What Am I Renting? – Load Factors and Loss Factors
The way commercial real estate is priced and leased is often misunderstood due to matters of rentable square footage. Below is a brief discussing of Load Factors and Loss Factors to provide some insight into these critical components of office leasing. It looks at the way load and loss factors affect both Landlords and Tenants which is particularly helpful as a matter of insight.
Load and loss factors both refer to the amount of space that you pay for but don’t occupy as a part of your commercial real estate lease. As defined by BOMA standards, most multi-tenant buildings have a mixture of usable space, which is the area inside your walls, and common area space, which is the shared parts of your building’s interior. Your rentable space, which includes both types of space, is what you pay for. Load and loss factors are different ways of describing that additional space.
Load and Loss Factors
The load or loss factor is equal to the percentage that gets tacked on to your space to account for your pro-rata share of the common area space. To understand how it works, take a floor with these measurements, based on BOMA standards:
Gross Measured Area: 10,000 square feet (100x100 square from the inside of the building wall)
Vertical Penetrations: 250 square feet (elevator shafts and stairwells)
Rentable Area: 9,750 square feet (gross measured areas less vertical penetrations)
Floor Usable Area: 8,300 square feet (located inside demising walls of suites)
Floor Common Area: 1,450 square feet (hallways, elevator lobbies, restrooms, supply room)
The two names, load and loss, are interchangeable, as is “core” in some parts of the country. Which one you use depends on your perspective. You might think of yourself as paying for your share of the “core” of the building. On the other hand, the common area might be a “load” on top of your additional rent. To your landlord, the space is a “loss” relative to the more valuable usable space. BOMA Standards typically refer to “load” factor as the preferred term.
The terms load, loss and core are interchanageable and depend entirely on perspective. A landlord’s loss factor will not mean the same to you as a tenant. The building’s loss or load factor is equal to the common area divided by the usable area: 1450 divided by 8,300. This gives a load factor of 17.47%. This means that a tenant would pay their actual usable space plus 17.47%. If a tenant takes up half the floor – 4,150 usable square feet, they would pay for an additional 725 square feet of space for a total of 4,875 rentable square feet.
Another Loss Factor
Some landlords will incorrectly refer to their vertical penetrations as a loss factor. In that instance, the term is used to refer to lost space relative to the building’s actual gross measured area. This term pops up periodically and is a good reminder that just because terms have a technical meaning under BOMA standards or real estate law doesn’t mean that the correct meaning is always used.
What’s My Factor?
Calculating your load, loss or core factor can be challenging, especially given the newest updates to BOMA standards. The factor used to be calculated on a floor by floor basis. Relatively efficient spaces on higher floors had low load factors while ground floors with expansive lobbies had very high load factors. Since tenants wouldn’t absorb the cost of the load on all floors, landlords would be forced to reduce the load factor they applied and lose space. Newer BOMA standards measure load factors across an entire building, making everyone pay for the common areas.
On occasion, Landlords may change the load and loss factors when they get a new tenant. There are two ways to protect yourself against this. The first is to request a space and building measurement that is tantamount with BOMA standards. The second is to always work with a commercial real estate expert that can protect your interests against a “creative” landlord. Make the most of your usable space.
At Kima Commercial, we’d be honored at the opportunity to help you with any of your commercial needs – whether that be purchasing, leasing, selling, or answering any questions you have. Give us a call at (919) 336-1700 and let us know how our experienced commercial team can help!