I’m dating myself quite a bit here, but before we had the Internet, dashboards, prolific amounts of software and developed best practices, I managed a significant office building in Chicago. Every quarter we needed to revise our plan against actual expenses. However, at the end of the year, we hadn’t even taken the holiday decorations down in the lobby before we had finished closing the books on the year, calculated the operating expense reconciliations for every tenant and forecast the new expenses for the upcoming year. Even allowing for the fading of my memory (and no, I’m not going to tell you that I walked a mile to the building uphill both ways) there is no way it took past the end of January.
Today, we manage about 20,000 leases, of which about half also include the responsibility of reviewing payments and forecasting expenses. What is amazing is that there are still a significant amount of the expected locations for which NO operating expense reconciliation has been received….and here it is, September…Q3! This persists despite letters of request, calls, and in some cases, threats of suspension of further accrual payments. By now, it’s starting to seem that there is either an intentional plot to conceal what would be tenant credits or some degree of incompetence on behalf of the management of these buildings. We’re working through these with our clients on a case by case basis under the provisions of the leases but we’re finding this to be getting delayed further each year.
This begs the question…Has budgeting become that much harder now? Is it that the institutional owners of these buildings take a long time to approve the calculations and these statements are tied up in some bureaucratic loop? How hard can this be today with all of the automated software available? It certainly does make it seem like something more sinister is occurring.
Budgeting can be complicated. Years ago, if the Landlord didn’t bill a tenant, the tendency was to keep quiet and hope they forgot until the deadline to invoice the balance had passed. Today, many leases include provisions that even in the event of a failure to bill for an amount due, it could be subject to future billing if realized at a later date. This can wreak havoc on an income statement if there has not been a proper accrual for the amount. Equally troubling is the thought that you have significantly over-accrued in your monthly estimates and there is a large credit due that the landlord is enjoying at your expense. If you have a subtenant, this can also cause delays and issues with your ability to administer that lease.
With little effort, we forecast millions of dollars in rent, in multiple currencies, every month. We equally invoice millions in (sub)tenant revenues and send invoices monthly. We generate budgets for thousands of leases and help establish minimum lease commitment expense footnotes with standard reporting tools a few button clicks away. This same capability exists for building Landlords and they’ve got plenty of staff to get these jobs done within the first quarter of the year.
What do you think is causing this delay? What are you doing to ensure that these reconciliations are received timely?