July 1, 2024
AI can help your team cross the budget finish line ahead of schedule and with unparalleled data accuracy. Read on to see how Prophia is powering the future of CRE budget season.
Managing commercial real estate involves critical milestones throughout the year, each presenting distinct challenges.
Year-Start: Property managers, VPs, accountants, and asset managers collaborate to reconcile common area maintenance costs after closing out all expenses.
Year-End: Final budgets require review and submission, including a detailed breakdown of operating expenses and projected income for the following year.
However, the period between June and August/September represents a particularly demanding time–budget season.
Property and asset managers dedicate significant effort to contacting vendors and tenants to create initial budget drafts for the coming year. This process can be lengthy, time-consuming, and prone to errors that necessitate justification to stakeholders.
Fortunately, the integration of AI and advanced technologies into commercial real estate offers a solution. CRE professionals, including asset managers, property managers, brokers, accountants, tenant reps, etc., will learn to use AI to streamline heady administrative tasks, and budget season, historically an arduous process, is a prime candidate for automation.
Read on to discover how Prophia, an AI-powered lease data management solution, can facilitate the creation of both standing and new budgets with greater speed and accuracy, freeing up valuable time for strategic initiatives.
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Recurring Challenges of Budget Season
How Prophia Provides AI-powered Budget Creation
Transforming All Future Budgets With Prophia
Recurring Challenges of Budget Season
Budget season in CRE can be a period of intense focus and activity. While the goal is to achieve a clear and accurate financial picture for the coming year, numerous challenges can arise, creating bottlenecks and delays. Here, we'll examine some of the most common hurdles faced by property managers and asset managers during this critical time.
Contracting/bidding new vendors.
Obtaining cost vendor cost estimates for the upcoming year can be time-consuming. Unresponsive points of contact, particularly between June and August, can significantly delay the compilation of initial expense drafts.
Reviewing inherited leases.
Leveraging existing budgets offers a degree of familiarity with established tenant leases, streamlining the annual budgeting process for asset and property managers. However, acquisitions and new tenants introduce complexities.
Increased Scrutiny: All stakeholders must meticulously review and compile income and cost data for new expenses, adding another step to the process.
Cash Flow Fluctuations: The operating expenses of new tenants can significantly impact a property's cash flow, requiring careful analysis.
Data Accuracy Concerns: Poorly formatted leases can hinder ownership representatives' ability to ensure accurate data integration, potentially leading to time-consuming corrections.
Achieving accuracy.
Budgets rarely align perfectly with year-end financials. Justifying variances to tenants is a recurring headache for property owners. Accurate budgets minimize the need for such justifications, fostering stronger relationships with tenants.
Setting up CAM pools for new tenants.
CAM pools can introduce a lot of complexity when creating budget estimates. They require very careful analysis of lease agreements and historical data, and if your team is unfamiliar with the terms of a multi-property asset, like a retail plaza, CAM pools can get very complicated and open your estimates up to scrutiny when reaching out to new tenants.
Prophia’s Coverage for Budget Season
Budget season in CRE is a notorious time crunch. Extracting accurate data from leases, verifying expenses, and building forecasts can all feel like an uphill battle. Here's how Prophia, the leading CRE lease data management tool, backs every step of the budget-building process with accurate data.
Verifying recoverable expenses.
Recoverable expenses are an all-encompassing category on a budget sheet. They consider multiple items including OPEX, taxes, insurance recovery, base years, etc. and they represent a very fundamental aspect of forecasting expenses and property cash flow over the coming year.
That being said, as a lease data management solution, Prophia makes it simple and seamless for property managers, asset managers, property accounts, etc. to access all of the lease terms that stipulate these amounts so you can seamlessly calculate estimates and get as close to “0” on your budget sheet as humanly possible.
Rent roll automation.
As the CRE industry’s leading lease data management tool, Prophia deftly pulls income-related data points needed to build new and standing budgets. With rent roll automation, everyone involved in pulling key facts and figures for budgets can extract future rents, concessions, and abatements for the coming year with a click, answering the million-dollar question with unmatched accuracy: How much money is the building going to be making?
Building a new budget from a new acquisition.
Leveraging existing budgets for established properties streamlines the annual budgeting process. However, acquisitions necessitate a meticulous review of new leases to ensure accurate income and expense projections. Prophia simplifies this task by facilitating a deep dive into each lease within the acquired building. This allows for the efficient extraction of crucial details regarding included and excluded property expenses.
Unveiling complexities in diverse properties.
Prophia’s AI-powered features are particularly valuable for properties with a mix of tenants or those with negotiated, non-standard lease types. For example, a property may have a mix of tenants, some on Gross Leases (where the tenant pays a fixed rent and the landlord covers all operating expenses) while others have Triple Net Leases (NNN) where the tenant pays rent plus a proportionate share of property taxes, insurance and common area maintenance.
Prophia's smart search feature empowers users to quickly identify these oddities within the lease agreements. Additionally, Prophia’s AI-powered lease abstraction distill important lease language into digestible summaries, further streamlining the review process.
Calculating utilities.
While utility costs often appear straightforward on the surface, complexities can lurk within seemingly standard lease agreements. These hidden nuances can have a significant impact on budget accuracy. Prophia tackles this challenge by delving deeper into lease language. It uncovers every specification related to tenant utilities, including estimated costs, adjustments made throughout the year, and crucially, details regarding submeters.
By factoring in these intricacies, Prophia ensures your annual budgets reflect reality. This eliminates the risk of unexpected variances and unpleasant surprises at year-end.
Transforming Every Future Budget with Prophia
By equipping yourself with the right tools, budget season doesn't have to be a daunting task. Prophia, the leading CRE lease data management platform, empowers you to conquer every step of the process with unmatched efficiency and accuracy.
From automated rent roll generation to insightful summaries that unveil hidden complexities within diverse lease structures, Prophia streamlines data extraction, eliminates manual review, and ensures your budgets reflect reality. This translates to more predictable cash flow forecasting, minimized time spent justifying variances to tenants, and ultimately, stronger financial decision-making.
Ready to transform your budget season from a battleground to a victory lap? Contact a member of Prophia's team today to learn more about how our AI-powered solution can empower your CRE team.