Many People Are Asking…”What is Total Cost of Occupancy (“TCO”) and More Importantly… How Can We Capture & Measure It ?
While there is some level of subjectivity to the question of what Total means, there is no doubt that being able to capture, measure and control as many costs as possible is critical. Further, if you are a public company it is becoming increasingly important in order to comply with reporting standards.
Organizations like BOMA, OSCRE, CoreNet and others do a great job of helping to define the categories and measurement standards but often, companies struggle with the data capture and day to day management of these costs. Accordingly, PSG has expanded services to help make this an easier challenge to resolve. It’s a great opportunity to identify cost savings and an excellent demonstration of the value of proper lease administration and accounting.
Basic Lease Capture: For all of our customers where we are managing their monthly invoices, we are already capturing operating expenses during the course of our daily work and ensuring that those costs are critically reviewed and in compliance with the lease. We have expanded our Operating Expense History capture so that each category of expense can be recorded separately and thereby reported in a more refined breakdown by general ledger code. In cases where further operating expense (or CAM) analysis is performed, these breakdowns help us identify potentially aggressive line item increases and offer another item of inquiry to the process of challenging the landlord’s billing practices.
Other Lease and Property Types: Since most portfolios also include various lease types (NNN, Modified Gross, Gross etc) and also owned property, we can also capture costs that flow outside of the Landlord’s billing statement. Using the same non-proprietary databases, we’ve expanded our ability to either directly manage those invoices and costs or to stream them into the database for analysis and reporting. This requires some collaboration and integration but once performed, this is a powerful tool for cost management and one that is becoming increasingly requested.
Other Service Costs: With owned property or leases in which the tenant is responsible for some or all the maintenance costs, there can be other vendors or direct contractual payments that need to be captured. PSG helps by integrating the following services into basic lease administration:
- Data Integration
- Third Party (Non-LL) Invoice Processing (“TPP”)
- Third Party Contract Management (“TPC”)
Once the data is available, PSG utilizes business intelligence technology to deliver customized dashboard reports, a scorecard and other tools that highlight opportunities and outliers to control risk and generate savings/value.
If you want to truly capture your Total Occupancy Costs in-house, PSG recommends integrating services together and aggregating the data from:
- TI & Pre-Lease Costs
- Lease Administration Costs
- Restoration & Post Lease Costs
- Real Estate Taxes
- Building Security
Although capturing your true Total Cost of Occupancy can be complicated, the good news is as long as your people, processes, and tools are geared toward understanding the nuances, questions such as “what are we paying per square foot?” or “how many square feet do we average per person?” can be easily answered.
If you’re not sure where to start or want to learn how PSG can help you capture your TCO and answer these questions, just Ask PSG!