Furniture, Fixtures, and Equipment in Industrial Real Estate
Because FF&E is part of a business’s value, identifying what falls into this category is essential in calculating the value of your business.
- Furniture, Fixtures, and Equipment
- Why Is FF&E Relevant in Industrial Real Estate?
- What Items Qualify as FF&E?
- Furniture & Specialized Hardware
- Electronics
- Decorations
- Nonpermanent Lighting
- Which Items Are Excluded?
- Fixed Components
- Consumable Goods
- Business Products
- Intangible Assets
- Related Questions
- Get Financing
Furniture, Fixtures, and Equipment
As a commercial real estate investor or tenant, it’s important to understand the nuances of identifying furniture, fixtures, and equipment, or FF&E. In a nutshell, FF&E refers to most things that are not physically and permanently connected to a structure and have a usage lifespan of at least one year. Some examples of FF&E include computer equipment, bookshelves, and lamps.
Why Is FF&E Relevant in Industrial Real Estate?
Because FF&E is part of a business’s value, identifying what falls into this category is essential in calculating the value of your business. And it can also have significant tax impacts: Depreciation on FF&E is calculated differently than on a physical structure, which can also boost your business’s qualified expenses for a fiscal year, potentially reducing the tax burden.
FF&E’s importance isn’t limited to taxation and valuation, however. Accurately identifying these components is also an essential part of any liquidation scenario — especially bankruptcy declarations.
What Items Qualify as FF&E?
Many different items can be considered as part of your business’s furniture, fixtures, and equipment. And there is certainly a gray area with many objects. However, there are three broad rules that can generally determine whether or not something is FF&E. First, the items must be easily removable from a building. Second, the effective lifespan of the item should be one year or longer. Finally, FF&E does not include products that your company sells.
Here are some broad categories and examples of FF&E.
Furniture & Specialized Hardware
This includes standard items like tables, desks, and chairs, but also larger fixtures like bottling equipment in a brewery, storage racks in a warehouse, and manufacturing equipment, so long as it isn’t attached to the structure.
Electronics
A business’s computers, printers, monitors, and cash registers all count as FF&E. Security equipment like metal detectors can also be placed into this category.
Decorations
If your business has wall art, sculptures, photos, hanging plants, or other decorative items, this can be classified as FF&E.
Nonpermanent Lighting
While ceiling light fixtures are generally considered to be part of the structure, any floor or table lamps, rope lighting, or similar that isn’t hardwired to the physical property would generally count as FF&E.
Which Items Are Excluded?
Generally, it’s much easier to identify what does not qualify as FF&E, due to the three rules given above. These are, broadly, any items which are attached to the structure, consumable, or products. Some common examples are listed below.
Fixed Components
You can’t include toilets, HVAC units, doors, and windows as FF&E. These are items that are generally considered to be part of an asset’s physical structure.
Consumable Goods
Your company’s beverage fridge would count as FF&E, but the drinks inside would not. Other consumable items, including office supplies like pens and paper, would be similarly excluded.
Business Products
The products you sell can’t be included in FF&E. This is true even if those products would normally be considered FF&E if in use. For example, a desk manufacturer could not include desks it will sell in this category.
Intangible Assets
You may not include your trademarks, brand recognition, or patents under PP&E.
Related Questions
What is furniture, fixtures, and equipment (FF&E) in industrial real estate?
Furniture, fixtures, and equipment (FF&E) in industrial real estate 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 investing in FF&E in industrial real estate?
Investing in FF&E in industrial real estate can provide a number of benefits. Firstly, it can help to increase the value of the property, as FF&E assets are often seen as a sign of a well-maintained and profitable business. Additionally, accounting for 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.
For more information, please visit FF&E in Commercial Real Estate.
What are the risks associated with investing in FF&E in industrial real estate?
Investing in FF&E in industrial real estate carries a few risks. The first is that the value of the FF&E may depreciate over time, which can reduce the value of the property. Additionally, the FF&E may not be up to code or may not be suitable for the intended use of the property. Finally, the FF&E may not be properly maintained, which can lead to costly repairs or replacements.
For more information, please see Risks of Investing in Furniture, Fixtures, and Equipment.
What are the tax implications of investing in FF&E in industrial real estate?
Investing in FF&E in industrial real estate can have a number of tax implications. According to this source, 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.
Additionally, according to this source, wages paid to employees or independent contractors, as well as professional fees, are tax deductible on Schedule E of the tax return. If you pay independent contractors more than $600 in a single calendar year, you will have to send and file 1099s for them, since you qualify as a professional commercial real estate investor.
What are the financing options available for investing in FF&E in industrial real estate?
When investing in FF&E in industrial real estate, there are a variety of financing options available. These include traditional bank loans, SBA loans, and private equity financing. Additionally, there are a variety of loan products available, such as bridge loans, hard money loans, and mezzanine loans. For more information about what loan may be right for your situation, head to our portal, and our advisors will connect you with a wide variety of lenders to get a quote at no charge.
What are the best practices for investing in FF&E in industrial real estate?
The best practices for investing in FF&E in industrial real estate are to consider the cost of the equipment, the expected lifespan of the equipment, and the potential return on investment. It is important to consider the cost of the equipment and the expected lifespan of the equipment to ensure that the investment is worthwhile. Additionally, it is important to consider the potential return on investment to ensure that the investment will be profitable.
When investing in FF&E, it is important to consider the cost of the equipment, the expected lifespan of the equipment, and the potential return on investment. Additionally, it is important to consider the potential risks associated with the investment, such as the potential for obsolescence or damage to the equipment. It is also important to consider the potential tax implications of the investment, as well as any potential financing options that may be available.
For more information on investing in FF&E in industrial real estate, please see the following resources:
- Investing in Furniture, Fixtures, and Equipment from Investopedia
- Investing in Furniture, Fixtures, and Equipment from The Balance Small Business
- How to Invest in Furniture, Fixtures and Equipment from Entrepreneur
- Furniture, Fixtures, and Equipment
- Why Is FF&E Relevant in Industrial Real Estate?
- What Items Qualify as FF&E?
- Furniture & Specialized Hardware
- Electronics
- Decorations
- Nonpermanent Lighting
- Which Items Are Excluded?
- Fixed Components
- Consumable Goods
- Business Products
- Intangible Assets
- Related Questions
- Get Financing