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 (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.
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:
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.
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.