Nobody necessarily looks forward to getting audited, but it’s invaluable in commercial real estate. A portfolio audit can highlight problems you must address to maximize your commercial property’s potential. Understandably, many property owners struggle with how to conduct a portfolio audit for commercial real estate.
The first step to conducting a portfolio audit for commercial real estate is to gather all the necessary documents. Notify your property manager, asset manager, and maintenance team so they can help you comply with the auditor. This makes it easier for the auditor to verify financial records and make sure your commercial property is compliant.
Many property owners elect to conduct a portfolio audit because of the useful information it provides. However, your portfolio audit may be mandated by the local Department of Real Estate if you are the subject of complaints. Follow along as we explore how to conduct a stress-free portfolio audit for commercial real estate.
What is a Commercial Real Estate Portfolio Audit?
A commercial real estate audit entails reviewing legal, financial, and operational data to gain important insight. For example, a portfolio audit can reveal overcharges and management financial discrepancies. Such information highlights oversights and problems that may keep you from operating at the best capacity.
The results of a portfolio audit can show property owners where they have gone wrong and have room to improve. It is mutually beneficial to tenants and landlords as the process helps clarify lease terms. However, commercial property owners get more insight from portfolio audits as most of the information pertains to them.
This comprehensive review is just as much about compliance as it is about finances. Portfolio audits help prevent profit losses and even fines or lawsuits later on. Most importantly, a portfolio audit can help you get the most value out of your property and agreements.
When Are Commercial Property Portfolio Audits Required?
Notable Cost Increases
Commercial properties come with many costs for landlords and tenants alike. However, it can raise red flags for both parties when costs suddenly increase without explanation. In that case, it’s worth the time and money to conduct a portfolio audit to understand and cut costs.
Management Changes
Changing management personnel and strategies can be a confusing process. That’s especially true if the previous manager didn’t handle financial information and documents well. Mismanaged financial information can lead to serious communication gaps and conundrums about how money is being handled.
In that case, a thorough portfolio audit can reveal key information about income and expenses. Sometimes this is mandated, but property owners can also elect to do so.
Inefficient Operation
A commercial property cannot stay afloat if it isn’t run well. That includes carefully tracking financial records and tenant information. This information is not only essential to maximize revenue but it’s also required for compliance.
Seemingly inaccurate financial statements can trigger a mandatory portfolio audit. Otherwise, you can elect to conduct a portfolio audit if you discover financial mismanagement. This is important as it can save you trouble later on.
Regulatory Audit
Regulatory portfolio audits are mandated by the Department of Real Estate. They determine when mandatory real estate portfolio audits are due. A representative from your local Department of Real Estate will contact you when it’s time to undergo a portfolio audit.
Regulatory audits are sometimes random, but they may occur because of complaints. For example, a landlord may face a portfolio audit if tenants file complaints about them. It depends on the grounds for the complaint and the scope of the problem.
How to Prepare for a Portfolio Audit
Preparation is key for a smooth, stress-free portfolio audit. You can make your portfolio audit much easier if you gather all the necessary documents regarding your commercial property. This includes financial statements, lease agreements, permits, licenses, and maintenance records.
That way, you can quickly present them to the auditor to expedite the process and make their job easier. Make sure you have all of your property tax information and a list of operating expenses. This lets the auditor verify that all the information is accurate.
Insurance documents are also necessary, and the auditor may look over your risk management plan. That’s especially true when undergoing a comprehensive audit that covers all aspects of your real estate portfolio. Otherwise, you may simply conduct a targeted audit about finances, energy efficiency, or safety.
Communicate With Your Team
A comprehensive portfolio audit can only go smoothly if everyone is on board. Commercial real estate takes a large team, and everyone must comply for the best results. Notify everyone from your property manager and asset manager to your maintenance team about the audit.
It’s much easier to gather all the necessary documents if your team is responsible for their respective departments. This can also reveal weaknesses within your team in some cases, which are essential to know about.
Work With the Auditor
There is a misconception that real estate auditors have malicious intentions. The truth is quite the opposite, and they are here to help you comply and stay afloat. While the process can be stressful, you can make it much easier if you work with the auditor.
Quickly respond to their questions and provide documents as they request them. This is much easier if you are organized, and it’s never too late to become mindful of that.
Keep Everything
Ideally, you should keep all your records on hand dating back to the start of your time in commercial real estate. This includes permits, licenses, tax records, leases, bills, and even renovation records. Such information can come up in an audit at any time, so it’s essential to have it.
Energy records are also important as sustainability is something that often gets checked for now. The results of an energy-efficiency audit can help cut costs at your commercial properties. For example, switching to LEDs can save you hundreds or thousands of dollars per year.
Maintain Compliance
Compliance regulations constantly evolve, and property owners must evolve along with them. Stay up to date with energy, sanitary, and habitability regulations to maintain compliance. This reduces the risk that you will face complaints that lead to a portfolio audit. It also makes it easier to conduct a portfolio audit when the time comes.
Choose a Reputable Auditor
If you elect to do a portfolio audit, it’s important to choose a reputable auditor. You don’t get this luxury for mandated portfolio audits, however. Ideally, you should choose an auditor with lots of experience in commercial real estate.
That way, they know what to look for regarding compliance, leases, maintenance records, and leases. A thorough real estate auditor can reveal weaknesses and inconsistencies within your business. This can ultimately help you correct such issues and get the most out of your commercial property.
Call CurCo Properties for a Seamless Portfolio Audit
The process of a portfolio audit may seem stressful, but it doesn’t need to be. At CurCo Properties, our approach to property and asset management makes this process much easier. Our thorough team ensures that your financial and maintenance records are well-managed and organized. Call CurCo Properties at (914)-771-7770 to conduct a stress-free portfolio audit for your commercial properties.