With a given CAM expense and occupancy, how is the operating expense amount on the Cash Flow report affected by grossed-up reimbursable expenses?

When analyzing how grossed-up reimbursable expenses influence the operating expense amount on the Cash Flow report, it's important to understand the concept of grossing up. Grossing up refers to the adjustment of recoverable costs to account for occupancy levels in a property.

In this context, when grossed-up expenses are applied, they effectively increase the total operating expenses reported. This is because grossing up takes into consideration the full burden of expenses allocated to all tenants based on their proportionate share, as if all spaces were occupied. As a result, even if occupancy is not 100%, the reported operating expenses reflect a higher amount due to this adjustment.

The grossing-up process typically results in an increase in the operating expense line on the Cash Flow report. This is why the correct response is that the operating expense amount increases, reflecting a more accurate portrayal of costs allocated to tenants in a property management scenario.