A Fresh Take on CRE

Loss Factor Demystified - Part 2 OR Usable Area - Why it's not really Usable

Yesterday we learned about the "basic equation" for loss factor - (Rentable Area minus Usable Area) divided by Rentable Area. Now, to understand this equation, we have to understand what rentable area and usable area are. As we learned yesterday, rentable area is a made up number, which can be anything the landlord wants it to be.

Today, we're going to talk about Usable Area. In NYC the generally accepted definition of Usable Area was defined by the Real Estate Board of New York (REBNY) in it's paper "Recommended Method of Floor Measurement for Office Buildings" - January 1, 1987.

To sum it up, REBNY defines Usable Area as the full size of the floor measured to the OUTSIDE SURFACE OF THE BUILDING minus common corridor areas, elevator shafts, stairwells, and mechanical space that serves the building. What does this mean to you? It means that whatever "loss factor" your space has, your actual loss factor is larger. After all, you can't actually use the space that the brick on the outside of the building takes up or the space that is occupied by a building column.

By now you're probably thinking, if I can't go by rentable square feet, and I can't go by "usable square feet," how can I tell how much space I can actually use. This is where we come to "carpetable" or "assignable"square feet. Carpetable or assignable square feet is very straightforward. It is simply the portion of the space that can actually be carpeted - the space you really can occupy.

When it comes down to it, the only thing that is important, is that you are comparing apples to apples. To really be able to compare two deals to each other, you should compare them using usable square feet, or carpetable/assignable square feet. (And now a break for self-promotion) You should be sure that you are working with a professional (or group of professionals), that has the capability to effectively perform the complex financial analysis needed to make an informed and confident real estate decision - otherwise, you will do a disservice to yourself and your company.

One last thing . . . when you're looking at space, try not to get too hung up on the the loss factor. When it comes down to it, what is most important is that the space works for you, you can fit your employees in the space, and the pricing makes sense. Of course, you should do the analysis, and make an informed decision, just don't make the loss factor the "be-all and end-all."

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