Dark Shell in Commercial Real Estate

Dark Shell in Commercial Property Leasing

A dark shell refers to a commercial property that is leased to a tenant without interior improvements, such as heating, lighting, interior walls, plumbing, or air conditioning. A dark shell is also sometimes referred to as a cold dark shell, a cold shell, a grey shell, or a base shell. While dark shell leases are common, there are several other types of “shell leases,” which also lease a property to a tenant in a less than finished state. For instance, a warm shell (also referred to as a vanilla shell, a vanilla box, or a white box) typically has heating and A/C, plumbing, restrooms, and lighting, but may have other parts of the interior that are unfinished.

In many cases, a building may start out as a cold shell, but with the agreement that the landlord will make the necessary improvements to convert the building to a warm shell once the lease agreement is fully signed. Sometimes, a tenant improvement (TI) allowance will be offered in order to defer some of the costs that a tenant will incur by improving the building themselves.

Other Shell Lease Variations and Considerations

It’s important to realize that when it comes to the finish level of a commercial property, there are a large number of variations and related descriptive terms. For example, some builders define a warm, gray shell as a property with an electrical panel and an HVAC unit provided, but without full electrical wiring or HVAC installation.

Overall, providing a cold shell or a cold dark shell means that a property owner will generally not have to spend as much at the outset of a project; meaning that they won’t need to take on as much commercial financing. However, unless a property is in a prime location, it can be somewhat more difficult to lease to new tenants without at least some degree of interior improvements. The contrast is true with providing a warm/vanilla shell for a property; upfront expenses will be greater, but it will generally be easier to find willing tenants to occupy the building.

Questions? Fill out the form below to speak with a commercial mortgage specialist.