Commercial Real Estate Insights | By Augusto Alizo | Published September 2026
I was recently asked to lead the 2027 budget process for a commercial real estate portfolio of more than 50 properties.
I have been involved in plenty of budgets throughout my career, but working through a portfolio of this scale was a good reminder that a property budget is much more than a financial exercise. Done properly, it becomes the operating plan for the property for the next twelve months.
It is tempting to begin by opening last year's budget, reviewing year-to-date expenses and applying assumptions to each line item.
Those numbers matter, but the better place to start is by understanding what is actually happening at the property. What is the ownership strategy? Are there upcoming lease expirations? What does the leasing pipeline look like? Are there deferred maintenance items, major repairs or capital projects ahead? Ownership, asset management, leasing, construction, accounting and the people working at the property all have information that can materially affect the assumptions.
The numbers should come after those conversations, not before them.
Projecting an operating expense is only one side of the equation. The other is understanding how much of that expense can actually be recovered from the tenants.
Lease structures, base years, expense stops, gross-up provisions, exclusions and caps can all affect recoveries. A 5% cap on controllable expenses, for example, can materially change the recovery assumption even when the underlying expense budget is accurate. Miss the cap, and the expense projection may be right while the NOI projection is wrong. Lease information needs to be part of the budgeting process from the beginning.
Historical results are important, but last year's budget should be a reference—not the justification for next year's number.
Contracts expire. Vendors increase pricing. Equipment ages. Occupancy changes. Insurance gets repriced. Tax assessments change. Budget season is an opportunity to look at expenses individually and ask a simple question: Does this number still make sense? It is also an opportunity to challenge costs, revisit scopes and negotiate contracts rather than simply accepting another annual increase.
Roofs, HVAC systems, elevators and parking lots do not care when budget season occurs. Neither do code requirements, inspections or compliance deadlines.
Some projects are discretionary. Others are not. Known capital needs should be identified early and mapped over the next three to five years, giving ownership visibility into what may be coming beyond the immediate budget year. The objective is to address major building requirements proactively rather than only when something fails.
Sometimes every individual line item can be reasonably supported and the budget still doesn't make sense when viewed as a whole. Once the assumptions have been built, step back. What is driving the change in NOI? Are recovery percentages consistent with the lease structure? Are significant year-over-year variances understood and explainable?
A budget should be mathematically correct, but it also needs to make operational sense.
A property can have a perfectly reasonable annual budget and still run short of cash during the year. Taxes, insurance, tenant improvements, leasing commissions and capital projects rarely occur evenly over twelve months. Annual totals can hide those timing issues.
The operating budget and monthly cash flow should be developed together. If the property cannot fund its obligations in a particular month, ownership should know that before the year begins—not when the cash is needed.
A good budget takes time, but that work pays for itself throughout the following year. The assumptions established during budget season become the basis for tenant billing, monthly reporting, variance explanations, funding requests, CAM reconciliations and ultimately the property's projected NOI.
That is why the budgeting process is more than an annual accounting exercise. It establishes the baseline for how the property is expected to perform throughout the year.
The budget spreadsheet captures the numbers. The real value is in what goes beyond them — the assumptions, priorities, conversations and judgment that went into building it.
About the Author
Augusto Alizo is a commercial real estate executive with over 20 years of experience managing transactions, development, and facilities across the U.S. and Latin America. He writes about real estate, strategy, and leadership at augustoalizo.com.