Irrespective of your industry, there are certain acronyms and terms exclusive to it. This is no more evident than in the military, with terms like “MRE” (Meal, Ready-to-Eat), “NCO” (Nocomissioned Officer) and “ROTC” (Reserve Officers’ Training Corps) being commonly thrown around.
Commercial real estate is no exception. Even “commercial real estate” itself is often used as an acronym (CRE)! One of these abbreviated terms in the CRE space causes more confusion than others, however, and it’s called FF&E.
Let’s go over what FF&E is, why it matters and what else you need to know about it.
What is FF&E?
FF&E stands for “fixtures, furniture and equipment.” According to Investopedia, “these items, which include desks, chairs, computers, electronic equipment, tables, bookcases, and partitions, typically depreciate substantially over their long-term use but are nevertheless important costs to consider when valuing a company.”
However, the term “FF&E” applies to a broad spectrum of items so let’s break down each element of this acronym to provide further clarity:
- Fixtures: Components that are attached to the property and can’t be removed without causing damage (e.g., lights, shelves, cabinets, etc.).
- Furniture: Movable items such as chairs, tables, desk, sofas and other items that add functionality and comfort to a space.
- Equipment: Machinery, tools and other items necessary for the operation of a business. Equipment can apply to everything from kitchen appliances to factory machines.
It’s important to note that FF&E assets must be accounted for properly according to IRS guidelines to determine the “wear and tear” value. So you can’t ignore it!
Why FF&E Matters
While FF&E might seem like a small detail in the grand scheme of things, it plays a crucial role in several key aspects of commercial real estate. Those who understand FF&E and how to account for them properly are ahead of the game, not just when it comes to tax season, but also for staying informed, nimble and ready to act on opportunities.
Here are a few different areas where CRE pros need to think about FF&E:
- Tenants: FF&E can play a role in both keeping current tenants happy and attracting new tenants. High-quality FF&E contributes to the overall appeal of a property, creating an environment that tenants and their customers find inviting and comfortable. By investing in the right furnishings and fixtures (and identifying those that need to be replaced), you will cater to the specific needs of various businesses.
- Valuations: When appraising a commercial property, FF&E is factored into the valuation process. This means that if FF&E is maintained, modern and high quality, the value of the property increases.
- Negotiations: Struggling with lease negotiations? FF&E can give you an edge. For instance, in a commercial lease, discussions about who will be responsible for the maintenance, repair and replacement of FF&E items are essential. Clearly outlining these terms in lease agreements helps avoid disputes and miscommunications.
- Efficiency: The right equipment and fixtures can enhance operational efficiency for businesses within a property. For example, a well-equipped restaurant with modern kitchen appliances can operate more smoothly in the back of the house, leading to better customer experiences (and increased profitability) in the front of the house.
- Aesthetics: The right FF&E assets can transform a space from ordinary to exceptional. Choose furniture and fixtures that contribute to the overall design appeal of the space for both tenants and customers (if applicable). Design-forward properties also have the potential to command higher rental rates, so consider that as well.
- Repositioning: Upgrading the FF&E for a property can be a strategic move when it comes to repositioning. Updating outdated fixtures, furnishings, and equipment can help position the property as more modern and competitive, helping you stand out from your competitors.
Managing FF&E with CRE Software
Effectively managing FF&E throughout the lifecycle of a commercial property comes with its own set of challenges, from tracking items for maintenance and replacement to ensuring that the FF&E strategy aligns with tenants’ needs. There are additional factors like budgeting for upgrades, so there is a lot to think about and manage with FF&E, especially as you scale this task up to however many properties are in your portfolio.
The good news is that software solutions like Quarem provide an efficient way to manage FF&E and other critical aspects of commercial property management. With features like asset tracking, lease management and document organization, CRE professionals can streamline their operations and ensure that FF&E is properly accounted for throughout the property’s life cycle. Overall, managing FF&E properly with Quarem will keep your tenants and budget happy.
FF&E isn’t as complicated as it first sounds, but it’s still important and matters to every commercial real estate professional. To effectively manage FF&E and other aspects of CRE, consider adopting modern software solutions like Quarem. Request a demo today and ensure that your properties are equipped for success in today’s competitive market.
