Expense Recoveries Analysis - Example #1
The Client & Property:
A multi-billion dollar real estate investment management firm purchased a 450,000 sq. ft. plus 2-building office complex out of receivership. The year of purchase included 3 ownership periods: the prior owner, the lender/receiver, and our client.
The Task:
The client wanted a thorough review of the leases and accounting records utilized in preparing the expense reconciliations, as well as a review of the expense mapping for the combined 3 ownership period calendar year and sale pro-rations. The goal was to make sure operating expenses, sale pro-rations and expense reconciliations for the year of purchase were accurate and also identify any potential under-billings.
Our Approach:
We abstracted 100% of the leases with an emphasis on the expense recoveries language and in particular on the various types of caps on controllable expenses language from the different lease templates. We performed a detailed review of the accounting records of all three owners during the year of acquisition, down to the level of general ledger detail.
The Results:
Our recommendations resulted in an over $60,000 increase in expense recovery revenue for the first year and over $400,000 net present value increase over the remaining term of the in-place leases. We also identified sublease profits of approximately $50,000 that were not discovered during the acquisition due diligence process or after the client took ownership. The client was able to use this information as a negotiations tool during renewal discussions. Another benefit was that we successfully resolved an on-going tenant audit dating back to prior ownership that eliminated a $20,000 plus claim. Finally, we updated the client’s ARGUS models to capture the increase in valuation.
Expense Recoveries Analysis - Example #2
The Client & Property:
A private equity client owned a 700,000 sq. ft. plus CBD office building with shared common areas with a neighboring tower. The office tower had over ninety tenants with various base years that dated back to prior owners and prior property management firms.
The Task:
The client wanted a thorough review of the leases and accounting records utilized in preparing the expense recoveries for these base year leases. The client also wanted a review of the parking garage charges as stipulated by the leases. The goal was to make sure all tenant billings were accurate and in accordance with the leases and also identify any potential under-billings.
Our Approach:
We abstracted 100% of the leases with an emphasis on the expense recoveries language. We performed a detailed review of all the accounting records back five years (as many years as were available), which required coordination with the prior property management firm, prior property tax consultants and other third parties.
The Results:
Our recommendations resulted in an over $100,000 increase in expense recovery revenue for the first year, most of which will be an annuity for both in-place leases and prospective tenants. Additional benefits included: (1) we identified ways to strengthen the lease language used in the template for prospective tenants and (2) we helped to seamlessly transition information and understanding of expense recoveries when the property management firm and senior property manager changed hands a few months later, and again when the property manager changed a second time.
ARGUS Modeling - Example #1
The Client & Property:
A national real estate advisory firm that manages several investment funds with over 150 commercial properties totaling over 18 million square feet.
The Task:
The client needed assistance building and updating ARGUS models that were to be utilized for a variety of purposes, including internal valuations and dispositions.
Our Approach:
Based on the rent rolls, budgets, leasing reports and other information provided by the client, we built ARGUS models that the client then imported into their pro-forma cash flow models. We were able to compliment the client’s internal team in a cost effective and efficient manner.
The Results:
The client is able to meet investor reporting deadlines more effectively and quickly react to opportunities for loan workouts and dispositions with well-documented and carefully built ARGUS cash flow models. Our client’s asset managers are able to more effectively manage their time and responsibilities.