Case Study | Expense Recovery Policy

Managing Change to Meet the Market
A large quasi-Federal financial institution was using real estate expense recovery processes that had gotten out of synch with the market. The institution pro-actively sought to identify current practices and move its processes more into line with the market standard. As the owner and an occupant of a portion of their building, and a large financial organization, the institution had complex issues to resolve in order to effect change.

The Analysis
Horgan & Associates began by meeting with the institution’s representatives to understand their current practices and how they had evolved. We discussed their tenure in their real estate and reviewed the potential for change in the way the institution used their own space. Once we had a thorough understanding of the institution’s issues, we drafted a scope of work describing a process of investigation, evaluation, recommendations and presentation. We reviewed in detail the institution’s approach to escalation and expense recovery. We examined their escalation structure and their calculation process as well as their policies.

The Market Comparison
Horgan & Associates provided an overview of the dynamics that drive expense recovery policy in the institution’s market. We used our network to obtain detailed information on comparable buildings. We prepared a comparison across those expenses and operating policies significant to escalations and expense recovery. We included information on staffing, administrative overhead charges, and other elements of expense recovery policy.

Lease and Policy Language
Next, we used form language from our database to illustrate a range of approaches to the issues identified in our review of the institution’s current practices. These encompassed:
  • Reservations of landlord’s rights to alter common areas
  • Establishment of building standards and recovery of costs for tenant electricity
  • Defining operating expenses, and inclusions and exclusions for escalations
  • Establishing policy for gross-up of expenses for occupancy
  • Establishing policy for tenant review or audit of books for operating expenses
  • The effect of Indemnification language on tenant insurance requirements
  • Clarification of standards for letters of credit
  • The effect of operating escalation policy on holdover policy

Recommendations and Implications
Using our expertise, Horgan & Associates then synthesized market information with the information we had obtained from our client to present a series of recommendations. These specific recommendations addressed policy making, administrative procedure, lease and other language, and the human elements of bringing about significant change in a long-established institution. Horgan & Associates prepared a section on the likely implications of each recommendation on existing relationships with employees, tenants, brokers, and stakeholders within the administration of the institution. Implementing Horgan & Associates’ recommendations will align the institution with the market and increased collections by tenfold. #

Click here to inquire about a complimentary analysis.

30 Church St - Ste 215A, Belmont, MA 02478 | Ph: 617.489.3300 | Fx: 617.489.3310

Designed by Raven Creative - Developed & Powered by McDougall Interactive, LLC