square feet expire before maturity. Rent is $30 per square foot a year, a new lease runs seven years and a renewal five, commissions follow the handbook's 4 and 2 percent assumptions, tenant improvements are an assumed $40 per square foot for a new tenant and $15 for a renewal, and the assumed renewal probability is 60%.
On those inputs a new tenant costs $40 of improvements plus a 4% commission on $210 of rent per foot ($30 for seven years), or $48.40 per square foot. A renewal costs $15 plus 2% on $150, or $18.00. Weighted at 60% renewal, the expected cost is $30.16 per square foot.
Table: TI/LC reserve on the same three expiring leases, three sizing methods (illustrative)
| Line | Tenant A | Tenant B | Tenant C | All three |
|---|---|---|---|---|
| Line Square feet | Tenant A 18,000 | Tenant B 7,000 | Tenant C 5,000 | All three 30,000 |
| Line Lease expires | Tenant A Month 20 | Tenant B Month 34 | Tenant C Month 50 | All three Before maturity |
| Line Everyone renews at $18.00/SF | Tenant A $324,000 | Tenant B $126,000 | Tenant C $90,000 | All three $540,000 |
| Line Probability-weighted at $30.16/SF | Tenant A $542,880 | Tenant B $211,120 | Tenant C $150,800 | All three $904,800 |
| Line Full re-tenanting at $48.40/SF | Tenant A $871,200 | Tenant B $338,800 | Tenant C $242,000 | All three $1,452,000 |
| Line Share of the loan, weighted or full | Tenant A 4.9% or 7.9% | Tenant B 1.9% or 3.1% | Tenant C 1.4% or 2.2% | All three 8.2% or 13.2% |
Moving from probability-weighted to full re-tenanting sizing changes cash at closing by $547,200 on the same rent roll. An assumed 25 basis points of rate on $11,000,000 is $27,500 a year of interest, or $137,500 over five interest-only years, so the reserve method is worth about four times the rate gap. Run your own numbers in the loan sizing calculator, and see how lenders underwrite tenant rollover for the coverage side.
Is the TI/LC reserve funded at closing or swept from cash flow?
A TI/LC reserve is funded in one of three ways, or a mix of them: an upfront holdback taken out of loan proceeds at closing, monthly deposits collected with the debt service, or a springing cash sweep that traps excess cash flow only after a defined lease event, such as a major tenant's notice that it will not renew.
An upfront holdback cuts day-one proceeds but leaves monthly cash flow alone. Monthly deposits can lag the calendar: at an assumed $2.00 per square foot a year across 100,000 square feet, deposits run $16,667 a month and reach about $333,333 by month 20, short of the $542,880 weighted cost of Tenant A alone. A sweep costs nothing until it springs. If the building produces an assumed $75,000 a month after debt service, a sweep that starts 12 months before Tenant A expires traps $900,000 by month 20, enough to cover even the full re-tenanting cost of $871,200, but the owner receives no distributions for that year.
The same tools appear on existing office debt. A CRE Daily brief from March 11, 2026 reported that on office loan extensions, lenders commonly require sponsors to add cash reserves for leasing costs and tenant improvements and forfeit access to excess cash flow, sometimes with a full cash sweep. It said prospective lenders generally avoid underwriting loans with significant near-term leasing uncertainty. For how this reserve sits beside tax, insurance and repair escrows, see what escrows and reserves a commercial lender will require.
What are office tenants asking for in 2026?
Some office tenants are asking for build-out money, and in the Minneapolis District they were also reportedly signing longer leases: the Federal Reserve's October 2026 Beige Book, released October 14, reported that office tenants there were signing longer lease terms and looking for allowances for space improvements even as office vacancy rates increased. Both changes feed into reserve math.
Other districts describe a split market: the New York report cited bidding wars for top-tier Manhattan space, Dallas said office leasing was moderate and concentrated in top-tier assets, and San Francisco said office demand was sluggish.
Manhattan shows the size of the line item. Commercial Observer reported on October 20, 2026, citing Avison Young data, that allowances there were 59.2% above 2019 on 12-month moving averages, and that Class A allowances rose 9.5% to $124.20 per square foot while free rent fell.
Manhattan TI allowance, September 2026, 12-month average (Avison Young data, via Commercial Observer): $120.80 per square foot, up 7.9% year over year
Manhattan trophy TI allowance, 2026 (Avison Young data, via Commercial Observer): $130.40 per square foot, up 15.8%
Manhattan Class B and C TI allowance, 2026 (Avison Young data, via Commercial Observer): $103.40 per square foot, down 4.3%
Manhattan average free rent, October 2026 (Avison Young data, via Commercial Observer): just over 10 months per lease, down 8.6% from 2025
Those are gateway figures, not a suburban reserve benchmark. The lending point is directional: a bigger allowance raises the new-tenant cost in the formula and a longer term raises the commission base, but a lease that runs past maturity drops out of the rollover schedule, which can shrink the reserve even when the allowance grew.
How do concessions change net effective rent and the appraisal?
Concessions change net effective rent because free rent, improvement allowances and commissions come out of the face rent a tenant signs, and lenders and appraisers underwrite the net figure, so two buildings quoting different base rents can deliver similar cash to the owner once concessions are counted.
CRE Daily reported on October 5, 2026, citing a third-quarter Manhattan office report, that Class A and Class B/C space carry a $10 per square foot gap in base rents but generate comparable $83 per square foot net effective rents, reflecting materially different concessions. The same arithmetic works on one lease.
Table: Two seven-year lease offers on the same suite (illustrative, simple undiscounted arithmetic)
| Line | Offer 1 | Offer 2 |
|---|---|---|
| Line Face rent per square foot per year | Offer 1 $30.00 | Offer 2 $28.00 |
| Line Free rent | Offer 1 6 months | Offer 2 3 months |
| Line TI allowance per square foot | Offer 1 $40.00 | Offer 2 $20.00 |
| Line Leasing commission at 4% of total rent | Offer 1 $8.40 | Offer 2 $7.84 |
| Line Net effective rent per square foot per year | Offer 1 $20.94 | Offer 2 $23.02 |
The lower face rent is the better lease by $2.08 a foot a year, and a lender sizing on net effective rent sees it that way. For federally related transactions, 12 CFR 34.44(d) requires appraisals to analyze and report appropriate deductions and discounts for partially leased buildings and non-market lease terms. The OCC handbook tells examiners assessing collateral value to consider effective rental rates, and it lists unusually generous concessions, including tenant improvement allowances, among its warning indicators. Occupancy bought with heavy allowances can cost an owner twice: a lower value and a larger reserve.
Why does the reserve often matter more than the rate on a 2026 office loan?
The reserve often matters more than the rate because a holdback reduces the cash you receive at closing dollar for dollar, while a quarter-point rate difference changes only the annual interest, and in 2026 office lenders are structuring around rollover while office CMBS delinquency sits above 12%.
FRED shows the 10-year Treasury at 5.15% on October 19, 2026, and CRE Daily reported in April that, as of late in the first quarter, CRED iQ data put office loan spreads at 220 basis points over the 10-year, the widest of the major property types and 66 basis points above multifamily.
The distress data explains the structure. CRE Daily reported on October 5, 2026 that Trepp's office CMBS delinquency rate rose 16 basis points to 12.16% in September. CRED iQ's Liam Mulcahy wrote in Commercial Observer on September 28, 2026 that 71% of distressed office balance is tied to a failed or imminent refinancing rather than missed payments, and that $13.9 billion of the roughly $39 billion of office CMBS maturing over the next 12 months already shows warning signs, including occupancy down 10 or more points from securitization.
10-year Treasury yield, October 19, 2026 (FRED, DGS10): 5.15%
Office loan spread over the 10-year, late Q1 2026 (CRED iQ, via CRE Daily): 220 basis points
Office CMBS delinquency rate, September 2026 (Trepp, via CRE Daily): 12.16%
Distressed office CMBS balance tied to refinancing (CRED iQ, in Commercial Observer, Sep 28, 2026): 71%
That is the risk a lender prices into the reserve, the sweep trigger and the release conditions.
What should you negotiate on a TI/LC reserve?
The terms worth negotiating on a TI/LC reserve are the sizing method, a cap, the release conditions, what the money can pay for, and the trigger and cure for any cash sweep, because each one decides how much of your proceeds the lender keeps and how quickly you get it back once the space is leased.
- Sizing method. Ask for probability-weighted sizing on tenants with a renewal history, and full replacement cost only on the tenant whose departure would break coverage.
- Credit for signed leases. A renewal or replacement signed before closing should take that tenant's line out of the reserve.
- Cap and burn-off. Ask for deposits to stop at a stated balance, and for release when the building reaches a stated occupancy or debt yield.
- Release mechanics. Ask for draws lease by lease as work is completed and the tenant is in occupancy and paying rent, rather than one release at stabilization.
- Eligible uses. Confirm the reserve pays commissions and landlord work as well as allowances, and ask about free rent.
- Sweep trigger and cure. Tie the trigger to a written non-renewal notice or a set date before expiration, and end it when the space is renewed or re-leased.
- Substitutes. Ask whether a letter of credit or a guaranty can replace part of the cash holdback.
How do you get an office loan with a TI/LC reserve placed?
Getting an office loan with a TI/LC reserve placed starts with a package that answers the rollover question before a lender asks, and our first recommendation, as the publisher of this guide, is YieldStack, a commercial mortgage brokerage that compares lender terms side by side and negotiates the reserve on your side.
YieldStack is an AI-native commercial mortgage brokerage that arranges financing for commercial real estate investors. Software matches the deal against 20,000+ loan programs and compares the options; human brokers structure the deal, negotiate on the borrower's side and carry it toward closing. YieldStack reports a median first offer in under an hour, from an institutional lender. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed.
That fits a reserve-heavy office deal: the holdback method differs by lender, so comparing term sheets shows day-one proceeds rather than only the coupon, and release conditions and sweep triggers are negotiated terms. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing.
The package that gets comparable reserve quotes carries:
- Rent roll with every lease's expiration, renewal options, termination rights and current rent
- Lease abstracts showing allowances and free rent still owed to existing tenants
- Your assumptions for allowances, commissions and downtime, plus a trailing 12-month operating statement
- Target loan amount, term and the reserve structure you can accept
When it is ready, send the office deal for review. Office programs are summarized on the office loans page.
The bottom line
A lender's TI/LC holdback on an office loan is sized from the rent roll, not from a published per-foot standard: each lease expiring before maturity, priced at renewal and replacement cost and weighted by renewal odds. In 2026, with Manhattan allowances rising, Minneapolis District tenants seeking them alongside longer terms and office delinquency elevated, compare the holdback method, the sweep trigger and the release conditions as closely as the rate. On our illustrative $11,000,000 loan, moving from probability-weighted to full re-tenanting sizing moved day-one proceeds by $547,200.