EXPENSE REIMBURSEMENTS

What is an Expense Reimbursement?

In a hurry:

 

Apply it today:

  • Reimbursements are the main difference between a gross and net lease

  • Periodic reconciliations keep the owner and tenant aware of who owes what to whom

  • Estimating reimbursement revenue correctly is key to valuing properties with net leases

 

By the end of this episode you’ll learn:

  • How do you calculate and allocate an expense reimbursement?

  • How do CAM reconciliations work?

  • How do expense reimbursements affect NOI and the pro forma?

Have a few minutes:

Commercial real estate reimbursements define how much of each operating expense a tenant must refund or repay an owner.

 

Different leases call for different reimbursement arrangements. For example, a gross lease does not require the tenant to reimburse the owner for any expense (they only pay base rent). But a triple net lease requires the tenant to reimburse their (proportionate) share of all operating expenses.

 

As you can imagine, there is a lot of gray area and variation between these two ends of the lease spectrum.

 

At the heart of a reimbursement is the idea that the owner still bears ultimate responsibility for the payment of operating expenses, it is their property after all. But, given their choice of lease type, they can pass along the burden of (re)payment to the tenant, hence the term passthrough expenses, another way to describe reimbursements.

 

The lease will define the terms, including which expense needs to be paid or repaid by which party at which point in time.

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