In the case of mechanical services, the economic effect of power manufactured for their operation is confined to that portion of the operating expenses which is concerned with the conveniences of the building. As has already been shown, these form, of the aggregate income, a proportion of about 13 to 25% according to the character of the building, and out of this expenditure only some portion is of such nature as to be affected one way or another by the alternative of the employment of a manufacturing apparatus or of public services.
The establishment of machinery in a basement, which has necessarily formed a part of the construction of most modern buildings, and is usually included in the general cost of the building, must not therefrom be assumed to be unaccompanied by expense for the space thus occupied. Basements, by reason of the demand for storage space, below ground-floor stores, offices, banks, and particularly in apartment buildings, are adjuncts to the general rentable space of the building, and in computing its average renting value the rentals of the basement space must be included, as has been done herein, as a part of the average rent. If, therefore, any portion of a basement be diverted from utilizable purposes to that of housing apparatus which does not pay rent, then the building suffers some loss of renting capacity, which is chargeable against any apparent economy effected by the operation of the appliances.
Where the installation of machinery in a basement is found from these causes to bring about an interference with the rentable value of the building, the expedient is frequently adopted of constructing a sub-basement or sub-cellar at a still deeper level for the special purpose of providing space for the manufacturing apparatus. This process is accompanied by the progressive expenses of construction already referred to, including, in the case of steel-cage construction, an extension of the steel columns, which is necessitated at their heaviest part.
Details of the cost of such sub-basement construction are not here necessary, and indeed the expenditures upon such construction are so varied and sometimes so disproportionate that it would be difficult to lay down any definite method for their computation. Building contractors can, from their experience, afford facts as to expenditures in past construction of this nature, but it may be moderately estimated that sub-basement construction of the least difficult character involves not less than double the cost per cubic foot of building construction above ground.
The proportions and cost of engineering machinery thus located are very varied, but the natural desire of those interested in its design and in its operation to secure very ample proportions and reserve capacities tends to proportions considerably in excess of actual requirements, so that the cost of such power plants may vary, according to the degree of precautionary liberality exhibited, from 3% to 7% of the cost of the entire building. In an apartment hotel of large proportions the cost of power-generating apparatus was 3.6% of the cost of the building, and the cost of the space occupied was approximately 2.6% of the building.
To the total capital outlay upon the improvement of a property, on which a certain rate of interest is to be secured by the average rental, the cost of any construction, appliance, or apparatus which is not directly rent-earning is added, and the interest thereon must be derived from rent of some portion of the rentable space. Therefore, for any expenditure of capital in such directions, either an enlargement of the rentable area or an increase in rentals would be necessitated, in order to provide interest upon the outlay in plant and upon the space occupied by it. The effect upon rental rate may be found by the computation: s =[100 x (x+y) x i/r] / (f x n) in which x = cost of construction per cubic foot x height in feet of the space occupied. y = cost of the apparatus contained in the manufacturing plant, divided by the square feet occupied. i = rate of interest on investment. r = ratio of net income to total rentals, including therein any economy effected by the use of the plant, f = number of stories in the building. n = percentage of the net rented area to the gross rentable area of the building. s = increase in rentals per square foot necessitated by a manufacturing plant and the space it occupies.
The point may be illustrated by referring to one of the examples previously figured, in which, on a land value of $100 per square foot, it was found that a 15-story business building, at the prevailing average rental of $1.80 per square foot per annum, would return 4% interest upon the land and upon the cost of the building.
Now if there be added to the cost of the building and the land that of a sub-basement and of a manufacturing plant, or, say, $18.57 per square foot, the interest on this capital is found to require an increase of the rate of average rental from $1.80 per square foot to $1.95.
It will be evident, however, that such an addition to rentals of a building would not in most cases be practicable, because the rates of rentals are fixed by surrounding circumstances, and cannot be arbitrarily raised or predetermined. It therefore follows that additional renting space must be added to the building in order to provide for the addition to the interest account. Moreover, the cost of the construction of such additional renting space, added solely for the purpose of earning interest upon the capital expended on the plant, becomes another addition to capital investment, and interest must also be earned thereon.
It therefore becomes clear that for every unit of capital involved in mechanical conveniences, appliances, or apparatus for the generation of supplies of force, and in space for the same, additional building construction has been added or is to be added above ground, the renting of which shall suffice to pay interest upon its own construction and interest upon the appliances and upon the space occupied by them.