Leasing & Financing | Business & Finance Insights

Commercial Renovations FAQ

Commercial Renovations FAQ

How to Finance, Manage, and Maximize a Commercial Renovation Project

Successfully navigating a commercial renovation—whether it’s an expansion, upgrade, or full buildout—requires careful planning, financial flexibility, and strategic execution.

This FAQ outlines the most common questions organizational leaders ask throughout a renovation project, offering insights to help avoid common pitfalls and strengthen long-term value.

Phase 1: Planning & Budgeting for a Renovation

It’s smart to evaluate financing early in the planning phase, prior to vendor selection or construction.

Common funding options include using a bank line of credit or engaging an equipment lessor to explore operating and capital lease structures. Starting early helps organizations align payments with vendor contracts, project timelines, and available capital.

Early evaluation also helps you build a more complete budget—factoring in potential costs, contingencies, and financing arrangements. It allows time to secure favorable terms, assess project feasibility, and confirm that commitments are sustainable. Most importantly, it can strengthen your risk management plan, so you're financially prepared for unexpected changes.

In addition to construction and equipment, organizations should budget for architectural design, permitting, project management, and IT infrastructure upgrades.

Be sure to include licensing, integration, and modeling costs in your initial forecast to accurately assess ROI and financing needs. Soft costs are often underestimated, yet they can make up a significant portion of the total investment.

A digital twin is a virtual model of a physical space, system, or asset—allowing organizations to simulate how a work space will function, helping optimize layouts, equipment placement, and workflows before construction begins.

By using real-time data and modeling, digital twins can reduce costly mistakes, improve space utilization, and support better decision-making throughout planning and execution.

According to McKinsey, 70% of C-suite executives at large enterprises are actively exploring or investing in digital twin technology.¹The global market for digital twins is projected to grow by approximately 60% annually, reaching $73.5 billion by 2027² —highlighting the rising value of digital modeling in capital planning and infrastructure development.

Organizations across industries use digital twins to:

Model smarter facility layouts and optimize space planning
Simulate asset performance to increase equipment utilization
Identify process inefficiencies before construction begins

Yes, many organizations pursue facility buildouts and renovations as part of a broader investment strategy, not just a single project.

These initiatives often include a mix of IT assets, office equipment, automation, robotics, racking, conveyors, climate control systems, electrical upgrades, and sustainability improvements.

Bundled financing allows you to combine all related costs into one streamlined and predictable payment structure. Instead of managing separate vendor payments and terms, a unified approach can simplify budgeting, improve cash flow, and support smoother execution across departments and phases.

Tenant Improvement Allowances (TIAs) provided by landlords typically cover basic construction and infrastructure, but often exclude specialized upgrades like IT systems, security, or branding.

These out-of-pocket costs should be considered as part of your broader financing needs. Addressing the TIA shortfall early helps avoid surprises and keeps your project and budget on track.

According to Cushman & Wakefield, large project costs rose slightly—up 2.0% from 2024 levels to $77 per square foot.³

To help bridge this funding gap:

Assess the full project costs to identify shortfalls between the TIA and budgeted expenses
Consider financing to fund the uncovered expenses, including systems often excluded from TIAs
Work with a provider experienced in financing the range of items in your TIA shortfall to maximize financial efficiency

Regulatory compliance, particularly permitting and ESG requirements, can create significant delays and unplanned costs if not addressed early in the planning process.

Cushman & Wakefield reports that 65% of general contractors still find permitting timelines challenging, with 26% saying delays are getting longer, further delaying project kickoffs. Additionally, 40% of contractors say their clients are spending more on ESG-related initiatives than in 2022, especially for electrification and sustainability upgrades. These changes are increasing demand for certain materials, which can extend delivery timelines and inflate project costs.⁴

To help manage these impacts, organizations should:

Engage local permitting authorities early to understand approval timelines
Include ESG-related costs—like electrical and HVAC upgrades—in your total budget
Explore flexible financing options that can support phased investments or unexpected delays

Phase 2: Managing the Project

Managing an expansion or renovation often involves multiple vendors, staggered timelines, and unexpected challenges, which can create delays and budget overruns. A dedicated Project Manager helps prevent disruptions and maintain momentum.

Even if your organization has internal oversight, working with a lender that offers both financing and project management support can help bridge critical gaps between financial planning and execution.

A dedicated Project Manager helps to:

Coordinate vendor timelines and payments to mitigate disruptions
Align financing disbursements with project milestones so funds are available when needed
Streamline communication across stakeholders and vendors to reduce administrative burden
Flag potential financial or logistical roadblocks early

With financing aligned to real-time needs, this added support can make complex renovations more efficient and easier to manage.

Labor shortages, rising material costs, ongoing supply chain delays, and shifting regulations can quickly derail budgets. Construction input prices rose 9.7% annually through Q1 2025, driven largely by tariffs and material inflation.⁵

A flexible financing plan should include contingency funding, allowing you to adjust payment structures as project conditions evolve. Phased or milestone-based financing can also allow for scope changes without requiring contract renegotiations.

Planning ahead for volatility and building financial buffers can help you manage the unexpected and keep the project on schedule and within budget—even in a volatile cost environment.

Yes, many organizations complete their renovations in stages—starting with construction and furnishings, then layering in IT or automation upgrades later.

Milestone-based financing allows capital to be released as each phase is completed, aligning funding with the project’s progress while minimizing interest on unused funds. The timeline below illustrates how this approach can support momentum and cash flow efficiency.

Cost overruns are common in larger-scale projects across sectors and asset classes. In fact, nine out of ten construction projects exceed their original budgets, with the average overrun reaching 28% globally.⁶

To stay prepared, consider financing options that:

Build contingency funding into your financing plan to cover unexpected cost increases
Use phased or milestone-based financing to match capital to real project progress
Choose a credit line or structure that offers the flexibility to adjust scope or cost for your potential overruns without renegotiation

Major upfront costs, such as deposits, contractor fees, and equipment prepayments, can strain cash reserves. Installation period financing enables milestone payments to vendors on your behalf throughout the project, reducing the need for large upfront payments and keeping cash flow available for other priorities.

Spreading costs over time allows you to:

Preserve working capital for day-to-day needs
Match payments to project milestones
Flag delays in orders or installations due to cash flow gaps
Prevent large cash outlays before equipment is operational

Managing multiple assets—including IT infrastructure, furniture and fixtures, heavy equipment, and facility upgrades—can be complex. Tracking lease schedules and payments while maintaining visibility across a portfolio often becomes challenging. A digital lease management platform can help by providing real-time visibility into lease schedules, payment history, purchase orders, contracts, and invoices—all in one place.

Digital tools from a modern financing provider can make asset tracking easier, help anticipate renewals, and improve multi-project oversight. Some providers even offer API integrations that sync directly with your internal systems for added efficiency and transparency.

Phase 3: After Project Completion

Technology and operational needs evolve quickly, and so do the demands on your equipment. Whether you're adapting to automation, scaling operations, or responding to changing customer needs, your business needs the flexibility to evolve without waiting for a full asset replacement cycle.

Financing structures that support mid-term upgrades, add-ons, or equipment swaps give you the flexibility to stay ahead. Instead of locking up capital in one-time purchases, you can evolve your infrastructure as your operations grow, technologies advance, or priorities change.

Measuring ROI on a commercial renovation goes beyond revenue growth. Strategic expansions—like energy retrofits or layout redesigns—can deliver measurable returns through improved efficiency, reduced energy use, and operational improvements. Even smaller upgrades can create value by addressing specific bottlenecks or inefficiencies.

Many leaders also look at reduced downtime, greater flexibility, and enhanced employee and customer experiences. These improvements often drive more long-term value than revenue growth alone, especially when upgrades improve speed, reliability, or scalability.

Aligning your project with a financing strategy that preserves working capital enables continued reinvestment and growth—helping your organization evolve without sacrificing flexibility or disrupting operations.

Yes, with a lease line of credit, you can:

Utilize financing over time without renegotiating terms
Combine new equipment and project costs under a single financing structure
Simplify financial planning for multi-phase growth initiatives

How First American Can Support Commercial Renovation Projects

From early-stage planning to post-implementation growth, First American can work with you to navigate the complexities of renovation projects with confidence. We help you think through every angle—long before decisions are finalized—by supporting budgeting for soft costs, managing tenant improvement gaps, and planning multi-phase upgrades. Our team brings deep experience in large-scale renovations and expansions, offering flexible funding strategies like installation-period financing, milestone-based funding, and contingency planning to keep your project on track and your budget in check.

As your project evolves, we continue to support your growth with financing structures designed for flexibility—enabling mid-term upgrades, future add-ons, and scalable investments. Whether you're renovating, expanding, or planning a buildout from scratch, we’re here to help.

Ready to take the next step? Connect with our team today.

Sources:

Explore More Insights

Taking on Technology & Tariffs

Read Article

7 Signs It’s Time to Automate

Read Article

How to Make the Most of Equipment Financing: Understanding the Benefits & How Business Structure Plays a Role

Read Article

Leasing & Financing

Case Studies

Commercial Renovations FAQ