Executives at start-ups and companies new to the city are often flummoxed when told they are renting a floor — but that their actual space ends up being roughly a third less than expected.
Welcome to the City’s “loss factor,” where a square foot is about 27 percent smaller than reality (and may be shrinking even more).
“The percentage is about to get a boost,” advised Scott Spector, AIA, principal of Spector Group. “We are hearing talk of 27.5 and 28 percent for single floors.”
The Real Estate Board of New York (REBNY) has a “Recommended Method of Measurement for Office Buildings” that is only used in the New York area. (Outside of New York, brokers use the Building Owners & Management Association, or BOMA, standard.)
Under REBNY rules, the measurement for a full floor is taken from the outer walls of the building. Then deductions are made for the elevator shafts, stairs, mechanical, HVAC and telecommunication shafts that do not open onto the floor. Phone equipment used only for that floor is counted.
Multi-tenant floors begin with the full-floor measurement, and then a deduction is made for the interiors of the corridors. The corridor space is then apportioned to each tenant using a detailed fractional measurement.
“If the toilets are for a single-floor tenant, you pay. If you are sharing, it is built into the common areas,” Spector explained. “With multiple tenants, you have to apportion proportionately.”
Below-grade space and stores also have special measurement rules.
The day Donald Trump appointed Kim Mogull, now CEO of Mogull Realty, as the exclusive broker for a retail space, she advised him to gut the space and to have it re-measured by an architect. “It appeared larger to me than previously marketed,” she recalled. “And it was.” The space was bigger by several hundred feet and amounted to a huge bump in rental income from the next tenant.
There are also differences between the “usable” area and the “carpetable” area which is calculated to determine tenant construction costs.
“I wish we rented on ‘usable’ and upped the prices,” said one broker on condition of anonymity. “I always tell the tenants the space doesn’t exist. I always explain loss factors because when they say they need 5,000 square feet, I have to ask, usable or rentable?”
But Neil Goldmacher, a vice chairman of Newmark Grubb Knight Frank who represents financial firms and large companies, said this is just one factor. “If you educate your tenant, they all understand that it’s a part of doing business in New York,” Goldmacher said.
Because each square foot represents a lot of money over the length of a lease or during a sub-lease, Spector always re-measures the space or building to verify everything.
“I can measure a 30,000 foot floor in 15 minutes, and it’s becomes part of the tools for the negotiations,” he explained. “We represent a ton of landlords and that part of the check is the earliest part of the punch list. We are doing our field diligence and checking the CAD [computer-aided design] drawings, because they are usually made by someone else or is old, and now we have lasers.”
Last year, while working for a tenant, the architects found a 3,000-square-foot difference because a slice of another floor had been added to the proposal for a prior tenant, he said.
In another instance, the CAD drawing was “all wrong” because it was based on an old building layout. “Sometimes floors are being reconstructed and updated, and sometimes the building isn’t built yet,” he said. “We are constantly in the re-verification mode with the landlord and the landlord’s architect to make sure it is exact or very close to the realm of the rentable.”
REBNY advises that, if asked, “the building owner should disclose the loss factor for the space under consideration.”
“The landlord has measured to the middle of the street, but that’s how we do it,” Spector joked. “It is really pretty straightforward.”
