CPA as Trusted Intermediary for Client’s Space Change

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Users of commercial space need negotiating advantage and a level playing field to perpetuate and/or facilitate their competitive advantage.  Handling space change as a demand-driven commodity often leads to overpaying and gives up legal rights of space use; that can become a material encumbrance on future revenues and operations.  Commoditized space change (e.g. listings, business terms, legal, uses of cash) enters a deal’s lifecycle 2/3 of the way into the transaction.  It enables the landlord [or seller] to benefit well economically and legally over the lease term [or at sale closing].  As space costs rise, a planned space change is more likely to facilitate operating objectives during the occupancy period (e.g. sharp cost, legal flexibility of space use).

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Clients expect their CPA [and CFO] to advise how to keep more of the revenue they make.  Unbeknownst to [client-facing] the firm’s practice partners, the CPA team can be leveraged as trusted intermediary to help evaluate feasibility, prepare for, and complete space change.  The client-facing [practice] partner should offer preliminary due diligence services that includes projections of future space costs, occupancy term per trends in [client] revenue history, plus a budget for space change.  The result is Occupancy Cost Ratio (OCR).  OCR suggests revenue as consistent healthy multiple of space costs; what ratio is in the client’s best economic interests?  What do operating trends suggest the term of the lease to be, limiting the impact of space costs on revenue?  If a property purchase is considered, what size should the land and building be to meet operating and future growth needs?  Should a portion of the building be leased until needed to grow daily operations?

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The CPA team projects a budget for space change, that plans for rent security [or down payment], tenant improvements, and moving costs, leaving room for unexpected nominal items.  Space change costs can be factored into the change year’s P&L to assess its impact and payback term.  Any tenant improvement costs may be depreciable over the lease term.  The CPA team also explains the tax advantages of property ownership when applicable.

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The firm’s business development executive should build a network of savvy commercial tenant reps to partner with when client’s require space change.  BREG’s 7-Point Service partners with CPA’s to process their client’s space change; the project partnership factors Occupancy Cost Ratio.  Click here to learn more.