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FF&E in Commercial Real Estate
Learn about the furniture, fixtures, and equipment (FF&E) asset class and its place in commercial real estate.
FF&E: Furniture Fixtures, and Equipment
Learn about the furniture, fixtures, and equipment (FF&E) asset class and its place in commercial real estate.
FF&E Meaning
FF&E (sometimes just FFE) stands for furniture, fixtures, and equipment. While FF&E has become the more widely adopted term, in some cases, these items are referred to as furniture, fixtures, and accessories, or FF&A.
What is FF&E?
As the term implies, FF&E refers to nonpermanent furniture, fixtures, and other equipment that may be present within a property. FF&E items are nonpermanent in the sense that they are not connected to the building’s structure and are movable. Such items, which include desks, computers, electronic equipment, partitions, bookcases, etc., tend to substantially depreciate in value over their length of use but are still considered to be important costs in the valuation of a company. This is particularly notable during liquidation scenarios.
Even though FF&E items are not integral to a commercial property’s structure, they are considered business assets with tangible value that a business utilizes in its day-to-day operations within a commercial building. One critical element in defining FF&E assets is that these items must have, at minimum, a one-year usage lifespan. In other words, common office supplies like paper, pens, and sticky notes would not be considered FF&E due to their lower product lifespans. It should also be noted that FF&E excludes all assets considered company inventory.
Assets Included in FF&E
Numerous assets qualify as FF&E. Some examples may be surprising: Metal detectors may seem like they would count as permanent fixtures of a property, but in many cases they are considered to be a part of a business’s furniture, fixtures, and equipment. While there are a great many assets that fall into a gray area, FF&E generally incorporates tangible assets that adhere to three basic rules — these assets must be easily removable from a property, have a usage lifespan of at least one year, and cannot be items that the business sells. With those rules in mind, here are some of the more common examples of furniture, fixtures, and equipment reported by businesses:
Furniture: Including bookshelves, tables, desks, lamps, sofas, chairs, etc.
Electronic equipment: Including computers, stereo equipment, point-of-sale (POS) terminals, speakers, and even security systems.
Decorative items: Including most art, photographs, and nonpermanent statues/sculptures.
Lighting: Lamps and select lighting fixtures (even if they are technically attached to the building). In many cases, however, lighting fixtures are often left out of FF&E calculations.
Intangible assets: FF&E only incorporates tangible assets.
Fixed building components: Includes any fixed assets such as toilets, faucets, HVAC units, doors, and windows. These items are typically considered part of the property itself, rather than of the business.
Office supplies: Commonly used items such as pens, paper, and markers that typically need to be stocked or replenished throughout the course of business.
Consumables: Includes food, drinks, and paper products.
Permanent furniture: Any desks, bookcases, or other furniture incorporated into the property itself that can’t be removed without significant damage or alteration to the property cannot be considered as a part of a business’s FF&E.
What is FF&E in commercial real estate?
FF&E stands for Furniture, Fixtures, and Equipment and refers to nonpermanent furniture, fixtures, and other equipment that may be present within a property. FF&E items are nonpermanent in the sense that they are not connected to the building’s structure and are movable. Such items, which include desks, computers, electronic equipment, partitions, bookcases, etc., tend to substantially depreciate in value over their length of use but are still considered to be important costs in the valuation of a company. This is particularly notable during liquidation scenarios.
One critical element in defining FF&E assets is that these items must have, at minimum, a one-year usage lifespan. In other words, common office supplies like paper, pens, and sticky notes would not be considered FF&E due to their lower product lifespans. It should also be noted that FF&E excludes all assets considered company inventory.
Source: FF&E in Commercial Real Estate
What are the benefits of FF&E in commercial real estate?
The benefits of FF&E in commercial real estate include tax breaks and deductions, as well as increased qualified business expenses each year. Accounting for FF&E is also of high importance in liquidation scenarios, such as a bankruptcy declaration. Additionally, the inclusion of FF&E items on a business’s balance sheet may lead to tax breaks and/or deductions. For accounting and tax purposes, depreciation for FF&E assets is calculated differently from the way it is calculated for the property itself. This can have a noticeable impact on the book value of a business.
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What are the risks associated with FF&E in commercial real estate?
The primary risk associated with FF&E in commercial real estate is depreciation. FF&E items tend to depreciate in value over their length of use, which can be a significant cost in the valuation of a company. This is particularly notable during liquidation scenarios. Additionally, FF&E items are not connected to the building’s structure and are movable, so there is a risk of theft or damage.
It is important to note that FF&E items must have, at minimum, a one-year usage lifespan. In other words, common office supplies like paper, pens, and sticky notes would not be considered FF&E due to their lower product lifespans. It should also be noted that FF&E excludes all assets considered company inventory.
What are the costs associated with FF&E in commercial real estate?
The costs associated with FF&E in commercial real estate depend on the type of equipment and the quantity of items purchased. Generally, FF&E costs can range from a few hundred dollars to tens of thousands of dollars. Additionally, the cost of FF&E items can vary significantly depending on the quality of the items purchased. For example, a high-end office chair may cost several hundred dollars, while a basic office chair may cost only a few dozen dollars.
In addition to the cost of the items themselves, businesses may also need to factor in the cost of installation, delivery, and maintenance of the FF&E items. These costs can vary depending on the complexity of the items and the size of the order.
What are the best practices for financing FF&E in commercial real estate?
The best practices for financing FF&E in commercial real estate depend on the type of loan product you are looking for. Generally, the most common loan products for financing FF&E are:
- SBA 7(a) Loan: This loan is backed by the Small Business Administration and is designed to help small businesses acquire, refinance, or construct commercial real estate. The loan amount can range from $50,000 to $5 million and the loan term can range from 10 to 25 years. The interest rate is typically fixed and the loan can be used to finance FF&E.
- SBA 504 Loan: This loan is also backed by the Small Business Administration and is designed to help small businesses acquire, refinance, or construct commercial real estate. The loan amount can range from $125,000 to $20 million and the loan term can range from 10 to 20 years. The interest rate is typically fixed and the loan can be used to finance FF&E.
- Equipment Financing: This loan is designed to help businesses acquire equipment for their business. The loan amount can range from $5,000 to $5 million and the loan term can range from 1 to 7 years. The interest rate is typically fixed and the loan can be used to finance FF&E.
It is important to note that the terms of the loan will vary depending on the lender and the borrower's creditworthiness. It is also important to shop around and compare different loan products to find the best option for your business.
Finally, other miscellaneous business equipment — provided it is not intended for sale — may also be included. Examples of these items range from gym equipment at a fitness center to garment conveyors at a dry cleaner.
Assets Not Included in FF&E
While it may be impossible to create an exhaustive list of items which qualify as FF&E, a list of those items which do not qualify is relatively straightforward. Some common items not considered FF&E include:
The Importance of FF&E
A business's fixtures, furniture, and equipment are important components of that business's fair value. This means that accounting for them is imperative for accuracy in a company valuation. Accounting for FF&E is also of high importance in liquidation scenarios, such as a bankruptcy declaration.
The inclusion of FF&E items on a business’s balance sheet may lead to tax breaks and/or deductions. For accounting and tax purposes, depreciation for FF&E assets is calculated differently from the way it is calculated for the property itself. This can have a noticeable impact on the book value of a business. FF&E deductions can actually be utilized to increase the qualified business expenses each year, which helps to lower the business’s income tax.