Commercial Development: Operating Expenses


The purpose of this post is to outline the key functions of the Operating Expenses in CREModels commercial development models. These features should be universal across all commercial development models unless noted otherwise.


Operating expenses are expenses incurred by a property during its normal business functions. By contrast, a non-operating expense is an expense incurred by a business that is unrelated to the business’s normal operations. Examples of operating expenses include taxes, insurance and utilities. Examples of non-operating expenses include interest payments on debt, leasing costs, and typically depreciation expense. The Commercial Development Model allows users to input operating expenses based on a dollar per square foot ($/SF) amount, select the expenses start date, select an expense growth rate (inflation rate), and set a management fee percentage for the model. The Commercial Development Model will utilize the inputs to model operating expenses throughout the term of the analysis.


  • Operating Expenses Column
    • Input operating expense account names. Account names inputted will appear on annual reports.
  • SF
    • This column displays the square footage of the property which is calculated based on the square footage of all tenants listed in the Rent Roll Assumptions section of the model. This column is calculated using formulas and should not have any manual inputs.
  • $/SF
    • The “$/SF” column represents the dollar per square foot rate of each individual expense. If operating expenses are provided in annual amounts, they can be converted to $/SF by dividing the annual operating expense by the SF provided in column “SF”. If operating expenses are provided in monthly amount, they can be converted to $/SF by multiplying the month operating expenses by 12 and then dividing by the SF provided in column “SF”.
  • Start Month
    • The “Start Month” column allows users to select when each individual operating expense begins in the model. If operating expenses are set to 1 then they will begin occurring in month 1 of the project. If operating expenses are set to 13 then they begin occurring in month 13 or year 2 of the model. This function is useful for development deal modeling as it allows users to start their operating expenses after completion of construction. Expenses such as janitorial services will not likely commence until the completion of construction and beginning of tenant occupancy. Therefore, if construction is completed in year 2 of the model, users can select month 25 for janitorial services to commence which more accurately reflects when the property will begin incurring these expenses.
  • Expense Growth
    • Above the operating expenses table is an input for expense growth or inflation. This reflects that annual rate of increase for operating expenses in the model. By setting the expense growth to 2%, each individual operating expense will have an annual increase in cost of 2%. The expense growth amount inputted in cell Q276 will reflect the expense growth used in the model for all tenants.
  • Management Fee
    • The management fee input allows users to input a management fee percentage to determine the annual management fee expense charged to the property. Management fee expense is calculated by multiplying the yearly Total Effective Revenue by the management fee percentage. For example, if the Total Effective Revenue for a given year is $190,100 with a 6% management fee inputted then the management fee expense for the given year is $11,406 (190,100 x 6% = 11,406). As revenue increases throughout the term of the hold, the management fee expense will also increase.