Definition of "Cold Shell"
Also called “Grey shell, “Bare Shell”, and “Artic shell”, a Cold Shell could be described as the more radical version of a Vanilla Shell. If Vanilla Shells have HVAC, plumbing, and the basics; cold shells are completely unfinished.
Cold shells have bare stud walls with no insulation and no finish, unfinished floors, no electrical wiring, and plumbing; only the connection point to the sewer and a space (not the specs) for the electric company to service the place with electricity. Some cold shells might have a sprinkler system installed because it might be mandatory to the building codes of that area. However, chances are it won’t even be lowered to the normal ceiling height. There might be an HVAC unit but no ductwork and controls to it installed.
So, you see… everything is super far from ready.
For that reason, cold shells are:
- Almost exclusively a commercial real estate thing. Only rare situations would force it to happen on residential real estate.
- Usually bought, rather than rented. The commercial real estate builder/developer sells the place as it is, so the new commercial real estate owner can finish the place faster since the developer is busy with all the other units he/she is also building.
But, there are some cases where the Tenant does agree to get the property in cold shell form and do the rest of the building on his/her own.
Is it more expensive for the Tenant to deal with cold shells than with Vanilla shells? Yes and no.
In general, yes, it can be up to 20K more expensive. However, the tenant can strike a deal with the Landlord where he/she will discount some of the rent because of the construction he/she made. Or even negotiate better terms of the contract, since the tenant is allowing the landlord’s cash flow to breathe after the usual heavy costs of building. In a busy sought-after area, this can be great for a retailer tenant, for instance. Say, a small-time retailer got a cold shell, did all the construction by itself, and, in return, secured a longer lease with a fixed rent rate. If the market prices of that area go up now, the small-time retailer has the security of a low rent compared with the competition just because he invested back then on being early and dealing with the cold shell costs himself.
Plus, it’s always important to get into business as soon as possible to make money, right? So, as you can see, cold shells have their reasons to be.
Real Estate tip:
Leave no work unfinished: find a local real estate agent to help you figure out situations where it’s advantageous to get an unfinished property or to wait and demand it to be fully completed and ready to move in.
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