TRICKS OF THE TRADE: Highlights from the Income/Expense Analysis® Studies by IREM

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The Income/Expense Analysis studies-providing data for five properties types: Office Buildings; Conventional Apartments; Shopping Centers; Federally Assisted Apartments; & Condominiums, Cooperatives, & Planned Unit Developments-have been a valuable resource for over 58 years now. Designed to help property owners and managers, investors, appraisers, lenders, developers and other real estate professionals evaluate and optimize a building's performance, the series is an invaluable resource for building better budgets, identifying ways to trim waste, addressing inefficiencies while making needed improvements, preparing feasibility studies, appraisals and loan requests, and much more. The following displays the highlights of the five publications.

?PICTURED IS ONE OF THE INCOME/EXPENSE ANALYSIS PUBLICATIONS ON FEDERALLY ASSISTED APARTMENTS. THIS IMAGE DOES NOT ILLUSTRATE THE REMAINING FOUR BOOKS IN THIS SERIES.

OFFICE BUILDINGS

The Income/Expense Analysis: Office Buildings research study, conducted by IREM since 1976, analyzes operating income and costs for 1,929 privatesector office complexes-some containing multiple buildings-in major metropolitan areas and regions in the United States and Canada. For the third consecutive year it also contains financial data, broken out separately, for 374 medical office buildings.

OFFICE BUILDING HIGHLIGHTS

* Total collections for suburban office complexes nationwide in 2012 increased 2.2 percent from 2011 levels to $18.62 per square foot of net rentable area. Similarly, downtown properties experienced a 1.9 percent year-to-year collections increase to $20.68 per square foot.

* Total operating costs for suburban buildings in 2012 increased a mere 0.2 percent from the prior year to $8.34 per square foot of rentable area, while those for downtown properties rose 1.4 percent to $10.09 per square foot.

* Nationally, net operating costs for suburban buildings in 2012 dipped 1.0 percent to $5.97 per square foot of rentable area, whereas those for downtown properties increased a mere 0.7 percent to $7.17 per square foot.

* The national vacancy rate for suburban properties in operation for 12 months was 10 percent in 2012, down 1.0 percent from the prior year. Downtown properties experienced an 8 percent vacancy rate, down from 9 percent in 2011.

CONVENTIONAL APARTMENTS

The Income!Expense Analysis: Conventional Apartments is designed to help real estate professionals evaluate multifamily development and investment options and compare their buildings' performance to industry norms.

The data for each sample is presented in dollars-per-square-foot of rentable area and as a percentage of gross possible income and dollars per unit. Individual metro market reports for more than 150 cities also are included along with an analysis of vacancy rates and operating unit trends plus a variety of historical trend reports. The study also summarizes data by building type, age, Section 42 properties, turnover and more.

CONVENTIONAL HIGHLIGHTS

* NOI for elevator buildings increased 12.3 percent to $9.92 per square foot; NOI for garden apartments rose 4.2 percent to $5.16 per square foot; NOI for low-rise buildings with 25 or more units rose 1.5 percent to $4.89 per square foot; and NOI for low-rise buildings with 1224 units declined 4.9 percent to $5.07 per square foot.

Looking at gross possible rents, low-rise buildings with 25-plus units reported the highest increase, 4.0 percent, raising the rent per square foot to $10.47. Low-rise buildings with 12 to 24 units reported a rent increase of 3.1 percent to $11.79 per square foot; elevator buildings reported a 2.6 percent rent increase to $16.83 per square foot; and garden buildings reported a 1.6 percent gain to $10.57 per square foot.

In terms of expenses, all four building types analyzed were more costly to operate in 2012. Elevator building expenses rose 2.5 percent to $7.90 per square foot; low-rise buildings with 12-24 units rose 3.5 percent to $5.66 per square foot; low-rise buildings with 25 or more units reported a 6.2 percent increase to $5.33 per square foot; and garden buildings rose 3.6 percent to $5.17 per square foot.

SHOPPING CENTERS

The Shopping Centers study, published in the Income!Expense Analysis: Shopping Centers, has been conducted by IREM since 1991, analyzes the previous year's operating data for 421 open shopping centers throughout the U.S. It is designed to provide real estate professionals and investors with current financial data for evaluating the performance of their properties and for preparing appraisals, budgets, loan requests and sales proposals.

The study breaks down open shopping center operating data into several categories, including property size, age, type of anchor, type of lease, average actual occupancy (AAO) and gross leasable area (GLA). The study includes national, regional and metropolitan statistics, along with several special reports including leasing fees, expansion, tenant turnover, type of ownership and gross sales analysis.

SHOPPING CENTERS HIGHLIGHTS

* Broken out regionally, median income for open centers in 2012 ranged from $14.10 to $22.74 per square foot versus a range of from $13.90 to $20.46 per square foot in 2011. The Northeast and Mid-Atlantic regions reported the highest income per square foot at $22.74.

* Regional results also revealed that the Southeast had the lowest median operating cost for open centers last year at $3.80 per square foot, whereas the Pacific Coast region had the highest at $6.46 per square foot.

* In terms of expenses, insurance and taxes in 2012 accounted nationally for 44.4 percent of the typical open center's total operating costs; contracted services - such as landscaping, security and trash removal - accounted for 12.9 percent; and maintenance/repair and utilities accounted for 8.7 percent and 8.3 percent, respectively. The percentage breakdowns for major expenses this past year are quite similar to those for 2011.

"THE INCOME/EXPENSE PUBLICATIONS ARE QUITE USEFUL WHEN EVALUATING INCOME AND EXPENSES ON A PROPERTY UNDER DEVELOPMENT, AS THEY ALLOW YOU TO COMPARE PROPERTIES OF SIMILAR SIZE, LOCATION (DOWNTOWN VERSUS SUBURBAN) AND AGE. THEY ARE ALSO HELPFUL FOR USE BY COMMERCIAL APPRAISERS TO EVALUATE COMPARABLE PROPERTIES TO ARRIVE AT AN OPINION OF VALUE IN TERMS OF APPRAISING COMMERCIAL REAL ESTATE, WHETHER FOR PURPOSES OF DETERMINING A FAIR MARKET VALUE FOR THE DISPOSITION OF THE ASSET, OR REFINANCING THE PROPERTY."

FEDERALLY ASSISTED APARTMENTS

The Income!Expense Analysis: < Federally Assisted Apartments, 1 conducted by IREM since 1986, 1 analyzes the previous year's operating data for more than 1,012 highrise (elevator buildings), low-rise and garden-style properties nationwidecontaining 88,099 units-that receive one of six types of federal assistance: HUD Sections 202, 221 (d)3, 236, Section 8 Elderly/Handicap and Section 8 Family and Rural Development Section 515.

Additionally, the study breaks down operating figures into several categories, such as building type, subsidy type, property size and property age. Regional and city reports are also included.

FEDERALLY ASSISTED APARTMENTS HIGHLIGHTS

* Operating expenses in 2012 vs. 2011 were up within a range of $.47 to $1.26 per square foot of rentable area for all types of Section 221(d)3 federally subsidized properties. In contrast, Section 8 Elderly/Handicapped housing experienced operating expense declines ranging from $0.14 to $0.99 per square foot. Depending upon building type, operating expenses for Section 202 properties as well as those in the Section 236 and Section 8 Family categories either were up (within a range of $0.30 to $2.28 per square foot) or down (within a range of $0.12 to $1.22 per square foot).

* In terms of net income by subsidy type, Section 202 building categories in 2012 ranged from $3.79 to $7.40 per square foot; Section 221(d) 3 buildings ranged from $4.74 to $6.56 per square foot; Section 236 buildings ranged from $2.94 to $4.14 per square foot; Section 8 Elderly/Handicapped buildings ranged from $4.84 to $7.25 per square foot; and Section 8 Family buildings ranged from $4.41 to $5.88 per square foot.

* Elevator buildings reported median net operating income ranging from $4.14 to $7.40 per square foot; low-rise buildings ranging from $2.94 to $4.84 per square foot; and garden buildings ranging from $3.82 to $7.25 per square foot.

CONDOMINIUMS, COOPERATIVES, AND PLANNED UNIT DEVELOPMENTS

The Expense Analysis: Condominiums, Cooperatives and Planned Unit Developments, conducted by IREM since 1978, analyzes the previous year's operating cost figures from 2,120 properties in the U.S. and Canada representing 276,990 units. It is designed to help condominium, co-op and planned unit development (PUD) boards and property managers benchmark their association's financial condition, calculate assessments and necessary replacement reserves and develop and evaluate budgets.

Additionally, the study summarizes data by association type (condominiums, cooperatives and planned unit developments) and building type (high-rise, low-rise and townhouse). It provides an analysis of over 30 expense categories, hundreds of operating breakdowns, median monthly assessments and an amenity package analysis.

HIGHLIGHTS FOR CONDOS, CO-OPS, AND PLANNED UNIT DEVELOPMENTS

* Median total annual operating expenses for all condominium building types as a group increased 3.0 percent in 2012 to $2,429.58 per unit from $2,359.29 per unit in 2011. Similarly, condominium dwellers as a group paid 3.2 percent more in assessments last year, with the median monthly assessment amounting to $248.34 per unit, compared with $240.61 the prior year. The typical association added $550.46 per unit to its reserve fund, versus $528.07 in 2011, representing 22.7 percent of total operating expenses.

* Breaking out per-unit operating expenses by condominium type, those for townhouses increased the most, 12.7 percent, increasing to $2,065.77. Those for high-rise properties also increased, 9.6 percent, to $4,272.23. On the downside, expenses for low-rise properties decreased 4.9 percent to $2,200.06, and those for combination properties dipped a mere 0.6 percent to $1,968.97.

* Breaking out reserves by building type, townhouse developments added annual reserves of $466.67 per unit, amounting to 22.6 percent of total operating expenses; low-rise properties added reserves of $507.00, equal to 23.0 percent of total operating expenses; high-rise properties added reserves of $833.34$381.25 per unit, or 19.4 percent of total operating expenses.

I/E LABS: COMPANION PRODUCT TRACKS DATA OVER 10-PLUS YEARS

A new state-of-the-art product called the Income/Expense Analysis Online Lab is available as a companion product for the research study. The Lab is an interactive website with 24/7 access that enables purchasers to download over 10 years of historical office building data-including over 100 customizable line-item variables-and compare it to the operating data in their individual portfolios. *

MATTHEW O'HARA (MOHARAOIREM.ORG) IS THE INCOME/ EXPENSE ANALYSIS MANAGER AT IREM HEADQUARTERS.

TO LEARN MORE ABOUT THE IREM INCOME/EXPENSE ANALYSIS® STUDIES OR TO PURCHASE COPIES. PLEASE SCAN THE QR CODE OR VISIT: www.irem. org/incomeexpense.

Nick Schwendeman, CPM, The Webb Companies, Senior Vice-President, Asset Management