Loss Factor
The loss factor in a real estate development proforma typically refers to the percentage of gross space (e.g., gross square footage) that is not usable for revenue-generating purposes.
It accounts for areas such as hallways, elevators, common spaces, or mechanical rooms. Loss factor is crucial in calculating the net leasable area (NLA) [Net Rentable Area - NRA] or net sellable area (NSA) from the gross building area (GBA) [Tota Built Area TBA], which directly affects income forecasts from the property.
Formula
Steps for Calculation
- Determine Gross Building Area (GBA) [Total Built Area TBA]
This is the total area of the building, including both revenue-generating areas and non-revenue areas (like common spaces). - Determine Net Leasable/Sellable Area (NLA/NSA) This is the portion of the building that can be rented or sold, i.e., areas that generate income.
- Apply the Formula Subtract the NLA from the GBA, divide the result by the GBA, and multiply by 100 to get the loss factor percentage.
In a development proforma, the loss factor is used to adjust revenue projections, as only the net leasable or sellable area generates income. This adjustment is crucial for accurate financial forecasting in commercial and residential developments.