When to Separately Report a Multi-Building Complex
This article assumes you are preparing a purchase price allocation analysis for accounting/financial reporting purposes and are trying to decide whether to separately break out values to each of several buildings in a multi-property campus or similar situation.
Bookkeeping seems to be simplified if we can group several similar buildings into a single asset on the balance sheet - think office campuses, large retail centers, industrial parks, etc. Most large audit/accounting firms will accept a grouping of similar assets, but the real question is whether or not it is really in your long-term best interest.
At Allocation Advisors, we generally recommend clients consider separating their values out by individual buildings if they can foresee a scenario in which they will sell the buildings separately rather than as a group. The extra effort of breaking values out by individual property at acquisition pales in comparison to the effort and documentation required to carve out an asset from a larger balance sheet item when it is being sold.
In some cases, land, parking, and other elements of the campus or project can be split on relative square footage, making it easy to break out a single item later, but in many cases it’s not that simple. Consider these factors when deciding whether to book separately or by building group. If your answers to these questions are “no” then you may want to consider booking the buildings as separate assets.
Would a future sale almost certainly be for the entire campus/center?
Are the buildings all of similar age and construction quality?
Are rents relatively consistent among the various buildings?
Is parking shared among all of the buildings or otherwise clearly delineated?
Are the underlying land parcels all of similar value (ingress/egress, visibility, etc.)?
If debt is involved, is the entire campus/center used as collateral?
We have heard many horror stories of prolonged internal discussions and external auditor reviews associated with trying to allocate cost basis when one component of a larger property is being sold, so consider your options carefully and set your accounting up in a way that anticipates the types of transactions you may take on when exiting the property.