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Office Leasing 101 – A Brief History of Measuring Office Buildings

The Building Owners and Managers Association, aka BOMA, and why the tenant wasn’t invited to that party

By John Jarvis

To paraphrase Dr. Seuss, oh the games that landlords will play. Building measurement is one of those games. It is a complicated subject, to be sure. In this paper, I will hit the basics including BOMA, the changing BOMA Standard over time, a few key concepts and phrases and the latest strategies landlords are using to grow their buildings and increase the rent that you pay.

BOMA has been around since they first developed their standard methodology for building measurement in 1915. They revised their standard in 1952, 1971, 1980, 1989, 1996 and most recently in 2010. Perhaps we should not be surprised to learn that with each new BOMA standard, office building landlords have found ways to re-measure their buildings. We should not be surprised that the buildings never get smaller, they only get bigger. On paper anyway. It is the same building, just the measurement changes. And, as a result, the rent that you pay goes up.

Perhaps this would not be as prevalent if there was a “T” in BOMA, but the tenant was not invited to that party. Here is how it works. The “useable square footage,” or “USF,” is the space that you get for your exclusive use, the portion that you can actually use, measured from interior wall to interior wall, excluding all of the space that you cannot use or that you must use in common with other tenants.  Business owners negotiating their first office lease are often surprised to learn about the companion concept called “rentable square footage,” or “RSF.” Included in the RSF is all of the space that you don’t get for your exclusive use, all of the inefficiencies in your building, the corridors, the common lobbies, the common restrooms, the storage rooms, and sometimes the leasing office. All of those common areas are lumped together and allocated across the building as a term called the “Load Factor,” or “Core Factor.” That is enough of the esoteric, now let’s talk about a few examples of how landlords use these terms to their advantage, and often to the disadvantage of unsuspecting tenants.

Paying Rent Based on Rentable Square Footage…

The rent that you pay is calculated on the rentable square footage. No surprise here, unless you are learning about it for the first time. Have you ever looked at two different spaces and thought, “wow, those don’t feel like the same amount of space?” Well, probably because they are not. Some buildings are efficient, with perhaps an 8% or a 10% core factor. Other buildings are horribly inefficient, with perhaps an 18% or a 25% core factor. On a full floor office lease in an inefficient building, the difference can be 3,000 square feet or more!

…But Getting the Tenant Improvement Allowance Based On Useable Square Footage

Not missing a trick, landlords, when they quote to you a tenant improvement allowance, as in the funds that you need to pay for the cost of building out your space, will sometimes express that allowance as dollars per useable square foot. Huh? But I pay my rent based on the rentable square feet? Yes, they will say, but we aren’t paying for you to build in the common areas. Clever. Not OK, but clever. And, of course, subject to negotiation, every time.

Common Conference Rooms

There is a great amenity that some landlords provide, the shared conference room; no charge, just sign up, first come- first served. Except that space is almost certainly now considered part of the common area, which means you are paying for it, in the rentable square footage, and that the landlord is, in fact, now collecting rent on it, without the need to lease it out. It could be a particularly difficult-to-lease suite or building, and now, from the landlord’s perspective, it is leased! Once again, clever, right? In the Torrey Pines submarket in San Diego, Alexandria Real Estate did this with almost an entire difficult-to-lease building, calling it an “Amenity Center” after it had sat empty for over five years!

Modified BOMA & Stevenson Systems

BOMA can be problematic, but it could be worse. In some parts of the country there is no consensus around the BOMA standard, and the method of measurement becomes another deal point to be negotiated with each different building owner. This is starting to happen in Southern California as certain landlords are using a creative phrase, “Modified BOMA,” as their new standard. When I dug into this I learned about Stevenson Systems, Inc., a company based in Laguna Niguel. The headline from their website reads: “Measuring is just the beginning. Unlock the hidden value in your commercial real estate assets.” In the circumstance I encountered, Stevenson had re-measured every floor of a 12-story office tower. They ignored how the floors were actually built, instead imagining that each floor was designed in the most efficient manner, utilizing a “Z Corridor,” where each emergency stairwell is accessed by just a single hallway. On any floors designed with the less efficient loop corridor, they would dedicate any excess “corridor inefficiency” as rentable square footage to the closest tenant. My client was one of those tenants, and we said not a chance that is going to fly. Think about it- they wanted us to pay rent on the outside hallway, not as part of the common area but as part of our premises, because, by their logic, if the floor had been designed in a more efficient manner that hallway would have been part of our space. Totally nuts, right? And yet, in certain high profile buildings, this “Modified BOMA” is the new standard. Clever again, and totally not OK.

So here is the point. The fox is watching the hen house. BOMA is a useful standard for now, and we all need to watch as it evolves, and push back on any variations that are inherently unfair, biased or defy logic. At Hughes Marino, we are working on a new model, and a new standard that will be fair and reasonable for all parties, including, importantly, the commercial tenants that lease these buildings and pay the rent, by the way, that funds the entire industry.

Until that new standard is in place, we will remain vigilant, we will continue to monitor the games that landlords play, and we will continue to educate and report on the practices that we are seeing in the marketplace, for better or for worse, because… Once again to paraphrase Dr. Seuss, unless someone like us cares a whole awful lot, nothing is going to get better. It is not. And will we succeed? Yes indeed, yes indeed! Ninety-eight and three-quarters percent guaranteed!  

John Jarvis is a senior vice president of Hughes Marino, an award-winning commercial real estate company specializing in tenant representation and building purchases with offices across the nation. Contact John at 1-844-662-6635 or john@hughesmarino.com to learn more.

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