Gross Leasable Area

Understanding Gross Leasable Area (GLA)

In the context of commercial mortgages and real estate, Gross Leasable Area (GLA) is defined as the total floor area designed for the exclusive use of tenants. This includes all space that is capable of producing rental income. Unlike the total building size, GLA focuses specifically on the areas that can be occupied by a business and for which a tenant pays rent.

GLA is typically measured from the outside surface of exterior walls to the centerline of interior walls that separate one tenant space from another. This measurement is critical for lenders, investors, and appraisers because it provides a standard metric to calculate the earning potential of a commercial property.

Key Components of Gross Leasable Area

While GLA includes the majority of a tenant's functional space, it specifically excludes areas that do not directly generate rent from a single occupant. Common characteristics of GLA include:

• Tenant Spaces: All areas intended for retail, office, or industrial use by a specific leaseholder.
• Basements and Mezzanines: These areas are included in the GLA if they are used for sales, storage, or other functional business purposes specified in the lease.
• Exclusions: GLA generally excludes common areas such as public restrooms, elevator shafts, stairwells, mechanical rooms, and shared lobbies that are used by all building occupants rather than a single tenant.

The Role of GLA in Commercial Mortgages

Lenders place significant emphasis on GLA when underwriting a commercial mortgage. Because the mortgage is usually repaid through the income generated by the property, the GLA serves as the primary driver of value. Here is how GLA impacts the mortgage process:

1. Valuation and Appraisal: Appraisers use GLA to determine the market value of a property. By comparing the price per square foot of the subject property’s GLA to similar buildings in the area, lenders can ensure the requested loan amount is supported by the property's physical size and utility.

2. Income Projections: Since rent is almost always charged on a per-square-foot basis, the GLA is the foundation for calculating the Gross Potential Income (GPI). Lenders use this figure to determine the Debt Service Coverage Ratio (DSCR), which measures the borrower's ability to cover mortgage payments with the rental income collected.

3. Expense Recoveries: In many commercial leases, tenants are responsible for a pro-rata share of operating expenses, such as taxes, insurance, and maintenance. This share is usually calculated by dividing the tenant’s individual GLA by the Total Building GLA. Lenders review these figures to ensure that the building’s operating costs are being adequately covered by the tenants.

4. Efficiency Ratios: Lenders also look at the ratio of GLA to the Gross Building Area (GBA). A high ratio indicates an "efficient" building where most of the space is income-producing, which is generally viewed more favorably during the loan approval process.

In summary, Gross Leasable Area is the fundamental unit of measurement used to quantify the revenue-generating capacity of a commercial asset, making it a cornerstone of commercial mortgage underwriting and property investment analysis.