Okay, so there is this thing that happens in commercial real estate in New York City that will blow your mind. When I learned about this, it took me a while to get it. It is called re-measuring. In its simplest form, you can sign a lease for 10,000 square feet, and in some time in the future, when you go to renew that space, it could be 12,000 or 13,000 square feet.
Now to be clear, we are talking about the same physical space, but it is being called something different. I want to say that again, your space has not been altered, you have not added any space from the unit next door, and the building did not add additional floors. It is the same exact size physical space as it was 10, 20, 30 years ago; it is just bigger.
Why is re-measuring done? To make more money.
Why should you care? Because it will cost you more money. And, it is not just more money on your overall rent, but the number of increased square footage x base rent. As your square footage increases, so does your proportionate share of real estate taxes, because your real estate obligation is based upon your proportionate share of the building. Additionally, if you are paying electricity on a per square foot basis, also known as ERIF, then every square foot that a space is increased, the more you must pay for electricity. As a refresher on electricity costs, please see here.
Did you ever notice that in a lease there is never a square footage mentioned?
There is a total dollar value of the annual rent, but there is no square footage.
Intentional? I am not sure. But it is certainly less difficult for the landlord to change the size of a space when there is no real record of what the space was before.
My first response is that this is a reason to get a lease abstract. If you’re not familiar with a lease abstract, imagine a 100-page lease, condensed into 2-3 pages, with only the most important financial terms, including documenting the rentable square footage negotiated. So, here’s where market expertise comes in to play.
There are some buildings that are notorious for re-measuring, and other landlords that have not re-measured in a long, long time. That is worth a lot when making an apples-to-apples comparison between two opportunities for your business.
In fact, when I first learned about this early in my career, I bought a reference book from 20 years ago so that I could compare the floor sizes across NYC to help my clients. The biggest surprise was that there are some buildings that still had the same size floors. And after a thorough analysis, I realized they were in the portfolios of only a handful of landlords. This is extremely valuable when helping clients identify value and manage out of pocket expenses for their real state.
If your landlord remeasured your space, let’s talk!