The Next Big Thing: The Impact of COVID-19 on Operating Expense Pass-Throughs

The rapid pace at which the COVID-19 pandemic is spreading-and the global actions that are being implemented to curtail it-has led to unprecedented medical, psychological and financial challenges.

The commercial real estate industry has been “front and center” throughout the pandemic by working with tenants to quickly move operations to a remote work environment, implementing new cleaning and indoor air quality (IAQ) protocols to prevent the spread of COVID-19 and creating new return to work strategies to keep tenants and visitors safe. Much of the work so far has focused on implementing operational strategies to combat this coronavirus. Now, with budget season in full swing, the “next big thing” is to evaluate the financial impact of COVID-19 on commercial real estate.

For many owners and managers, operating expenses are all over the place this year: Some expenses will increase (like COVID-19-related deep cleaning costs and implementation costs to return to work), some expenses will decrease (like utility use and trash removal) and some expenses will not be impacted (like preventive maintenance costs and service contracts).

More importantly, these operating expense cost fluctuations will cause significant challenges when calculating each tenant’s operating expense pass-through obligation for 2020. It’s not only that pass-through calculations will be difficult, but it’s also that the lease language does not offer a definitive process to accurately calculate the tenant’s operating expense obligations. Looking forward, we can foresee the “train wreck” that will occur when, in the absence of lease language to define how the calculations should be made, landlords will reconcile operating expense pass-throughs in early 2021. During the webinar, our panelists will help you think strategically about how to:

* Explore the short- and long-term financial implications of the pandemic for owners, operators and tenants;

* Discover steps you can take before the end of the year to reduce the financial impact of COVID-19;

* Discuss how to evaluate and analyze data to assist with reforecasting and gross-up; and

* Describe emerging trends for predicting a property's financial performance.

P. Marc Fischer, BOMA Fellow, MBA, CPM®, RPA®, CCIM®, LEED® Green Associate (Moderator)

InspiRE CRE, LLC

P. Marc Fischer, BOMA Fellow, MBA, CPM®, RPA®, CCIM®, LEED® Green Associate is President & CEO of InspiRE CRE, LLC, a Mid-Atlantic-based commercial real estate consulting and training organization. A former president of BOMA/Baltimore, Fischer is an inaugural member of the BOMA Fellows program. In addition to authoring many BOMA International courses and publications, including the Foundations of Real Estate Management program, he is a sought after speaker on a variety of commercial real estate topics.

William H. Brownfield, CRE, CCIM

President, Brownfield & Mayerhofer

Mr. Brownfield has been in the commercial real estate industry for almost 40 years, during which time he has been responsible for 28 million square feet of Class A & B office properties in 22 U.S. markets, and has handled acquisitions and dispositions across the office, retail, and self-storage industries with an aggregate value in excess of $1 billion. He is also an owner and investor in commercial real estate, with a primary focus on self-storage facilities and office buildings located in several Texas markets.

Judith A. Purviance-Anderson RPA, BOMA Fellow

Associate Director, Asset Services, Cushman & Wakefield

Judy is an Associate Director with Cushman & Wakefield U.S. Her industry management experience includes 1670 Broadway, a 705K RSF office tower as well as several other properties under C&W management. Judy has a BA in Management, is a graduate of the Denver Paralegal Institute and is a BOMA Fellow. She holds an RPA designation and is a licensed Colorado Broker.

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