Every Property Manager faces the budget and year end challenge annually. At Midgard our budgets are a team effort between our on-site accounting department and Property Managers. Our budgets are never approached in a "cookie press" template format.
We analyze our budgets in terms of the historical costs for the property along with anticipated expenses and bid every major contract annually. By year end we also bid every recommended Capital Improvement for the coming year as well. This way, we have accurately reflected the anticipated cost of tenant and capital improvements and do not have any delay in executing these repairs. Thus the benefit is two fold, as then the expense is incurred as budgeted and reflected in the appropriate month in the upcoming year. How many times have you seen a variance comment that looks something like this?
"Capital variance due to bidding process being longer than expected.
The project is due to commence within 60 days."
We feel it is important to accurately reflect capital improvements in the likely quarter they will occur. This will become even more important as capital markets tighten and mortgage lenders take a closer look at how their commercial assets are performing. We are prepared for this challenge at Midgard - because we always have approached our budgeting in this manner.
The annual budget and year end close isn't just about the numbers either - it's about our clients and their profitability within a specific asset. We manage the numbers and our profitability for our own portfolio and take the same care and attitude towards our clients' portfolios. We are never shy about making prudent suggestions regarding the cash flow on a property, and we have the added benefit of having a very experienced CPA at the helm of our accounting department that is also staffed with CPAs.
As an example, we third party manage a retail strip shopping center in a Western Suburb of Broward County. The 2010 budget called for the repainting and parking lot striping, which were fully bid. During 2010 three leases were coming due with no extensions. One of the tenants is scheduled to expand into the adjacent suite which is being vacated and the last tenant may very will not renew. With the budget reflecting these changes, vacancy and down time and associated tenant improvement cost, the projected 2010 year end cash flow was significantly decreased over the reforcasted 2009 figure.
In that 2009 was a profitable year for our client, we suggested that they perform the painting and parking lot striping during the last quarter 2009. In that these are pass through expenses, our client would also have the added benefit of recouping these costs during the fist quarter 2010 and through a fully leased property. If our client were to perform this task during 2010, they would not recover the entire cost due to the anticipated turnover during this year. This is the level of detail and service you can expect at Midgard.