mkc-asset-management-logo
consulting-services-case-studies

What The Industry Is Saying

We’ve known of Mickey’s work in this area for years, and when we’re called upon to possibly audit his work, we know there will be nothing there for us to find wrong. He knows what he’s doing and he always does it right, according to the leases, and fairly."

~ Terry Barger, Founder & Principal, CyberLease LLC (the leading Lease Auditing firm in the nation)

 


 
 

Consulting Services Case Studies

due-diligence-finds-major-cam-oe-escalation-exposure-for-buyer  

Due Diligence Finds Major CAM/OE Escalation Exposure for Buyer
Executive Park

View Full Case Study

The Situation
A client was interested in purchasing an underpriced office park in an excellent suburban area that with good management and effective leasing would potentially reap a significant return on their investment. During the Due Diligence process, we suggested that we be allowed to review the CAM/OE Escalations that the Seller had been doing previously to determine if they had been done right or not. We found that they in fact had been done wrong, and, therefore, there was a significant exposure to the Buyer if any of the tenants began to challenge past billings after the close of escrow.

Our Solution
After we had informed the Buyer and its legal counsel of the situation, they were able to obtain from the Seller an agreement to impound over $250,000 to cover their potential exposure if tenants challenged their historical billings. We also developed a plan going forward to ensure that all future billings were performed correctly per their leases.

The Result
The Seller funded the impound account from which the Buyer drew amounts to correct all deficiencies. In addition, all subsequent billings by our property team, while having a different format than prior billings, reflected the improved and correct methodologies, thus preventing any tenant concerns that may have been brewing. Overall, the Buyer was fully protected from all exposure for prior errors, which would normally have never been determined under normal Due Diligence processes.


cam-oe-escalations  

Complex CAM/OE Escalations & Audit Defense
Major Property Owner

View Full Case Study

The Situation
One of our long-term clients (for whom we had been doing CAM/OE Escalations for many of their buildings each year) asked us to help them with a very difficult situation that they had just encountered with a new 1-million sf project they had just purchased. The project contained over 30 tenants including 3 major tenants of at least 200,000 sf each, one of whom, a very large group of high-profile lawyers, had just decided to audit the past 2 years of CAM/OE Escalation billings that the prior owner and management company had prepared and sent to them. Our client, having inherited the problem audit from the prior property owner (which disbanded soon after the closing of the sale escrow), had very little knowledge of the escalations’ computation details but a huge exposure with this audit, and therefore decided that they couldn’t appropriately “defend” the large billings without some expert help. Because the tenant’s lease auditor, CyberLease, was the best in the nation, our client decided to retain us to “work with the auditor to achieve the correct results and billings”.

Our Solution
MKC’s expertise in and in-depth knowledge of CAM/OE Escalations proved to be the turning point in what was becoming a contentious situation between a highly influential tenant and the new long-term property owner. Upon immediately obtaining all of the relevant documentation (which included Gross-Up worksheets, 24-months of General Ledgers, access to paid invoices, and all other escalation calculation formulas and worksheets), MKC and the auditor put aside all partisanship and set out to correctly re-compute the escalations “per the lease language and industry standard protocol”.

The Result
After only 1-1/2-weeks of detailed reviews and collaboration, MKC and the lease auditor’s team came to the “right” conclusions (based on the tenant’s lease language and “industry standard” protocol), which resulted in both the tenant’s and the property owner’s immediate and full concurrence. Procedures for future CAM/OE Escalations were then quickly agreed to and documented ensuring that the “right” process was adhered to each year into the future. Additionally, our client was able to obtain full relief (in amounts based on our initial pre-sale Due Diligence estimates) from the prior owners. And, as a result of our understanding the details of this ultra-complex escalation for this high-visibility property, MKC was retained to perform the CAM/OE Escalations for the project going forward. We soon discovered, however, that the annual escalations for this property weren’t of the simple “one-size-fits-all” variety – instead each of the property’s approximately 30 tenants had very different provisions for Gross-Up procedures, escalation computation methodologies, escalatable and non-escalatable expenses, expense growth caps, differing cost pools (there were 10 each containing approximately 60 expense categories) to pull escalatable expenses from, etc. In essence, this one property turned out requiring seven (7) entirely separate groups/types of “escalations” done each year for its approximately 30 tenants – a process that takes approximately 200 hours each year to complete and is far too complex for anyone other than an expert. In the 6 years that MKC has since performed the CAM/OE Escalations for this project, only once has a tenant subsequently audited their billing – and their lease auditor found that MKC’s computations were 100% correct and in accordance with “industry standards” and the tenant’s complex lease language. The bottom line? MKC saved its client hundreds of thousands of dollars in the initial audit, has performed each tenant’s CAM/OE Escalations correctly since taking over the assignment, and has ensured that the annual reconciliation is in compliance with each tenant’s lease provisions, industry standard protocol, and fair and equitable standards, thus benefitting all parties as originally intended.


cam-oe-savings  

$1.2M CAM/OE Escalation Savings
Regional Bank

View Full Case Study

The Situation
One of our Lease Administration Services clients, a major regional bank with over 100 leased locations, receives over 75 annual CAM/OE Escalations from their landlords (our client “self-manages” their other locations under NNN leases). Additionally, every year approximately 15% of their locations change as a result of bank takeovers, lease terminations/expirations, new growth locations, etc. With a staff of 2 in their Facilities Department, correctly analyzing these specialized rent charges was difficult to accomplish, to say the least.

Our Solution
MKC’s expertise in CAM/OE Escalations was called upon to review each of the landlord’s CAM/OE Escalation Reconciliation Statements as they came in for payment. Because all of the client’s leases had been abstracted using MKC’s exclusive “CLASS” lease abstracting system, we knew the details of what each lease permitted, and we knew the deadlines for “challenging” such Statements. Once we implemented our “preliminary review” process, each of which takes less than 45 minutes, on each such Statement, remarkable results were achieved.

The Result
Because of our in-depth knowledge of CAM/OE Escalations in general and the bank’s agreements under each lease in particular, as well as because of our extensive experience in managing commercial real estate of all kinds including how properties operate and the costs associated with them, we could easily determine if something was wrong with any Reconciliation Statement. While many of them were in compliance with the bank’s associated lease and in line with expected expense parameters for such properties, a number weren’t. By “challenging” the landlords of such locations by simply “ghost writing” letters for our clients (it’s better in such cases and at that point if the “tenant” complains to the landlord instead of a “vendor” on its behalf) that identified the problems, why they are wrong including citations from the lease document itself or from generally accepted property management or accounting standards, and what the changed results should instead be (i.e., we showed them how it was supposed to have been done), we were able to secure, typically within a couple of weeks, corrections to the billings. To-date, over this approximate 10-year assignment, over $1.2M has been saved in actual cash payments (MKC does not share in any of these savings), and none have had to go to the full “audit” (thereby, also saving the client money there).


rent-cpi  

$250,000 Base Rent CPI Adjustment Savings
Regional Bank

View Full Case Study

The Situation
One of our Lease Administration Services clients, a major regional bank with over 100 leased locations, receives approximately 20 annual CPI Adjustments to their Base Rent from their landlords. Typically, a landlord’s Property Management firm (i.e., either the Property Manager or the firm’s Accounting Department) implements a “standard” CPI adjustment – one that they think is the method for this, and all, leases – and they then compute the increase and bill accordingly. Generally, this means that either: (i) the wrong Index is used (e.g., All Urban Consumers instead of Urban Wage Earners and Clerical Workers, or U.S. All Items instead of Los Angeles All Items, etc.); (ii) the wrong Comparison Months are used; (iii) the wrong rent amount is used (e.g., the initial Base Rent instead of the immediately prior Base Rent); (iv) the wrong computational procedure is used (e.g., a “Year-to-Year Base Index” is used instead of a “Fixed Base Index”); or (v) the wrong, or no, caps were implemented (e.g., the CPI adjustment reflected a 3.5% increase although the lease mandated a 3% cap).

Our Soluiton
MKC’s expertise in Base Rent CPI adjustments was called upon to review each of the landlord’s Statements as they came in for payment. Because all of the client’s leases had been abstracted using MKC’s exclusive CLASS lease abstracting system, we knew the details of what each lease mandated. Once we implemented our “preliminary review” process, each of which takes less than 45 minutes, on each such Statement, remarkable results were achieved.

The Result
Because of our in-depth knowledge of CPI adjustments in general, as well as what the bank’s associated lease’s “cost of living adjustment” language actually means, we were able to easily determine if something was wrong with any Statement simply by re-computing all adjustments using our exclusive CPI Adjustment Computation System and comparing the results to what the landlord has submitted. Typically, more than half of all submitted CPI Adjustments are wrong, an amount also experienced with this client. By “challenging” the landlords of such locations by simply “ghost writing” letters for our clients (it’s better in such cases and at that point if the “tenant” complains to the landlord instead of a “vendor” on its behalf) that identified the problems, why they are wrong including citations from the lease document itself, and what the changed results should instead be (i.e., we showed them how it was supposed to have been done), we were able to secure, typically within a couple of weeks, corrections to the billings. To-date, over this approximate 10-year assignment, approximately $250,000 has been saved in actual cash payments (keep in mind that all CPI adjustments carry over year-to-year throughout the lease term unless it’s corrected up front). Because MKC does not share in any of these savings, it all goes immediately to the client’s bottom line.


leased-files-organized  

Lease Files Organized = Save Time & Money + Pass Audits
Regional Bank

View Full Case Study

The Situation
At the start of a new assignment with a small regional bank, we were given the files for their approximately 35 leased and owned locations. Nothing was organized, and everything had been simply thrown into large manila file folders for each location. Lease amendments were filed out of order, some with exhibits from other amendments. No history of CAM/OE Escalation billings or CPI Adjustments to their Base Rent had been retained. Correspondence was intermingled with lease documents, and some formal lease documentation (e.g., Commencement Date Agreements) had been treated as a simple piece of correspondence. Nothing could be found easily if a situation arose that needed immediate attention. Additionally, no Lease Abstracts existed to provide a quick summary to refer to of what each lease mandated or where to go within the lease to find a detailed answer. Although the bank’s staff members were experts in their “core” business of banking, they didn’t have time for such “non-core” functions as real estate lease administration.

Our Solution
Our team immediately sorted through each leased and owned location’s file, organizing each into a standardized and proven format as used in the commercial real estate property management industry. The original, wet-ink lease document (if it existed, otherwise a “clean” copy) was copied with the original filed separately in a fireproof cabinet, while the copy became the “working copy” in the lease file. This “working copy” was then used in our process of abstracting all of the client’s leases using MKC’s exclusive CLASS lease abstracting system.

The Result
The client’s lease files quickly became thoroughly “organized”, with sections dealing specifically with separate matters. Because the “working copy” of the lease had been (i) highlighted to identify important phrases, (ii) marked with penciled comments to explain or comment on special issues, and (iii) further marked up to indicate deleted or changed provisions as a result of subsequent amendments, the bank’s Facilities Group had files reflecting the “most “up-to-date” agreements. Each month MKC assists in filing all paperwork that the Facilities Group has accumulated during the month so that everything is orderly and easily found. As a result of this work, the bank’s Facility Group (i) passes “with flying colors” each of their annual internal and external procedural audits, (ii) can in minutes get answers to any lease-related questions posed by either bank executives or branch managers, (iii) has time to spend on other “core” functions of their business, and (iv) know with certainty, and never miss, any “Lease Option or Tickler” deadlines.

Below are the pictures of the bank’s lease files “before” and “after” MKC worked on them:

Before

After

case-study-consulting-services
case-study-consulting-services-after
case-study-consulting-services-before
case-study-consulting-services-after
©MKC Asset Management, Inc. 2013 | Privacy Policy