Separating the HerdSorting out the various types
of properties and leases is a key first step, recognizing
that different expenses can be present for each and that the
ultimate goal is to determine how to adjust them to a common
“pool.” Clearly a full service gross lease, in which
expenses are partially or fully included in the rent, must
be captured differently from a net lease, in which expenses
are fully separated from it. In the best case scenario, you
will be able to mix landlord and non-landlord expenses to
essentially create a full occupancy cost budget for each
location, irrespective of the type of property, where those
costs are paid from and/or where they end up in your
company’s general ledger. In a more simplistic scenario you
will be able to eliminate any non-base rent components to at
least get a better look at using that figure as a
measurement of space efficiency.
Further, you will need to be able to isolate and include
or exclude locations where you have different uses if you
also need to know other metrics such as cost per headcount.
A 300,000 square foot warehouse with 20 employees staffing
it is going to skew the numbers if that location shows up a
report that includes mostly offices with 5,000 square feet
and averaging 20-25 employees.
Good News
If this is your reality, at least you are operating in a
position of “fine tuning” rather than just getting started.
This is a step ahead of the days of competing spreadsheets,
unsigned documents and trying to determine how to get to the
bottom of a number of holdover or handshake deals.
Obviously the scenario painted above only represents a
few considerations. Sublease income, reserve accounting,
master lease commitments and rent allocation can also
complicate the final measurement process.
The software tools do exist and the knowledge bank has
been built for conquering this complexity. As “lease
administration” or “database administration” now comes into
a more professional light given its maturity and post
Sarbanes-Oxley focus, management is beginning to realize
that all leases are not created equal and that resources are
needed for properly accounting for real estate occupancy
costs. If your people, processes and tools are geared
toward understanding and dealing with the nuances, answering
the questions like “what is our cost per square foot” or
“how many square feet do we average per person” can be
questions easily answered.
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*For a more detailed discussion of gross vs.
net leases, see KBA's Article,
"Demystifying the Difference
between Net and Gross Leases."
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