A Case Study - Veterans Bridge Home
Location: Charlotte, NC Airport Submarket
Real Estate Type: Office Headquarters / Non-Profit
Background
In April of 2021, Veterans Bridge Home (VBH) signed a 10 year lease to relocate their headquarters to Airport Plaza in the Charlotte Office Market. In September of 2021, their building was sold to a new owner. The property management company for the previous owner remained in place through 2022. At the beginning of 2023, the new owner relieved the previous property company in favor of their own, and that is where this story begins.
Challenge - OPEX Increases
VBH received their 2022 Operating Expense Reconciliation Statement and a letter with their 2023 Monthly Operating Expense Estimates. In this letter, VBH was informed that its estimates would be just over $2,000 per month. This equates to paying an additional $2.44 psf on top of their existing rent, which represented a 39% increase over their initial base year amount. It is typical for tenants to pay operating expense pass-throughs (expenses above their established base year amounts), but it’s very strange to be paying pass-throughs in this range 2 to 3 years into a 10 year lease. At this point, it was clear that there were issues with how the new Landlord was grossing up the building’s operating expenses.
Strategy / Result - $19,000 Annual Savings
Due to the size of the discrepancy, Cherry Associates recommended that VBH hire an audit partner, CyberLease, to provide a more comprehensive review of the problem and engage with the Landlord to solve it.
Ultimately, a compromise was agreed to and VBH’s base year was reset, a solution that would save them nearly $19,000 per year for the remaining 7 years of the lease.
Conclusion - Reconciliation Review
Although a positive outcome was reached, it took eight months to resolve the issue. Unfortunately, issues such as these are more common than one would think. Ordinarily, there isn’t any malice or malintent on the part of the Landlord. These issues are typically created by improperly grossing up expenses, improperly applying expense caps, and failing to account for other specific language pertaining to how operating expenses are to be handled in the lease. For this reason, it is incredibly important to have your trusted real estate partner to review your operating expense reconciliation statement annually to insure your company is not inappropriately being passed additional expenses that it should not have to pay.
