Understanding Commercial Real Estate In New York City

PREFACE

It is not uncommon for an area calculated from original plans to vary from the area that is measured during a field survey. It is also not uncommon for a site measurement done by one party to vary from a site measurement done by another party. Typically there is a two percent (2%) or less variance allowed between calculations. If there is a difference greater than two percent (2%), it is recommended that an unbiased third party be hired to re-measure and resolve the matter. Also, if you have any questions regarding verbiage, please check our DEFINITIONS page.

DECIPHERING THE CODE

REBNY (Real Estate Board of New York)
RECOMMENDED METHOD OF FLOOR MEASUREMENT
FOR OFFICE BUILDINGS
Effective January 1, 1987

In order to facilitate a comparison of the cost of space among buildings, The Real Estate Board of New York, Inc. recommends that owners use a standard definition of usable area and that they clearly explain how rentable area is calculated based upon such usable area. Architectural plans and calculations should be made available to the tenant if requested.

The Real Estate Board of New York, Inc. recommends the following definitions and methods as the Standard Method of Floor Measurements in office buildings. Any Board member who advertises office space for rent is expected to follow these guidelines in determining any rentable area count mentioned in the advertisement.

RENTABLE AREA:

Because of dissimilarities among buildings, calculations of rentable area may vary. If requested, owners should disclose to prospective tenants the loss factor used for spaces under consideration.

Loss factor means that each tenant is paying for more space that they actually occupy. In addition to their space, they are responsible to pay their portion of common areas throughout the building. To a tenant this would be considered a loss. Buildings are all different in how much Common Areas they have. The national range is usually between 8-25%, but New York City is usually around 15-30%. No building is required to give accurate numbers. If a space is measured with a 10% factor, they can rent space at a 15% factor in order to make more profit. The factors vary from floor to floor, so a building may also use one fixed (usually average) factor for the whole building. There are no guidelines for this.

Example: A tenant is looking at two (2) spaces in two (2) different buildings that are both 10,000 square feet. One building could have a load factor of 10% and the other is at 20%. This means the tenant will be paying for 11,000 square feet or 12,000 square feet respectively. At $2 per square foot per month ($22,000 or $24,000), over a five (5) year lease, that is $1,320,000 (10%) vs. $1,440,000 (20%). That is a difference of $120,000. The tenant may have thought that they would only be paying for 10,000 square feet at $2 per foot over five (5) years, which is $1,200,000.

When all that matters in making a deal is dollars and cents, the bottom line for the tenant is to get a low loss factor.

USABLE AREA, SINGLE TENANT FLOORS:

Measure the floor to the outside surface of the building. Subtract from this area the following, including the finished enclosing walls:

• Public elevator shafts and elevator machines and their enclosing walls.

• Public stairs and their enclosing walls.

• Heating, ventilating, and air-conditioning facilities (including pipes, ducts and shafts) and their enclosing walls, unless such equipment, mechanical room space, or shafts serve the floor in question.

• Fire towers and fire tower courts and their enclosing walls.

• Main telephone equipment rooms and main electric switchgear rooms, except that telephone equipment and electric switchgear rooms serving the floor exclusively shall not be subtracted.

This section is much clearer. It begins by stating the building is to be measured to the finished exterior surface of the building which is a variation of the BOMA standard. This can be a difficult task as the building can change thicknesses every floor and there is no way to accurately measure the wall thickness when you cannot access a door opening.

An example of how this can affect the square footage is to look at building with an exterior footprint that is 200 feet by 100 feet. Let us say this building is ten (10) stories with an exterior wall thickness of 7″. The Gross Floor Area (GFA) is 20,000 square feet to the exterior surface, while the interior GFA is 19,651 square feet if measured to the inside of the exterior wall. This can mean additional profits by having the tenants pay for the thickness of the walls.

The next section talks about all the building elements which must be taken out of the total square footage. If a single tenant takes the whole 20,000 square foot floor, they will not be paying for the whole space or GFA. The first two (2) bullets explain that elevator shafts, elevator machine rooms, public stairwells, and their enclosing walls (full wall thickness) are to be excluded. These can all be summed up as Floor Penetrations. Any and all floor penetrating elements are to be excluded from the floor rentable area. So if the 20,000 square foot floor has 2000 square feet of shafts and stairs, the rentable area is going to be 18,000 square feet.

Heating, ventilating, and air-conditioning elements (pipes, ducts, shafts) and their enclosing walls (full wall thickness) are also considered floor penetrating elements. If a buildings boiler and air handling unit are in the basement, there are shafts that need to run up to the top floors without interruption. This means each floor will be penetrated by the shaft and need to be taken out of their rentable square footage. The times when this may not happen is in specialty spaces where there may be an excessive amount of computer hardware in which the tenant installs their own air handling unit on their floor to cool the computers. This is a situation where it only serves this one tenant and is not excluded from the total square footage.

The same goes for all fire tower, fire tower courts, and their enclosing walls. Fire towers are defined in New York as an exit that can be used in lieu of an interior stairwell as long as they comply with all requirements for an interior stairwell, with a few modifications, e.g., walls must have a fire resistance rating of at least four (4) hours, be accessible only through an outdoor balcony or fireproof vestibule, open directly to the street or court yard, etc. A Fire Court is the space in which the fire tower exits into and must be open to the sky.

Lastly, all main telephone, electric, other mechanical spaces, and their enclosing walls are not to be counted unless they specifically serve that floor in the same respect as the heating, ventilating, and air-conditioning units.

USABLE AREA, MULTIPLE TENANT FLOOR:

• First, calculate the usable area as if for a single tenant floor.

• Then deduct corridor areas, including toilets, supply room, etc., but do not deduct the enclosing walls of such corridor.

• Measure the net usable area of each space on the floor by measuring each enclosing wall which is a building exterior wall to the outside surface of the exterior walls, or to the outside surface of the glass as the case may be. Measure demising walls to the center and walls which abut corridors to the corridor side of the finished surface of the corridor wall.

• To determine the usable area on a multiple tenant floor, apportion the corridor area to each space by multiplying the corridor area by a fraction, whose numerator is the net usable area of the space and whose denominator is the total of the net usable areas of all the spaces on the floor, and add the result to the net usable area of the space.

When we look at multiple tenant floors, there are a few more things to take into account. As stated, we calculate the useable area as if it were a single tenant. When measuring between two tenants, we measure to the middle of the wall, which is to say that each tenant is paying for half of the thickness of the wall. Then we measure all shared common areas, such as corridors, restrooms, janitor closets, building storage, etc. and designate it as Floor Common Area. The enclosing walls stay a part of the tenant’s space, meaning the tenant will be paying for the wall of the corridor where the spaces are adjacent. These common areas are to be distributed to each tenant on the floor based on the percentage of the floor they occupy.

For instance, a floor in our 20,000 square foot building has two (2) tenants. We first take out the floor penetrations, which leave us with 18,000 square feet. We then measure all common areas and come up with another 2,000 square feet. This leaves 16,000 square feet of usable tenant space. One tenant has 12,000 square feet and the other has 4,000 square feet. The tenants occupy 75% and 25% respectively. Now take the 2,000 square feet of common areas and appoint to each tenant their portion based on percentage. The tenant with 12,000 square feet will take 1,500 square feet (75% of 2,000) and the 4,000 square foot tenant will add 500 square feet (25% of 2,000) to their space. Add in the building common space and you will have your Total Rentable Area for a multi-tenant floor.

BELOW-GRADE, CELLAR AND SUB-CELLAR SPACE:

To determine the usable area of below grade, cellar and sub-cellar areas, follow the same procedures as are appropriate for single or multiple tenant floors except that the following additional areas should be deducted from usable area:

• Machine rooms and pump rooms and their enclosing walls.

• Electric switchgear rooms and their enclosing walls.

• Telephone equipment rooms and their enclosing walls.

• All space devoted to servicing the operation of the building, i.e., cleaning contractors, storage, building maintenance shop, building engineer’s office, etc.

This section is very clear in what they say, but they do not seem to say enough. Any space below-grade which is used to run any part of the building is to be deducted from the square footage in the same way a floor penetration is deducted. They are not to be used as a Building Common Area. As stated, these rooms can be anything which is essential to the proper running of the building, including all rooms stated above as well as:

  • Uninterrupted Power Supply (UPS) or Battery rooms and their enclosing walls;
  • Main Electrical rooms and their enclosing walls;
  • Elevator switchgear rooms/ bays and their enclosing walls;
  • Building storage and their enclosing walls. NOTE: Any tenant storage shall be allotted to that tenants Useable Square Footage including chain link fence storage units.

What there is no mention of in this section is underground parking garages. Technically, using this pamphlet, we could use all underground parking as Building Common Area and have the tenants pay their portion of using the garage. Even if a tenant does not use the garage, it would still be factored into their rent. Often, a below grade parking level is the same size or larger than the footprint of the building above. This would create enormous Loss Factors for the tenants and should be clarified. The BOMA standard implicitly states that all parking areas are not to be used in any calculation, not even Gross Building Area.

RECOMMENDED METHOD OF FLOOR MEASUREMENT FOR STORES:

1. The rentable area of a store shall be computed by measuring from the building line in the case of street frontages, and from the inside surface of the outer building walls to the finished surface of the corridor side of the corridor partition and from the center of the partitions that separate the premises from adjoining rentable area.

2. No deductions shall be made for column and projections necessary to the building.

3. Rentable area of a store shall include all area within the outside walls, less the following, with their enclosing walls, if serving more than one tenant: building stairs, fire towers, elevator shafts, flues, vents, stacks, pipe shafts and vertical ducts.

4. The following area shall be included in rentable area, if such areas exclusively serve a store, together with their enclosing walls: private stairs, private elevators, toilets, air conditioning facilities, janitors‘ closets, slop sinks, electrical closets and telephone closets. When air conditioning facilities serve more than one tenant area, they shall be apportioned in the same manner as that used for single tenancy floors.

5. Where a store fronts on a plaza or arcade which is intended for use by the general public and is not for the exclusive use of the store tenant, its customers, etc., the area of the plaza or arcade shall not be included in determining the rentable area of the store.

Many buildings have retail space on the first floor. These spaces are not measured the same as a regular office area, mainly in the fact that you can measure an exterior, uncovered space and count it as the stores Useable. This section is tricky because it is not always easy to find where the building line is, also referred to as the set back requirement.

Building Line (from Definitions): A line established by law or agreement usually parallel to a property line, beyond which a structure may not extend. This restriction generally does not apply to uncovered entrance platforms, terraces, and steps.

Typically, the building will be set back from the street and sidewalk. Each lot has a required setback from the street. Let us say this setback is 20 feet on the front, 7 feet from both sides and the back. The building is built 22 feet from the front, and 7 feet from the sides and back. This means that the store useable area can be calculated to include the extra 2 feet at the front of the building.

What they describe in No. 1 are two dimensions which will come together as one long dimension. You would measure from the building line to the exterior of the building, then add the wall thickness to that dimension to get from the building line to the inside surface of the outer wall. Then get the dimension from the inside surface of the outer wall to the demising/corridor wall. Depending on how the store is laid out, it can be either. If the store is adjacent to a corridor or another tenant, the rules of a Multi-tenant floor apply.

Number 2-4 are all the same as previous examples of Single and/or Multi-tenant floors.

Number 5 is very hard to gather a full understanding. While referring to stores which are in a plaza, arcade, square, or other large public gathering place that is not a street, it indicates that these areas are not exclusively used by the tenant or its customers and therefore cannot be measured. There are many examples of stores (restaurants) that are in a public plaza and have a roped off area for seating. One interpretation may say this should be considered Useable area because it roped off and exclusively used by tenant and customer while another interpretation may say it is still a plaza and cannot be counted. It is just a little too vague. This is where the building manager or owner may want to decide which interpretation is best for their purpose.

Areas also to be excluded from the store measurements are:

  • Canopies and covered staging platforms;
  • Unenclosed connecting links or area ways;
  • Unenclosed exterior staircases or fire escapes.

VARIATIONS FROM ANSI/BOMA STANDARD

  • Office buildings are measured to the outside surface;
  • Corridor walls are part of the USF for the tenants
  • No mention of how to actually measure corridors, i.e., minimum corridor, dead ends, and extensions;
  • Stores are measured from the building lines;
  • No mention of parking areas;
  • Not using Main Building Function rooms as part of Building Common.


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Source by David Aube