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Healthcare Facilities Solutions March, 2012 -
   
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The Process of Calculating Commercial Lease Rents

Selecting a location to lease for a medical practice can be an overwhelming task.  Not only can the abundance of available space on today's market be intimidating but the variety differently structured deals can prove daunting also.  It is very different process compared to a residential lease.  Residential leases may include the total square footage of a home but rent is not based on square feet. Monthly rents for residential properties are largely determined by looking at comparable rentals in the area. In commercial real estate, monthly rent is calculated in a variety of complex ways using several types of square-foot measurements.

The measurements used in determining commercial space rents are often based on guidelines set by the BOMA - Building Owners and Management Association and are considered industry standard. Many commercial leases use BOMA and charge monthly rent based on (RSF) Rentable Square Feet not on (USF) Usable Square Feet.  This is a key factor to understand. You may be quoted a price of $20 USF, but that may not be what you end up actually paying for each month.

Usable square feet is the number of square feet that a tenant physically occupies. There are other parts of the building that all tenants utilize. These parts are known as common areas and include hallways, stairwells, elevators, and lobbies. The amount of square feet for common area spaces is divided among all tenants on a prorated basis. Each tenant pays a portion of the landlord's expenses for these common areas. These fees added to the USF give you the RSF for the space.

To confuse the issue, the practice of adding common area expenses to USF is called the Load Factor.  Load factor expenses may increase each year at a rate separate from rent increases for USF. There may be a need to negotiate two rent increases each year: one for load factor, and one for usable square foot rent.

Some landlords group the rate for both usable square feet and your portion of the common area into one number, but most charge a different rate per square foot for USF and for common area rent contributions. Before you look at a space, be sure to ask what rate is being charged for USF and for RSF.  This directly impacts your total monthly rent.  When a space is stated to be 2,500 RSF the actual (USF) size of the space will be smaller.

As you can see, the process is complicated and can be confusing.  Having an experienced medical designer and real estate professional assisting in the process will help protect your interests and possibly save you thousands of dollars over the lifetime of a project/space.  Having an understanding of all the components going into a commercial lease is half the battle in choosing the right location & deal which enables a medical practice to set itself for success.

There are other factors that affect the cost of a lease such as whether the lease is of a net or gross format which will be covered in a future article.

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