BOMA Floor Measurement Standards are very well known throughout the commercial real estate industry. They are so well recognized, that it is common practice to include a reference to BOMA floor standards in standard lease language. Any reference in a lease should be specific as to the method and year of publication of the standard, such as ANSI/BOMA Z65.1-2017, Method B.
BOMA published the first office floor measurement standard in 1915, has updated the standard to maintain relevancy, and has developed an entire suite of floor measurement standards, all of which are ANSI (American National Standards Institute) certified. It is no wonder that BOMA is known as the preeminent industry standard for calculating floor measurements for commercial real estate buildings.
Yet, with all this validation, real estate executives are often circumspect about verifying building measurements or implementing revised calculations, when a building is remeasured. This article will discuss various outcomes of a measurement.
The square footages (substitute feet with meters throughout this paper, if relevant in your geography) of buildings are ever changing. You might wonder how that can happen. It really starts with the original development of the property. The initial architectural plans of a building will state what the square footage of the structure will be, when developed.
During the construction process, discrepancies can occur. A wall may have been constructed slightly off from the original plans, a footing might have to be altered due to site conditions, or the front entrance could have been recessed just a little more than initially anticipated. As a practical manner, when constructing a property, things can happen that may very well change the architect’s original calculation of building square footage.
Does the building get remeasured once development is finished? This may occur, or a few important dimensions may be verified, or no validation may occur at all, depending on the development process. During the development phase leases are being drafted based on original drawings. There are so many moving parts with a new development, final accurate measurements may not be properly documented or incorporated into the building administrative records.
Over the years’ spaces will get remodeled, cojoined, subdivided or portions of common corridors absorbed into tenant suites, among other types of building alterations. If the property is capping the load factor for market accommodation, then the measurements can be further altered, especially when market cap tolerance changes over the years and the building may amend the load factor as the market will accept, in order to minimize the amount of space not captured as leasable.
Real estate professionals may forget to update suite square footages when they are aware of spaces that have revised measurements or when altering space configurations, they may attempt to estimate square footages according to what they feel is a fair calculation of a space. Any of these scenarios will skew building measurements. Over time this can add up to a considerable amount of discrepancy.
Square footage is the foundational measurement in commercial real estate. Tenants occupy usable square feet. Leases may be based on a capped rentable square foot basis. Building sales are noted on a gross leasable area basis. Lenders use square feet to proforma potential gross rents. Construction costs are estimated on actual square foot basis. Operating costs are customarily measured by a rentable square foot basis, (although for a level playing field, my opinion is these should be compared on gross square footages). It seems to make sense that if square footage is the language of real estate, then a building owner would want to know a property’s true measurement calculations.
When a building is placed on the market for sale, the seller will provide a prospective purchaser with property information, such as where the boundary lines are and whether there is hazardous material on the site. The buyer’s lender wants this information verified by having a survey and a Phase I Environmental study conducted in order to protect their investment. However, in the case of whether building measurements are accurate, the overall attitude seems to be of less concern, even though this is the foundation on which revenue and expenses are based.
The seller will provide the prospective purchaser a building square footage and it is typically accept as a correct number. The seller may even provide a certified rent roll stating suite rentable square footage and the building’s denominator. The purchaser will provide their lender with this information, who also accepts it as an accurate number. The tenants are told the square footage of their lease, and, like the rest, they believe it to be true. The commercial real estate industry does not utilize a good system for checks and balances on a building’s square footage, the foundational measurement in commercial real estate.
This is likely because there are so many components of a building measurement. For example, a building contains a gross area, the tenant areas, the service areas, and the amenity areas. The common area measurement might be capped at a subjective market rate. A proportionate share of common area is allocated to a tenant’s usable area to determine the tenant rentable area. These extrapolations can make building measurements difficult to verify without the help of a measurement professional.
You might be wondering why accurate building measurements are so important. The obvious answer is that a building’s value is determined by its gross potential rent. Capturing every square foot in a building will increase your net operating income, adding value to your building, whether you are currently charging for the full square footage or not.
Consider the actual case study where a building was purchased at the height of the economy and based on a given measurement. A subsequent downturn in the economy resulted in a large building vacancy. The owner had the building professionally measured and found 5-percent more space in their building, in this case, amounting to over 30,000 square feet. This owner was able to reposition the property, then sell it without taking a loss that they otherwise would have.
Another true-life case study is the building that was purchased based on a given measurement. Since no plans were conveyed, the buyer had the building professionally measurement to find the building had 3-percent fewer square feet than they purchased. In this case this amount equated to almost 6,000 square feet.
A final example is a tenant audit. The last situation you wish to find yourself in is having a tenant inform you they have had their space professionally measured and demanding a refund on rent paid over the years. Not only do you have less recurring income, but you potentially owe back rent and have a dissatisfied tenant.
Once you have a new measurement for the floor space of your property, you must implement this measurement. Join me next week for recommendations on factors to consider when determining how the new measurements may affect your building and suggestions on how to implement the revised calculations to your property.
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