What is Budgeting Season and Why is Everyone So Budy?
Every year, around this time, it seems like everybody in commercial real estate starts to say they're swamped with budgeting season.

I understand that it's the time where begin collecting information, bids, etc. to make a budget for the next year.

But what aspects take so long? Why is every single person "swamped"? How do decisions get made?
[{"id": "h5b0d0t", "text": "No idea who the \"everyone\" you're referring to, but no brokers do this. Construction maybe, but brokerage? Nah", "replies": [], "depth": 1}, {"id": "h5b47kh", "text": "Budgeting season is for property management and billing purposes.\nAt this point in the year, typically there is a clause in the property management contract to provide the building owners with a budget for 2022 by the end of the 3rd quarter. \nThis budget at this point is to address any major capital improvement plans, address any changes to existing maintenance contracts, and discuss lease roll over or new leases. Since lots off offices were leased, but vacant in 2021, and planned to be occupied on 2022, building owners and management need to put in extra effort to review cleaning contracts, utility bills and staffing for next year. Usually cost budgeting is pretty easy with increasing expenses 3% annually before Covid, but now it is a very rough guess at operating expenses for next year. \nOnce the calendar year ends the next step is to start the True-up process that is the busy season for property accountants. Office space has CAM (common area maintenance) charges or NNN lease charges for retail. These monthly charges are based on an annual estimate and are Trued-up against actually expenses for the prior year. Typically a building owner will slightly over bill tenants of expenses and give them a slight refund on the difference between estimated and actually expenses for the prior year. The accountant also uses the actual prior year expenses, and analyze the planned 2022 budget to revise the estimated CAM or NNN charges that will be billed to tenants for 2022 estimated expenses. \nAmateur run properties will claim they are NNN, but realistically they often only have tenants pay utilities, insurance, and taxes. This leaves tenants to neglect doing any repairs and maintenance and let's the property look run down over time.", "replies": [{"id": "h5eiii5", "text": "Thank you, u/VulcanMind1 this was the exact type of insight I was hoping for.\n\nGreat point on the extra difficulty this year post-COVID +1", "replies": [], "depth": 2}], "depth": 1}, {"id": "h5b5re7", "text": "Property management is swamped because a property manager may oversee 4-10 properties. This budgeting work is on top of their regularly daily activities of dealing with tenant complaints, overseeing Capital improvement projects, and addressing emergency repairs that doesn't stop because it is budgeting season. \nTypically a property manager is given enough properties to over see to fill up at least a 40 hour work week. Adding on budgeting means the property manager will have to put in overtime to meet the budgeting deadline for ALL the properties they manage.", "replies": [], "depth": 1}, {"id": "h5cwxd2", "text": "At the end of q3 most large owners require a reforecast of the existing budget and the next 1-2 years of budgets to be provided. It's a super iterative process with a lot of research, discussion, and vetting of assumptions. Add in sometimes crappy software, and the fact that we all have day jobs, and it's a lot.\n\nPersonally, I have to review and approve 17 budgets, or about $30m of NOI every year. My budgets have to be approved by senior leadership and portfolio management, so they can't be sloppy. I'll work at least 60 hours a week for a month or two in order to accomplish this", "replies": [{"id": "h5eixle", "text": "Thanks for the input u/MrsNLupin \\- sounds like a ton of work.\n\nAnything else go into these budgets besides what u/VulcanMind1 mentioned (capital improvements, maintenance and cleaning contracts, utilities, lease roll overs)? \n\nAlso, what makes the software \"crappy\"?", "replies": [{"id": "h5ejmzc", "text": "It's the whole budget. Market rent, vacancy, concessions, other income, payroll, rm, turn costs, taxes, insurance, Capex, debt service, etc. Basically, I need you to predict what my entire income statement will look like at the end of the year...and it needs to be right, because if it isn't, we'll be writing shit tons of variance explanations every month and no one has time for that.\n\nMost budget software isn't nuanced, especially in multifamily. It often struggles with renovations or concepts like loss to lease, or it's not predictive. As an example, my turnover costs are a direct result of the number of ntv I get in any month, but almost no budgeting software draws that connection, so we have to manually calculate turnover every month by multiplying the average turn cost by the number of expirations that don't renew. I have 17 budgets... So I have to run this manual calculation 204 times...", "replies": [{"id": "h5esnjx", "text": "Budgeting for apartments seems like a nightmare. I thankfully didn't deal with apartment budgets. One solution could be to set up a link between excel and the software system you use to pull all the initial budget data from the software system into an excel model then have the excel model edit the budget with your turnover assumptions and upload the revised budget back into the software system. I did this approach for other commercial properties. It has it's own set of issuing with needing to adjust the model if new income or expense categories were created that were not in the existing excel model.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]