One of the great challenges when buying commercial real estate today is understandingthe size of the building that you’re buying. There are so many different ways to measure a building that it makes it difficult to compare buildings accurately.
There are many property owners throughout the country that will measure their properties according to BOMA (Building Owners and Managers Association) standards. This organization has attempted to come up with standards for measurement of different property types that can be universal among markets. Unfortunately, property owners are not required to abide by these standards. Many national tenants will require in their leases that the building be measured according to these standards which can help to bridge the gap. The link to the BOMA Standards is http://www.boma.org/standards/Pages/default.aspx
So how do most investors analyze square footage? Most will rely very heavily on the rent roll and the existing leases. The logic being that if two parties who are financially incentivized to come up with the correct square footage have agreed on a particular square footage number, then it likely will be correct. They will then back that up with the appraisal. However, there is no assurance that the appraiser is not relying on the rent roll and leases as well. There is also the differences in property types. The square footage is much easier to identify in a small single-tenant retail deal than it is a 30 story, multi-tenant office building with lobbies, hallways and fitness areas to appropriate to all of the tenants.
What then should an investor do? I don’t know that there is a correct answer for every investment. Should an investor hire an architect during the due diligence process to verify for themselves? I have rarely seen this in practice although that is one possible solution. I think that a proper understanding of the potential pitfalls is sufficient for most investors so that potential discrepancies can be identified early on and the decision can be made on how much due diligence to do on this particular issue.