The tenant wasn’t invited to the party
By David Marino
In the first line of the Building Owners and Managers Association (BOMA) website, they lay it out loud and clear for all to see—“BOMA International’s advocacy team is hard at work continuing to positively impact the commercial real estate industry and protect our members’ livelihood.” And this time, with the latest change to the commercial building measurement standards, they are delivering for their members in spades!
The most recent change to the BOMA standard of how commercial buildings are measured allows building owners to now count areas outside of their building as part of the rentable square footage that tenants pay rent on. Patios, balconies and rooftop terraces can now be included in the rentable square footage calculation of an office building, and landlords all over the United States are taking advantage of this opportunity to increase their building square footage, by as much as 10% in some cases we have seen.
So how can this happen, where the “industry standard” is changed so blatantly in favor of building owners? BOMA’s position during the time of this change was that “If the tenant is taking advantage of it, the rationality is they should also now include it as part of the rentable square footage…” By that logic, what are landlords entitled to charge for next, the outside walking paths and surface parking lots? The views? The roof over your head? BOMA is the largest landlord trade organization in the country. How was this organization, comprised of building owners and managers, granted the authority to dictate the rules that tenants are expected to live by? When BOMA leadership says “let’s find a way to charge for it,” there is no balanced and reasonable person in the room to push back on bleeding out the tenant.
When developers build a commercial building, they are granted entitlements and they get building permits, and it is all based on the buildable land area that dictates the maximum building square footage that can be built. Government agencies that issue permits do not consider patios, balconies and rooftops as part of the building’s square footage. If these were considered square footage, then the developer would have to get building permits and pay for the square footage entitlements for those elements of the building. Further, they would have to provide additional parking, restrooms and other building services to allow for the additional occupancy of these areas. Since virtually all developers build to the maximum square footage that the regulating municipality allows, the square footage of these patios, balconies and rooftops is taking the building square footage beyond the originally approved maximum entitlements!
Let’s further consider the utility of these areas. These patios, balconies and rooftops are not enclosed and generally not covered, so the people using these areas are vulnerable to wind, heat, rain and a myriad of shifting weather conditions. These areas are available to just a handful of employees, a handful of daylight hours on a handful of days.
So we have a situation where BOMA rules that landlords can now include these elements in their calculation of rentable square footage even though these elements were not permitted or entitled as such, and don’t show up on the tax rolls as square footage for the building.
The hard truth is that these areas were never calculated as part of the building when it was permitted and built, and they are not part of the building today. Nonetheless, landlords all over the United States are actively hiring architects to re-measure their buildings to take advantage of these new BOMA standards. When leases come up for renewal, landlords are attempting to increase the tenants’ square footage, even though there is no increase in square footage. Additionally as spaces turn over, landlords are slipping the new higher numbers into the rentable square footage calculation, generally without any disclosure that the square footage was changed to include these exterior spaces.
The fact that BOMA is attempting to lend credence to this notion as being fair and reasonable only serves to highlight the egregious and gross conflict of interest when this group comprised of building owners and managers, and their vendors and promoters, is allowed to dictate the rules governing building measurement. The incentive to chip away at the margin of what is reasonable in the interest of the landlord’s profitability has always been just too tempting. It is time for corporate America to demand a rollback of these latest BOMA modifications, and to insist either that BOMA be replaced as the de-facto governing body for building measurement standards or invite the tenants to the party and balance out their governing body with an equal number of corporate real estate and business owner voices.
We invite you to join us in this challenge to BOMA. Maybe there exists a great real estate litigator that wants to take up a collective class action lawsuit on behalf of damaged tenants against BOMA? Consider that there are 8.75 BILLION square feet of office space in the United States that is non owner occupied. Just a 2% increase in the square footage of that would add 175,000,000 square feet of office space to landlords’ new square footage, without actually building a single new building. It’s like landlords added a commercial office building market greater than the size of metro Seattle to the United States without spending a penny. If annual net rents average $24 per square foot across the US (a low estimate), building owners just picked up $4.2 Billion per year in increased rent, or at a 6 cap rate, an increase in asset value of $70 Billion! All of that rent comes right out of the pockets and EPS of the tenants that write the rent checks. The bottom line is that there is no “T” for Tenant in BOMA, and BOMA has delivered big again on their mission of protecting “their members’” livelihoods.
David Marino is executive 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 David at 1-844-662-6635 or email@example.com to learn more.