Jones Lang LaSalle
Landlords charging for phantom space: study
by Julie Satow June 02, 2006
Landlords of several major midtown office towers claim their buildings are larger than they were a few years ago-despite no physical changes.
Landlords who own several major midtown office towers are claiming their buildings are much larger than they were only a few years ago-despite the fact there has been no physical changes, according to a brokerage firm study. "It's as if you occupy a one-bedroom apartment but pay the rent that would be due for a three-bedroom place," says Marisa Manley, the president of the Commercial Tenant Real Estate Representation, which reviewed 50 randomly selected midtown office towers.
At 666 Fifth Ave., for example, the building has reportedly grown by 260,000 square feet over the last 15 years, making it possible for the landlord to charge an additional $16 million a year in rent. Ms. Manley's company found that between 1990 and 2005 nearly one-third of the buildings inflated their square footage by more than 5%. As a result of these inflations, New York City tenants end up paying about $387 million a year for renting square footage that does not physically exist. In Manhattan, the actual area that a tenant occupies is often less than the area upon which the rent is based. This difference between the two is known as the "loss factor." The loss factor is often made up of common areas such as hallways, lobbies and restrooms.
However, in recent years, the loss factor also included nonexistent space. Some of the buildings with the largest phantom square footage include 230 Park Ave., which grew by 225,000 square feet between 2002 and 2005 to a loss factor of 12.5% and generating an annual rent increase of $9 million; 1 Penn Plaza, which was inflated by nearly 16% for $8.6 million in additional rent; and 800 Third Ave., which grew by 21% and created $5.8 million in additional rent. "The existence of the loss factor is well known, but few tenants realize it can change arbitrarily over time," says Ms. Manley. "Landlords are within their rights to offer their space at whatever rentable area they like, but tenants should remember that "square foot" is a term of art rather than a science."
Landlords charging for phantom space: study
by Julie Satow June 02, 2006
Landlords of several major midtown office towers claim their buildings are larger than they were a few years ago-despite no physical changes.
Landlords who own several major midtown office towers are claiming their buildings are much larger than they were only a few years ago-despite the fact there has been no physical changes, according to a brokerage firm study. "It's as if you occupy a one-bedroom apartment but pay the rent that would be due for a three-bedroom place," says Marisa Manley, the president of the Commercial Tenant Real Estate Representation, which reviewed 50 randomly selected midtown office towers.
At 666 Fifth Ave., for example, the building has reportedly grown by 260,000 square feet over the last 15 years, making it possible for the landlord to charge an additional $16 million a year in rent. Ms. Manley's company found that between 1990 and 2005 nearly one-third of the buildings inflated their square footage by more than 5%. As a result of these inflations, New York City tenants end up paying about $387 million a year for renting square footage that does not physically exist. In Manhattan, the actual area that a tenant occupies is often less than the area upon which the rent is based. This difference between the two is known as the "loss factor." The loss factor is often made up of common areas such as hallways, lobbies and restrooms.
However, in recent years, the loss factor also included nonexistent space. Some of the buildings with the largest phantom square footage include 230 Park Ave., which grew by 225,000 square feet between 2002 and 2005 to a loss factor of 12.5% and generating an annual rent increase of $9 million; 1 Penn Plaza, which was inflated by nearly 16% for $8.6 million in additional rent; and 800 Third Ave., which grew by 21% and created $5.8 million in additional rent. "The existence of the loss factor is well known, but few tenants realize it can change arbitrarily over time," says Ms. Manley. "Landlords are within their rights to offer their space at whatever rentable area they like, but tenants should remember that "square foot" is a term of art rather than a science."
posted by Jones Lang LaSalle NJ News Blog at 4:25 PM
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