Energy Efficiency with SVNGreen.com

As a company that prides itself on constantly utilizing the best technology in order to benefit its clients, we at Sperry Van Ness International Corporation (SVNIC) have launched SVNGreen.com, which operates off of the GreenPSF technology platform.  The new website will assist our property management staff by providing their clients with a quick snapshot of different cost saving options, which will lead to buildings becoming more energy efficient and sustainable.  If a property owner decides to move forward with a larger project, our staff will be able to use the platform to create, distribute, and manage the RFP process.  Along with outside consultants, the SVN organization will be able to move projects forward much quicker than many of its competitors.

Many management companies constantly sell their clients on their sustainability programs and strong staff.  However, the staff is usually small in number and focused on much larger trophy properties.  This often leaves the smaller, entrepreneurial investor and medium-sized investment firms without many options.  By working with any one of the 1,200+ Advisors or staff, you can get access to cost and energy savings opportunities in a matter of minutes.  The website also provides access to rebate information from local, state, and municipalities.

The goal of the offering is to not only to make buildings more energy efficient, but also to reduce the operating expenses, effectively increasing the net operating income to the owner and value of the property.  This is only one of the programs focused on reducing property owners’ operating expenses that is offered as part of the SVN Property Management Value Proposition.  Last year the SVN organization introduced their exclusive Master Insurance Program, which has saved their clients an average of more than 31% on underwritten policies to date.

To learn more about SVNGreen.com and how they can save you money on your buildings operating expenses, click here.


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Understand Your Lease, Avoid Unexpected Expenses

It is not uncommon for our office to receive phone calls from commercial tenants whose leases are nearing expiration and who feel they did not get what they bargained for when they originally signed their lease. Often, these tenants incurred significant unexpected charges or expenses during their lease term, which soured their relationship with their landlord and motivated them to find space elsewhere rather than extend their lease.

I feel the majority of these situations are not the result of intentional wrongdoing or purposeful deceit on the part of the landlord, but rather they emerge due to a lack of knowledge and understanding, primarily on the part of the tenant. This makes sense when you consider that landlords typically generate the lease documents and are therefore very familiar with their content. In addition, the majority of landlords have signed numerous leases with many tenants over many years. In contrast, a business tenant may only be a signatory on a commercial lease a couple of times during their entire career, and gaining an in-depth understanding of an unfamiliar and complicated multi-page legal document packed with small print can be a daunting task, not to mention an unwelcome interruption to running a business.

signature-389933_640I would say that many landlord/tenant financial misunderstandings relate to “operating expense” clauses in the lease. Property investors (aka landlords) purchase commercial property in anticipation of a projected return, and they, quite logically, seek to reduce risk and maintain that return over the life of the investment. Therefore, it is reasonable that landlords typically look to pass property operating expenses on to their tenants by way of a “net” lease. The problems arise, however, when, due to the complexity of the property operating cost language: 1) tenants do not understand what they are signing and the affect that operating expense clauses will have on their total rental expense; or 2) the tenant is suddenly hit with a crippling increase in operating expenses due to broad and open-ended lease provisions that were not negotiated or limited to any degree. If tenants take the time to understand the true financial implications of their lease up front, or secure representation from experts such as real estate attorneys or commercial real estate brokers, then they will have the opportunity to negotiate lease terms that are realistic and acceptable to their business needs, or alternatively, choose another building that falls within their budget.

Property operating expenses generally fall into three primary categories – property taxes, insurance and maintenance. The term “triple net” (or, “NNN”) relates to these three expense groupings. A triple net lease therefore would be a lease where your base rent payment is “net” of taxes, insurance and maintenance charges, but where these expenses are billed to you separately in addition to your base rent. A “net” lease rate will, therefore, typically be less than a “gross” lease rate which already has operating expenses built in.

To avoid unpleasant and financially burdensome surprises when considering signing a net lease, I recommend the following:

  • Request from the landlord a detailed breakdown of the property operating expenses over the past few years. From this, you should be able to determine which expenses are actually being passed through and whether there have been wide swings in the amount of total expenses each year.
  • Examine closely the lease language defining “operating expenses.” Operating expenses should NOT include things like: i) capital expenditures (a tenant should not have to pay for the landlord’s brand new roof); ii) personal property (the lawn mower the landlord bought primarily for his home); iii) income and capital gains taxes; iv) expenses for which landlord is reimbursed by any third party, other tenant, or insurance proceeds; v) loan fees, mortgage payments; vi) un-earmarked reserves; vii) various other costs that sometimes appear in leases but that do not relate to typical building operating expenses.
  • Pay special attention to any property tax related lease clause(s) as property taxes are often the most expensive component of operating expenses. Can items such as municipal improvement bonds be included with property tax pass-throughs? If so, be sure to know what these items total. If the property sells at a much higher price than currently assessed, are you fully obligated to pay the entire tax increase when the property is reassessed?
  • Request that triple net charges (sometimes called “CAMs” or common area maintenance fees) be estimated annually and billed in equal monthly installments that can only change upon prior written notice by landlord.
  • Attempt to negotiate a reasonable cap or limit on the amount that operating expenses may increase each year. If you are paying $.15 per square foot in triple net charges and then they suddenly increase by 100 percent to $.30/sf, this could gravely affect your operational cashflow.

To learn more , please contact Lock Richards, Managing Director of Sperry Van Ness | Highland Commercial at Lock.Richards@svn.com or 530.470.1740.