theDailyBlunt

When a Leased Space is not what You Think it is

Hello and welcome to theBlunt
When Leased Space Isn’t What You Think It Is.

As those in the cannabis marketplace become more versed and mature into their real estate, we are starting to see a shift.  What we are noticing is that companies that are successful are getting smart about operations and looking for more ways to stay profitable.

One of the things that’s coming under more scrutiny is real estate cost.

My boss Jen told me about a client she was touring around some spaces in an industrial park, and the clients kept commenting about the size and costs. She pointed out that each building has a different load factor, which ultimately impacts the costs. Then, it occurred to her that small and mid-size tenants, especially producers and processors, never bring up this issue in their search – they may not even know the difference.

But whether you’re big or small, let’s dig into some simple ways to look at real estate spaces for lease, because it will impact your bottom line directly.  

In case you are new to CannaLocations, we come from the commercial real estate world.  It’s what we know and love.  When we represent a client, we always bring up the costs and differences in square feet.  If we are lucky, they won’t fall asleep before we discuss actual versus rentable square feet, and maybe even usable square feet.
 
For large industrial parks where multiple producers and processors all share the area, load factors can be a big deal.  What do we mean?  Let’s summarize them briefly.  
 
USABLE SQUARE FEET (USF) = THE SPACE YOU CAN ACTUALLY USE
 
This is the space between the four walls. You can measure it and you can use it. It’s also rarely what you’re leasing. If the interior dimensions of an office are 30′ x 40′, you have 1200 sf of usable space. 
 
ACTUAL SQUARE FEET (ASF)= THE USABLE SQUARE FEET, INCLUDING INTERIOR WALL THICKNESS
 
In a multi-tenant building, you typically share a couple walls with your neighbor.  For brevity’s sake, we’ll just assume half of the wall thickness is included in your space dimensions in all directions. How’s that work? Well, using our previous example, with a wall thickness of 6″ (for this example) the space dimensions are now 1/2 of 6″ PLUS the wall length PLUS 1/2 of 6″ in both directions. Now that 30′ x 40′ room is 30′6” x 40′6” = 1,235.25 sf (a 2.9% increase in size).  

I know we’re talking about math and real estate, but hang in there, as it makes a big difference for your next location… whether you are a tenant OR even a landlord!
 
RENTABLE SQUARE FEET (RSF)= ACTUAL SQUARE FEET PLUS A PRO-RATA SHARE OF COMMON AREA
 
Again, in a multi-tenant building, there are shared parking garages, common restrooms, hallways, etc and tenants pay their pro-rata share of those common areas. We understand that those areas are NOT allowed in your floorplan to LCB for approval of your cannabis space, but we promise you they are factored into your lease agreement with the landlord.  

For simplicity, if a 100,000 sf building has 86,957 of leasable sf, their load factor is 15%. More sophisticated companies really review a building’s load factor and most of them will limit the load factor to 15%.  And yes, you can negotiate how much space you are charged for in your lease.
  
This is how the building load factor is used: Take the actual square feet of a space & add the building load factor. Using a 15% load factor for our previous example:
 
1235.25 asf * 1.15 (15% load factor) = 1,421 rsf
 
In this example, that 1,421rsf (Rentable Square Feet) space you’re looking to lease is really only 1200usf (Useable Square Feet). That’s almost a 16% difference, which is significant and impacts how big of a check you will write each month for rent.

END HERE READ MORE IN NEWSLETTER FOR EXAMPLES
 
HOW TO COMPARE BUILDINGS WITH DIFFERENT LOAD FACTORS
 
To make a quick observation, we’ll have to neglect wall thickness since there are so many room configurations and wall differences, but we can make an observation between “actual square feet” and “rentable square feet.”
 
For my client, they were evaluating two buildings and one had a 5% load factor & the other had a 15% load factor. I’ll assume they both had the same rentable square feet for this example.
 
Building 1: 15% load factor, 3,000 rsf
 
3,000 rsf = ASF * 1.15 —> ASF = 3,000 rsf / 1.15 = 2,609 asf
 
Building 2: 5% load factor, 3,000 rsf
 
3,000 rsf = ASF * 1.05 —> ASF = 3,000 rsf / 1.05 = 2,857 asf
 
SUMMARY
 
That’s a 248 rsf (9.5%) difference (maybe 2 more processing rooms for extracts or locations for drying and curing product).
 
On the other hand, if the building you are considering has a common restroom, or better storage for office items, or other amenities, it can be worth going to a building with a larger load factor in order to avoid having to rent a larger space to accommodate all your needs in the leased space.
 
If you need help determining some of the potential options or just need general information for the real estate market, give Jen Hudson a call at CannaLocations.  You can reach us at (206) 466-4020 or info@cannalocations.com. 

Jennifer Hudson