New Solutions Boost Expense Recovery Calculations

"But it's not," he adds. "Complications abound, including varying numerators and denominators, base years, caps, gross-ups, management fees and other factors. And since the calculations differ for each tenant, managers face the daunting job of reconciling all variables and compiling an accurate accounting of what their tenants owe."

For years, recovery fee calculations were performed primarily with spreadsheets. However, Teel says those programs were prone to errors. "The errors accumulated as the spreadsheet expanded in scope and complexity, often with disastrous results," he continues.

Industry studies show there are errors in as many as one-third of all spreadsheets. Just recently, published reports attributed an inaccurate spreadsheet entry for incorrect prices on 1,900 abandoned lots that were sold in Florida in 2005.

In even the recent past, Teel says there were few options. "There was no scalable software management solution to handle the commercial and retail industry participants' disparate and complex needs," he says.

But that deficit has closed. Reporting, accounting and other functions once deemed too complicated for a single system can be consolidated within centralized, browser-based systems that are accessible to multiple remote users, Teel explains.

"From recovery calculations to percentage rents, these systems make commercial lease negotiation and execution easier, more efficient and cohesive and more accurate," he says. "The most advanced property management and accounting systems are integrated and equipped with flexible lease management functionalities. They automate lease charges, recoveries of common-area maintenance, percentage rents, critical dates and other factors with more detail, greater accuracy and a streamlined billing process."

Teel cites as an example the task of calculating recoveries of CAM expenses in a retail center. "Each tenant usually negotiates a unique deal with the landlord, making a uniform calculation impossible," he explains."Furthermore, high-visibility anchor tenants that attract consumers to the retail center often secure special dispensations from the landlord, adding complexity to these calculations."

In the past, industry experts explain, property management software providers found it difficult to standardize turn such non-standard agreements. As a result, many hired third-party consultants to calculate tenant recoveries. But today's software solutions create a single point of entry for lease abstract data and automate the complex CAM tenant recovery calculations.

Steadfast Companies of Newport Beach, CA, claims the new software is effective in multiple areas. Steadfast recently collaborated with Yardi on a four-week examination of reconciliation worksheets, which identified solutions for four areas:

• Calculating a pro-rata percent share that varies depending on expense pool.
• Adjusting the sf-area for participation in expenses.
• Adjusting expenses to account for various levels of anchor deductions.
• and calculating additional management fees.

"One thing we had lacked was the ability to handle anchor tenants and tenants that needed to be excluded from calculations," said John Alshuler, Steadfast's vice president of commercial property management. "Now we can create multiple denominators and exclusions." Once it implemented the Yardi software solutions, Steadfast cancelled its contract with a third-party service that performed the company's annual expense reconciliation.