increased bills for operating expense passthroughs

Commercial tenants in California may be receiving significant increased bills for their operating expense passthroughs. Here are the possible reasons behind this – back in 2008 and 2009 during the Great Recession, when office and retail buildings tanked and rental rates cratered, many owners went to their local county and obtained property tax reductions. I spoke with the Assessor’s office and County’s are now reassessing properties based on the dramatic rental rate increases. In any case, they can’t go higher than the factored base value, which the original assessed value was escalated at no more than 2% annually. Other operating expense increases – property management fees are tied to the gross rental income. So, in some cases skyrocketing rental rates means hefty property management fee increases. Some owners are predicting PG&E and water increases of 4-5%, and union janitorial and maintenance may also add to the overall increase.

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