The Great NYC Real Estate Swindle

Looking for NYC office space? Do yourself a favor and get your head around the wonderful concept of LOSS FACTOR!

What is Loss Factor?

Imagine walking into your favorite steakhouse (Luger’s, since you asked) and ordering a 16-ounce steak from the menu. The steak arrives, but it’s blatantly smaller—maybe 10 ounces. You call the waiter over, and he smiles, saying, “Oh, that’s just the loss factor! We count the weight of the plate, the garnish, and even the white cloth draped over my wrist.”

Utterly bonkers, right? Who would accept that nonsense?

Well, that’s exactly what happens with every single office space deal in NYC.

Welcome to the ludicrous concept of LOSS FACTOR.

Rent a 5,000-square-foot office, and you can expect to get 3,350 square feet for your money. That’s a loss factor of 33%, which is about average for New York City. But loss factors of 40% aren’t uncommon.

How do landlords justify it?

They’ll tell you it covers the cost of common spaces in the building (but only if you ask them—they’re under no obligation to disclose any of this to you). And yet, somehow, these percentages keep creeping up over time with no signs of stopping. Tenants renewing leases often find their office has miraculously grown overnight!

And the brokers?

As Charlie Munger said: “Show me the incentive, and I will show you the outcome.”

Commercial brokers get paid by landlords based on what you pay. So it’s only in their interest to keep this charade going.

So, what can you do about it?

??Ask directly. For every space you tour, ask the showing agent: “What are the rentable and usable square footages?” The difference is the loss factor - the thin air you are paying for.

??Measure it yourself. Bring a tape measure and verify every number you’re given.

??Consider a full floor in a smaller building. Loss factors in these spaces are typically much lower than in large, multi-tenant buildings.

??Get a proper broker who truly understands the business. The good ones are invaluable; the bad ones won’t even mention loss factor. (I know some good ones if you need!)