BUSI401 CHAPTER 8

Question 1

There is a direct link between the accuracy and consistency of interior space measurement and the value of a commercial property. A key determinant of the value of commercial buildings is _ _ _ _ _

Answer 1

There is a direct link between the accuracy and consistency of interior space measurement and the value of a commercial property. A key determinant of the value of commercial buildings is the amount of rentable space.

Question 2

The three primary factors in determining the maximum rentable area in a new building are _ _ _ _ _ _ List 3 _ _ _ _ _

Answer 2

The three primary factors in determining the maximum rentable area in a new building are government regulations, building efficiency, and gross-up.

Question 3

_____ sets out the maximum achievable floor space ratios or FSRs for certain zones and uses.

Answer 3

Zoning sets out the maximum achievable floor space ratios or FSRs for certain zones and uses.

Question 4

The FSR is _ _ _ _ _ _

Answer 4

The FSR is the ratio of the maximum allowable measured gross area for a building in relation to its site area.

Question 5

Major contributor to a project’s financial feasibility?

Answer 5

With the maximum building size capped by local planning rules, the efficiency of the building becomes a major contributor to the project’s financial feasibility.

Question 6

Efficiency refers to . . .

Answer 6

Efficiency refers to the amount of rentable area relative to the total interior space.

Question 7

In contemporary leasing practice, the common areas are apportioned to tenants and their occupiable space or usable area is grossed-up to a larger _ _ _ _ _

Answer 7

In contemporary leasing practice, the common areas are apportioned to tenants and their occupiable space or usable area is grossed-up to a larger rentable area.

Question 8

Rent and operating expense recovery are based on _ _ _ _ _ _

Answer 8

Rent and operating expense recovery are based on this larger rentable area

Question 9

Contemporary leasing practice involves _ _ _ _ _ _ a tenant’s occupied space to also include a portion of the building’s common areas, so that most or all building costs can be recovered.

Answer 9

Contemporary leasing practice involves “grossing-up” a tenant’s occupied space to also include a portion of the building’s common areas, so that most or all building costs can be recovered.

Question 10

TOTAL RENTABLE AREA

Answer 10

The total of the space occupied by the tenant and the apportioned common area is generally known as the tenant’s rentable area.

Question 11

**NOTE ONLY

This gross-up of the tenant’s area may be based on space shared by several tenants on a floor (floor gross-up) or with all tenants in the building (building gross-up) or a combin­ation of both.**

Answer 11

NOTE ONLY

This gross-up of the tenant’s area may be based on space shared by several tenants on a floor (floor gross-up) or with all tenants in the building (building gross-up) or a combin­ation of both.

Question 12

Discuss the process & pitfalls of allocating O&M costs

Answer 12

Property managers must also determine the annual operating budget for a commercial building.

This task includes allocating the building’s operating and management (O&M) costs to the tenants based on the terms of each lease agreement.

With O&M a substantial proportion of the building’s costs, this allocation is a critical issue negotiating leases.

If some leases in the building are based on a grossed-up rentable area and others based on usable area, the O&M expenses may be inequitably distributed to tenants — leading to landlord-tenant disputes.

Question 13

Insurance Coverage & Building Measurement?

Answer 13

Insurance coverage may be an issue as well. Property managers are responsible for placing adequate insurance on the landlord’s building.

If the gross area of the building has been inaccurately measured, the replacement cost will be under- or over-stated — resulting in either an excessive insurance premium or under-coverage risk.

Question 14

Appraisers face the challenge of valuing buildings with a variety of lease agreements, with some older or legacy net leases based on usable area, some contemporary net leases are based on rentable area, and others that are gross leases where the tenant pays one fee for all costs of occupancy.

The appraiser will usually convert all of these varying lease deals to a common net basis to facilitate comparison. This can be completed by:

Answer 14

• Leases based on usable area must have the lease rate “grossed up” to convert the rent to a net rentable basis.

• Leases based on gross terms, with the expense recovery built into the rent, must be converted to a net lease based on rentable area.

• Timing of roll-over of leases is also a consideration, as long-term leases will have a delay in converting to modern net lease terms with contemporary space standards.

Question 15

Metric or Imperial System?

Answer 15

In the Canadian real estate market, most participants tend to use imperial system: feet, square feet, acres, etc. However, when dealing with government entities, the metric system is often used.

This means that real estate participants in Canada generally need to be conversant with both metric and imperial units of measure.

Question 16

BOMA 1980

Answer 16

floor common area

Question 17

BOMA 1996

Answer 17

Building Common Area

Question 18

BOMA Standards Provide _ _ _ _

Answer 18

The BOMA Standards provide a consistent approach for “grossing up” the measurement of the tenant’s occupied areas to include the tenant’s proportionate share of common areas such as hallways, lobbies, public washrooms, mechanical rooms, etc.

Question 19

BOMA Standards & ANSI

Answer 19

Each of the BPMA standards has been adopted by the American National Standards Institute (ANSI).’ When ANSI adopts a standard it means that there is general industry acceptance or voluntary consensus on a consistent approach to measuring business and industrial performance or assessment systems.

Question 20

BOMA 1980

Answer 20

In years past, most leases were written based on the area physically occupied by the tenant - i.e., without any gross-ups for common area whatso¬ever. The 1980 version of the BOMA Standard Method for Measuring Floor Area in Office Buildings changed that by introducing a methodology for grossing up the tenants occupiable area by a factor that would account for the various Floor Common Areas such as hallways, washrooms, and other areas that serviced the particular floor.

Question 21

BOMA 1996

Answer 21

The 1996 BOMA Office Standard added a second layer of gross-ups for Building Common Areas - including main floor lobbies, building electrical rooms, elevator rooms, and other areas that service the entire building. In 2010, an updated version of the BOMA Office Standard was released. The 2010 Standard relies on the 1996 Standard as a platform, refining several aspects of the previous version and providing an option to apply a single, uniform gross-up factor for all tenants in the building.

Question 22

Benefits of widespread adoption of BOMA 1996

Answer 22

Widespread adoption of the BOMA 1996 Standard has led to positive changes for landlords and tenants. Landlords are now able to consistently compare the performance of their buildings with competitors. Tenants also have better information to evaluate space alternatives and determine which properties offered the lowest overall base rent and recovery of expenses.

Question 23

Usable Area

Answer 23

Area physically occupied by the tenant

Question 24

Basic Rentable Area

Answer 24

Usable Area of the tenant plus their proportionate share of Floor Common Area

Question 25

Rentable Area

Answer 25

Basic Rentable Area plus their proportionate share of Building Common Area. This is the fully grossed-up area of each tenant space and is the basis for rent calculation.

Question 26

BOMA 1996 STEPS

Answer 26

1. Determine the Gross Measured Area

2. Determine the area of the Major Vertical Penetrations

3. Calculate Floor Rentable Area

= Gross Measured Area — Major Vertical Penetrations

Measure the Usable Area on each Floor: Office and Store Area, Building

Common Area on the Floor
Calculate Floor Common Area

= Floor Rentable Area — Floor Usable Area
Calculate the Floor R/U Ratio (floor gross-up factor)

= Floor Rentable Area / Floor Usable Area
Calculate Basic Rentable Area for each tenant space and Building Common Area

= Usable Area of each tenant space or Building Common Area x Floor R/U Ratio
Determine the Building R/U Ratio

= Total Rentable Area / (Total Rentable Area — Basic Rentable Area of Building Common Area)

Calculate the Rentable Area of each tenant space

= Usable Area of each Office and Store Area x Building R/U Ratio

Question 27

Gross Building Area

Answer 27

The total gross constructed area of a building, also known as Construction Gross Area is typically measured from the outside face of the building enclosing walls and includes interior building voids (open space within the enclosed building). Gross Building Area (GBA) includes basement areas.

Question 28

While Gross Building Area is a term that is widely used in the real estate community, it is not used in the BOMA 1996 space calculations — BOMA 1996 uses Gross Measured Area as the starting point.

Answer 28

ANSWER: Gross Measured Area

Question 29

Gross Measured Area
Includes? Excludes?

Answer 29

The Gross Measured Area includes basement areas, but excludes parking areas and loading docks outside the building line. All space within the floor area is included in this measure, meaning columns and vertical penetrations, such as elevators and stairs, are part of the gross measured area.

Question 30

TRUE OR FALSE?
Gross Building Area (GBA) includes basement areas?

Answer 30

ANSWER: TRUE

Question 31

Difference between Gross Building Area and Gross Measured Area?

Answer 31

The difference is that Gross Measured Area begins with measurement from the interior face of the outer walls, not the exterior face; in other words, the measurement does not include exterior wall thickness. There are two exceptions to the exclusion of the exterior walls under BOMA 1996:

1. Single-tenant buildings — for these, the Gross Building Area is the primary measure used in common real estate industry leasing practice.

2. Measurement of Store Area (i.e., retail spaces on the ground floor of an office building); Store Area includes the thickness of the exterior wall along the street frontage.

Question 32

Dominant Portion

Answer 32

This term defines the measure point for interior space measurement. The Dominant Portion of a wall is the part comprising 50% or more of the vertical floor-to-ceiling dimension at any given point as you move horizontally along the wall.

Question 33

EXAMPLE OF DOMINANT PORTION

Answer 33

For example, if an 8 foot wall has a 3 foot tall window built into it, then the measure line would follow along the surface of the gyproc because the glass makes up less than 50% of the vertical height. Alternatively, if a wall is mostly glass, with a short solid wall at the base, then the Dominant Portion is the inside surface of the glass.

The measurement must be taken at each point where the wall components change and so at each window encountered, the Dominant Portion could change depending on whether or not the window height comprises 50% of more at that point in the wall.

For a wall with large windows spaced apart from one another, this means the measure line would run along the face of the gyproc, dipping in to the glass as it encounters each window and then back out again to the face of the gyproc after each window.

Question 34

Examples of vertical building components or open spaces that limit the occupiable area for tenants.

Answer 34

Examples are elevator shafts, public and emergency stairways, vertical raceways for electrical and plumbing systems or HVAC ducting, and building voids or open space within a building enclosure such as atriums and multi-level lobbies. Major Vertical Penetrations also include any Areas of Refuge’ that form part of a stairwell, even if they are not isolated by walls or doors.

Question 35

BOMA 1996 uses _ _ _ _ _ _ _ as the starting point.

Answer 35

BOMA 1996 uses Gross Measured Area as the starting point.

Question 36

Exclusions from Major Vertical Penetrations

Answer 36

Structural columns and cable/telephone/plumbing openings are excluded from Major Vertical Penetrations — effectively meaning the space these occupy are included as part of tenants’ Rentable Area (or, put another way, these need not be omitted from the Gross Measured Area).

Question 37

Major Vertical Pentrations that Serve a Specific Tenant

Answer 37

Major Vertical Penetrations that serve/benefit a specific tenant, such as a private stairway built between two floors occupied by the same tenant. In this instance, the private stairwell would form part of the tenant’s Usable Area.

Question 38

TRUE OR FALSE?
Major Vertical Penetrations are excluded from the calculation of all Usable and Rentable Areas within the building.

Answer 38

ANSWER: TRUE

Question 39

**NOTE ONLY

With the maximum building size capped by local planning rules, the efficiency of the building becomes a major contributor to the project’s financial feasibility. Efficiency refers to the amount of rentable area relative to the total interior space.**

For example, how much space is taken up by mechanical systems, service areas, elevators, staircases, and other non-rentable uses.

Buildings that have a higher space efficiency than their competitors will be more attractive to owners, tenants, and occupants.

Answer 39

NOTE ONLY

With the maximum building size capped by local planning rules, the efficiency of the building becomes a major contributor to the project’s financial feasibility. Efficiency refers to the amount of rentable area relative to the total interior space.

For example, how much space is taken up by mechanical systems, service areas, elevators, staircases, and other non-rentable uses.

Buildings that have a higher space efficiency than their competitors will be more attractive to owners, tenants, and occupants.

Question 40

Floor Rentable Area

Answer 40

This is the Gross Measured Area for each floor less the area taken up by Major Vertical Penetrations.

Question 41

NOTE ONLY

Keep in mind that Floor Rentable Area is different from the actual space physically occupied by tenants since the common areas used by all building occupants and by tenants on a specific floor are included in this measure.

Answer 41

NOTE ONLY

Keep in mind that Floor Rentable Area is different from the actual space physically occupied by tenants since the common areas used by all building occupants and by tenants on a specific floor are included in this measure.

Question 42

**FSR Example

An FSR of 3.0:1 means that one square foot of site area allows the construction of three square feet of building area.**

The FSR allowances provide the limits on how big a building can be built on a site. Note that this is not a physical limitation, such as whether or not the under¬lying soil can support a high-rise — but rather a legal limitation, for how intensive a use the municipality will allow.

Answer 42

FSR Example

An FSR of 3.0:1 means that one square foot of site area allows the construction of three square feet of building area.

The FSR allowances provide the limits on how big a building can be built on a site. Note that this is not a physical limitation, such as whether or not the under¬lying soil can support a high-rise — but rather a legal limitation, for how intensive a use the municipality will allow.

Question 43

The sum of all Floor Rentable Areas in a building is the _ _ _ _ _ _

Answer 43

The sum of all Floor Rentable Areas in a building is the Building Rentable Area

Question 44

USABLE AREA

Answer 44

Usable Area refers to the space physically occupied by the tenant. It is generally enclosed by walls, though in certain circumstances walls may be substituted for a gate, partition, or a deemed lease line as agreed between the tenant and landlord.

Question 45

The first attempt to bring a consistent and independent approach to building space measurement was introduced in 1915 by the Building Owners and Managers Association (BOMA).

The first BOMA Standard, aimed at office buildings, distinguished between the tenant’s exclusive use area and the common area of the building. Subsequent iterations of the Standard were refinements to deal with floor common area (1980) and building common area (1996). Updated BOMA Standards for retail and office buildings were released in 2010, and for industrial properties in 2012.

Answer 45

The first attempt to bring a consistent and independent approach to building space measurement was introduced in 1915 by the Building Owners and Managers Association (BOMA).

The first BOMA Standard, aimed at office buildings, distinguished between the tenant’s exclusive use area and the common area of the building. Subsequent iterations of the Standard were refinements to deal with floor common area (1980) and building common area (1996). Updated BOMA Standards for retail and office buildings were released in 2010, and for industrial properties in 2012.

Question 46

Usable area is further broke down into either _ _ _ or _ _ _ _ _

Answer 46

Usable Area is further broken down into either Office Area or Store Area, depending on its occupancy and location within the building.

Question 47

Office area determined by _ _ _ _ _

Answer 47

Office Area is determined by measuring the area enclosed by the finished surface of the office side of a corridor or other permanent walls (based on Dominant Portion) or a Major Vertical Penetration, and the centerline of demising walls that separate the Office Area from other Office or Store Areas or Building Common Areas. No deductions are made for structural columns within the space.

Question 48

Store Area is the area of all retail stores in an office building. In order for a space to fit the definition of Store Area it must satisfy three conditions:

Answer 48

Store Area is the area of all retail stores in an office building. In order for a space to fit the definition of Store Area it must satisfy three conditions:

1. it must be located on the ground floor;

2. it must have street frontage; and

3. it must be suitable for retail occupancy.

Question 49

How is Store Area Measured?

Answer 49

Store Area is measured the same as Office Area with the one exception being the treatment of the exterior wall that has street frontage.

Under Office Area, the measurement would go to the inside face of this wall (having regard to Dominant Portion); however, under Store Area the measurement extends to the exterior building line (the outside face of the exterior wall).

As with Office Area, no deductions are made for structural columns within the space. Note that any office type space within a store is still considered within Store Area.

Question 50

Common Area?

Answer 50

This includes areas in the building that are necessary for the building’s use and operation, but that are not included as part of any specific tenant’s leasable area.

Question 51

Examples of Common Area?

Answer 51

Examples include mechanical rooms, lobbies, corridors, washrooms, atriums, etc

Question 52

Distinguish between Building Common Area and Floor Common Area?

Answer 52

• Building Common Areas, which are for the benefit of all building occupants; and

• Floor Common Areas, which service only the occupants on that floor.

Question 53

Building Common Area

Answer 53

Areas within the building that provide services to all tenants, including the main mechanical and electrical rooms, main building lobby or lobbies, vending areas, lockers, shared conference rooms/health clubs/daycares that are not separately leased, etc.

Question 54

Floor Common Area

Answer 54

This is the area that services tenants on that particular floor, such as the floor’s common hallways, elevator lobbies, mechanical and electrical rooms for the floor occupants, and public washrooms.

Question 55

Floor Common Area =

Answer 55

Floor Common Area = Floor Rentable Area — Floor Usable Area

Question 56

Floor Usable Area =

Answer 56

Floor Usable Area = Office Area + Store Area
+ Building Common Area on the floor

Question 57

TOTAL GROSS CONSTRUCTED AREA

Answer 57

The total gross constructed area of a building, also known as Construction Gross Area is typically measured from the outside face of the building enclosing walls and includes interior building voids (open space within the enclosed building).

Question 58

The total gross constructed area of a building, also known as _ _ _ _ _ _ _

Answer 58

The total gross constructed area of a building, also known as Construction Gross Area

Question 59

TRUE OR FALSE?
Building Common Area on each floor is included in the calculation of Floor Usable Area

Answer 59

ANSWER: TRUE

Question 60

The Floor R/U ratio is calculated as _ _ _ _

Answer 60

The Floor R/U ratio is calculated as the Floor Rentable Area divided by the Floor Usable Area:

Floor R/U Ratio = Floor Rentable Area /
Floor Usable Area