By the end of the 1980s, almost half of the office buildings that existed at that time were constructed during the previous ten years. When leasing space in new office buildings, it was easy for tenants to understand that they would not likely experience significant pass-throughs of capital expenditures. Why? Because the majority of those buildings were new, and even in a poorly conceived or constructed building, a tenant had a reasonable expectation that at least for the first few year of its lease term, substantial capital improvements would not be required.
Another interesting trait of the 1980s was that every third dentist became a real estate developer over night. And, many of us have heard of those stories where buildings were so horribly constructed that they immediately started falling down around their tenants. Thank you cheap money and speculative construction!
Those shiny new office buildings had brand new elevators, HVAC systems, electrical and safety systems, facades and parking lots. Their tenants, not expecting to bear the financial burden of major capital improvements, negotiated their leases by restricting their landlords from passing through such costs. Landlords, who also recognized that their buildings would not likely require immediate capital re-investment, most often agreed to such restrictions.
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