SUBJECT AREA - CONSTRUCTION VARIABLES

## How to Measure Your Space , Shopping Center, and Why

Did you measure your demised premises
when Landlord provided the keys? Probably not. Hardly anyone
does.

During 30+ years of leasing commercial real estate, the one important detail that I see overlooked most often by franchisees, entrepreneurs and small emerging-brand retailers is to take the time to measure the size of their leased space. Doing this ensures that the ACTUAL square-foot size for the leased premises is used in the calculation of your base rent.

This explanation is not meant to overwhelm you. You purchased a PRS membership because “you want to know what you don’t know” and this single section of our website can immediately create value for you by saving you money. All of the established brands meticulously address these steps, and you should too.

Did you know that there are two parts to determining the calculation of the amount of your base rent and your triple net charges (CAM, Taxes & Insurance)?

This is how to accomplish this verification step. Let’s get started by sharing a real-life example.

First, assume that the space you leased was supposed to be 25’ wide and 80’ deep, totaling 2,000 sq. ft. If you think about it logically, it is almost impossible for those dimensions to be exactly 25’ x 80’. Let’s be honest - it’s not almost impossible, it is IMPOSSIBLE for the final dimensions to be EXACTLY 25’ x 80’. When the shopping center and the individual demised spaces were constructed, minor adjustments were made during the process so that the actual location of both the external building walls and the internal demising walls ended up being shifted a few inches left or right to accommodate on-site construction conditions. So, the actual size of EVERY tenant space would not match the projected size contained in the building plans, and this adjusted size was then transferred to the tenant’s lease. UNLESS THEY MEASURE IT following construction, and then amend the lease to reflect the actual square footage. Be aware that each tenant is responsible for measuring their own leased space and bringing any discrepancy to their landlord’s attention.

As a way to illustrate the financial value that this kind of discrepancy could have to you as a tenant, let’s use another example.

In the above leased space, the width and depth were supposed to be 25’ x 80’. Let’s assume that your demising wall (the wall between you and the adjacent tenant) was installed 6-¾” off from where it should have been. That 6-¾” error, times the 80’ of depth, equals 45 sq. ft. of space that you don’t occupy, yet you would be paying both rent and triple net charges for it.

If your base rent was $25.00 per sq. ft. and your NNN’s were $5.00 per sq. ft., that 45 sq. ft. mistake would cost you $1,350 annually (45 sf x $30 psf). If your base rent and NNN charges are higher than $30 psf, you would be overcharged even more.

One of the testimonials on our website details the experience of an entrepreneur / franchisee who had leased 4,400 sq. ft. in a shopping center. The landlord had expressed that the shopping center size totaled 110,732 sq. ft. In reality, the shopping center was 147,362 sq. ft in total size. Once the tenant learned about the incorrect information that the landlord was using and brought it to their attention, the tenant was able to save $45,000 in their occupancy costs.

Now that you can immediately see the value of measuring both your own space and the overall shopping center, PRS can also explain how to do it.

--- Quote from a typical retail lease: Tenant’s prorata share of CAM, Taxes & Insurance will be assessed, multiplied by a fraction, the denominator being the total number of square feet of building floor area comprising the shopping center and the numerator being the number of square feet of building floor area comprising the Demised Premises

So then, how do I measure my demised premises?

During 30+ years of leasing commercial real estate, the one important detail that I see overlooked most often by franchisees, entrepreneurs and small emerging-brand retailers is to take the time to measure the size of their leased space. Doing this ensures that the ACTUAL square-foot size for the leased premises is used in the calculation of your base rent.

This explanation is not meant to overwhelm you. You purchased a PRS membership because “you want to know what you don’t know” and this single section of our website can immediately create value for you by saving you money. All of the established brands meticulously address these steps, and you should too.

Did you know that there are two parts to determining the calculation of the amount of your base rent and your triple net charges (CAM, Taxes & Insurance)?

**PART ONE**is verifying the actual square footage of your Demised Premises for calculating Base Rent.**PART TWO**is determining whether the landlord is using the correct fraction (numerator and denominator) to determine what your prorata share is for the triple net charges pertaining to the overall shopping center where your store is located.This is how to accomplish this verification step. Let’s get started by sharing a real-life example.

First, assume that the space you leased was supposed to be 25’ wide and 80’ deep, totaling 2,000 sq. ft. If you think about it logically, it is almost impossible for those dimensions to be exactly 25’ x 80’. Let’s be honest - it’s not almost impossible, it is IMPOSSIBLE for the final dimensions to be EXACTLY 25’ x 80’. When the shopping center and the individual demised spaces were constructed, minor adjustments were made during the process so that the actual location of both the external building walls and the internal demising walls ended up being shifted a few inches left or right to accommodate on-site construction conditions. So, the actual size of EVERY tenant space would not match the projected size contained in the building plans, and this adjusted size was then transferred to the tenant’s lease. UNLESS THEY MEASURE IT following construction, and then amend the lease to reflect the actual square footage. Be aware that each tenant is responsible for measuring their own leased space and bringing any discrepancy to their landlord’s attention.

As a way to illustrate the financial value that this kind of discrepancy could have to you as a tenant, let’s use another example.

In the above leased space, the width and depth were supposed to be 25’ x 80’. Let’s assume that your demising wall (the wall between you and the adjacent tenant) was installed 6-¾” off from where it should have been. That 6-¾” error, times the 80’ of depth, equals 45 sq. ft. of space that you don’t occupy, yet you would be paying both rent and triple net charges for it.

If your base rent was $25.00 per sq. ft. and your NNN’s were $5.00 per sq. ft., that 45 sq. ft. mistake would cost you $1,350 annually (45 sf x $30 psf). If your base rent and NNN charges are higher than $30 psf, you would be overcharged even more.

One of the testimonials on our website details the experience of an entrepreneur / franchisee who had leased 4,400 sq. ft. in a shopping center. The landlord had expressed that the shopping center size totaled 110,732 sq. ft. In reality, the shopping center was 147,362 sq. ft in total size. Once the tenant learned about the incorrect information that the landlord was using and brought it to their attention, the tenant was able to save $45,000 in their occupancy costs.

Now that you can immediately see the value of measuring both your own space and the overall shopping center, PRS can also explain how to do it.

--- Quote from a typical retail lease: Tenant’s prorata share of CAM, Taxes & Insurance will be assessed, multiplied by a fraction, the denominator being the total number of square feet of building floor area comprising the shopping center and the numerator being the number of square feet of building floor area comprising the Demised Premises

So then, how do I measure my demised premises?

### MEASURING YOUR DEMISED PREMISES

1. First, determine the width and depth of the space you have leased.

2. The depth of a tenant’s leased space is measured from the OUTSIDE of the front wall to the OUTSIDE of the back wall. Most tenants will use a laser measurer which can be purchased at Home Depot or Lowe’s for under $100 – see photo below. The cost of a Laser Measurer is based on the distance that the beam will “shoot,” so make sure that the measurer you purchase has the ability to cover the depth of your space.

2. The depth of a tenant’s leased space is measured from the OUTSIDE of the front wall to the OUTSIDE of the back wall. Most tenants will use a laser measurer which can be purchased at Home Depot or Lowe’s for under $100 – see photo below. The cost of a Laser Measurer is based on the distance that the beam will “shoot,” so make sure that the measurer you purchase has the ability to cover the depth of your space.

3. To determine the depth of your space, you would shoot the laser beam from the interior of the front wall to the interior of the backwall, and let’s assume that the distance is exactly 78’. Now add the thickness of both exterior walls to that number to find the total depth. Since most exterior walls are comprised of an 8” block wall with a two by four (which is 3-½”) and a 1/2” of sheet rock, this means that your exterior front wall is 12” thick. So, then the back wall, being of the same construction, is also 12” thick. Thus, the depth of your space has been confirmed at 80’.

4. Since building codes require an emergency exit, most retail spaces will have an exterior door at the rear. To further confirm the thickness of the wall, you can open the rear door and measure the distance from the inside of the rear interior wall to the outside exterior of that rear wall.

5. To determine the width of your space, first answer this question - Is your space an endcap, or an interior space with a tenant on both sides?

6. If it’s an endcap, the width of your space will also include the total width of that exterior block side wall, which will be 12” as explained previously in #3, above. The other side wall, adjacent to your neighboring tenant, will be two by four construction, actually measuring 3-½”, along with two panels of sheet rock that are each ½” thick. This would then give a total width for an endcap space of 12” (exterior side wall) plus 4-½” (interior demising wall) plus the interior width of the retail space between those two side walls.

7. However, if you are leasing an interior space with tenants on both sides, the width of your space will include half of the depth of the demising walls on each side of your space (2-¼” x 2”) plus the interior width of the retail space between those two side demising walls.

8. Now that you understand how to measure a leased space, and also the fact that measurements as small as ¼” are involved, you can more easily understand why the actual size of any demised premises being exactly 2,000 square feet NEVER HAPPENS. That’s why you should always measure your leased space after your lease is signed and the landlord presents you with the keys. Now, go measure your leased premises!

### Measuring a Shopping Center

I have found the easiest way to measure a shopping center is to download the free application called Google Earth Pro and then type in the address of the space you leased. Below is an example of a shopping center in Pittsburgh, PA. The application also has a “line ruler” which you can use to measure all the straight lines that make up the shopping center.

The most accurate way to measure a shopping center is with a 12” Professional Lufkin Measuring Wheel which again can be purchased at Home Depot or Lowes for about $65.00.

The most accurate way to measure a shopping center is with a 12” Professional Lufkin Measuring Wheel which again can be purchased at Home Depot or Lowes for about $65.00.

I used my wheel to measure this shopping center. Note the four different roofs.

The “brown” top left roof is a building 14’ x 35’ = 490 sq. ft.

Example:

The bottom left white roof has 50’ frontage and 40’ depth for 2,000 sq. ft.

The white middle roof has 105’ frontage and 41’ depth for 4,305 sq. ft.

The right black roof has 160’ frontage and 65’ depth for 10,400 sq. ft.

Therefore, the entire shopping center is 17,195 sq. ft.

The tenant I measured was the second tenant in from the left, as you face the shopping center and their space had 31’ frontage and 40’ depth for a total of 1,240 sq ft. Therefore, the numerator is 1,240 and the denominator is 17,195 for the calculating of their NNN charges. Therefore the 1,240 sq. ft. tenant should be paying .0721 of the CAM, Taxes, and Insurance. (1,240 divided into 17,195.) This is their prorata share of the building. These are also the two numbers that should be in the lease. If they are not stated clearly in the lease these figures should be brought to the landlords’ attention and the lease should be amended.

Now that you understand how to measure your leased space and how to calculate your proper pro-rata share of CAM, Taxes, Insurance (triple nets), I’ll share other variables that you should be aware of.

Be sure to check the wording in your lease to see if the landlord has included any “exclusions.”

By using specific numbers in our explanation below, it helps our members better understand the concepts behind how a tenant can be taken advantage of. Let me use these figures as an example.

Example:

100,000 sq. ft. shopping center which contains a grocery store which leased 50,000 of the 100,000.

Many small tenants lease the remaining 50,000 sq. ft.

The landlord pays the CAM, Taxes, and Insurance and those three expenses cost $1,000,000 annually so everyone should pay their prorata share based on the 100,000 of leasable space.

So, for example, our tenant leased 2,000 sq. ft. so their proper prorata share is 2% of the shopping center and thus $20,000 of the annual $1,000,000 triple nets. That is fair.

Some landlords may exclude the grocery store from their triple net calculation, and they will say that the grocery store is excluded because it is the primary traffic generator for that center, so if your lease contains this exclusion, your numerator is 2,000 but the denominator is then only 50,000 not 100,000, and now your pro-rata share is 4% with a $40,000 share of the $1,000,000 triple net cost.

Some landlords may base your pro-rata share on LEASED space instead of LEASABLE space and, in that event, should the 50,000 sq. ft. grocery store vacate the center, then the prorata share for a 2,000 sq. ft. tenant would double to 4% since, again, the size of the denominator has decreased. AND YOU NO LONGER HAVE AN ANCHOR!

As another example: If the landlord uses a denominator of 80,000 sq. ft. instead of 100,000, then a 2,000 square foot tenant’s prorata share is now 2.5% of the triple nets, or $25,000 annually, instead of the $20,000 that they should be paying. Should the landlord be successful in convincing all of the tenants that the center totals only 80,000 sq. ft., then the triple net charges will then be billed at $12.50 per sq. ft. ($80,000 divided into $1,000,000) instead of $10 psf. With the center fully leased and all tenants paying $12.50 psf, the landlord would receive $250,000 ($2.50 x 100,000) more than the $1,000,000 in proper billable triple nets.

THE POINT IS, there is an advantage for the landlord to reduce the denominator by any amount, however that advantage is at the expense of the tenant.

We at PRS know we just shared a lot of detail involving the calculation of the size of leased spaces and of measuring shopping center sizes. The takeaway is that whenever you “see” rounded-off numbers for retail spaces that are 1200, 3000, 5000, etc., be assured that those spaces have not been measured.

Copyright © 2024 - Site by Workforce Control Solutions.