Question

REAL ESTATE FINANCE

1. What are (a) pass through expenses, (b) recoverable expenses, and (c) common area expenses? Give an example of each.

2. What types of expenses would property owners pay when operating and maintaining common areas? Give examples for office, retail, and warehouse properties.

Answer 1

Solution:- 1 Pass-throughs are expenses such as electricity, insurance, and property taxes that are billed directly to tenants on the basis of rentable area that they occupy.

Common areas include parking areas, lobbies, and hallways. Expenses related to these areas are referred to as common area expenses

Recoverablesare expenses incurred by owners for specific expenses identified in a lease such as security, maintenance, utilities, etc. and are pro-rated and billed to tenants.

2 Common area is for the benefit of all tenants.

An example of office properties would be the lobby area or common reception area

For retail example is Malls where all the area not occupied by the store itself is a common area to allow pedestrians to walk from store to store and use for special events.

For Warehouse, properties might have a loading dock that is shared by all tenants. All of these property types might have parking as a common area.

The tenants would often pay a pro-rata portion of the operating expenses related to these common areas such as property taxes, insurance, utility bills, and maintenance.