Bob Ladner, GM Commercial Real Estate
Square footage isn’t just a number; it’s a key driver of a property’s financial position and accounting practices. We’ll explore how accurate square footage measurement can increase your property’s market value, boost rental revenues, reduce operating expenses, and ensure a successful yearly audit. Discover how staying up-to-date with industry standards like BOMA 2017 can strategically impact your property’s bottom line.
Square Footage Impact on A Property’s Financial Position and Accounting Practices
- Increase the Market Value of Your Property: From an ownership perspective, the quickest way to add value to a property is to increase the rentable square footage since the value of the building is based on future cash flows. The evolution of the industry-accepted BOMA standard for measuring buildings – recent editions include 1996, 2010, and its current BOMA 2017 standard – allows for a property’s rentable square footage (RSF) to change over time. For example, the standard accounts differently for shared amenity space between BOMA 2010 and 2017. Somewhat surprisingly to owners, the variance of a property’s RSF can swing up to 10% of its previously measured area – which could translate into additional building value. Especially during a property transaction, having your property’s square footage measured according to the most advantageous BOMA standard benefits buyers and sellers alike: Accurate square footage allows the seller to maximize its price point while preventing buyers from overpaying.
- Increase Rental Revenues: From a property management perspective, accurate square footage provides an undisputable mechanism to increase rent revenues during lease negotiations. First, using accurate square footage and tenant information, your property’s stacking plan will identify the tenant leases with impending term dates. This is a prime time to introduce the recalculated building’s square footage to increase the rent. How you go about this is your decision: during lease negotiations, with the right RSF, you will be able to reduce line items that are deemed shared space (a new fitness space amenity, for example) and raise rent costs based on this industry-accepted BOMA standard recalculation number.
- Reduced Operating Expenses: The costs of several building services rely on an accurate square footage number so that your property is fairly charged. Knowing your cleanable square footage for maintenance contracts will ensure that you only pay for cleanable, walkable space – not columns or elevator shafts! Also, your building’s utility expenses (HVAC) are totaled up at the end of the year, with the building’s total consumption divided by the square footage. Plumbing supplies expenses can also be estimated according to accurate occupant per square footage ratio.
- Successful Yearly Audit: As part of your yearly audit, the “BOMA number” comes into play when reconciling estimated operating expenses and taxes with the actual expenses for your tenants. This magic number is best based on accurate square footage, so reconciling operating and tax expenses is spread over the largest rented square footage number. Having accurate square footage available to support this process is important.
To achieve the results above, you must ensure you are working with your property’s most accurate square footage! Consider the last time you recalculated your property’s square footage and whether you used the latest standard. Both tenant space changes over time, and the evolving BOMA standards will allow you to account for your space differently and strategically for your property. Don’t Leave money on the table—discover the benefits of accurate square footage by contacting SDI.