AboutMike Fortunato Expertise Can answer questions on all aspects of commercial real estate management, including lease administration, eviction issues, financial reporting and budgeting, asset valuation/enhancement, marketing & leasing, and site maintenance and repairs. 20+ years of real estate management.
Experience 20+ years in commercial management. Current own and operate property management company in southern California.
I am fairly new to the retail/commercial real estate sector and my question is in evaluating retail/commercial properties, you are most always provided existing operating expenses. Is there a way (or a multiplier/calculator) to determine your own operating expenses based on the square footage of the property? Or some other way to determine if there expenses are accurate?
Answer When we analyze properties, we prepare our own proforma (budget) which includes operating expenses. Due to the vast difference in the way commercial properties are structured, plus the complexities of the leases and what tenants are required to reimburse for, there's no standard formula that I know of which would have any degree of accuracy in determining operating expenses. If you have historical data available to you, that's a good source as a starting point. If not, you simply need to start from scratch and prepare your own estimates (or have an experienced property manager do that for you). Many times in the marketing packages for properties, expenses are understated so you really need to do some homework. For instance, they may show the property taxes at some dollar amount based on past figures....but when you buy the property, it can be reassessed based on the purchase price thus increasing the taxes considerably.
I wish I could provide you with some sort of basis, but again, there really isn't any reliable calculation that would be of much help. You really need to analyze all aspects of the property to arrive at a meaningful budget.
