Archive for the ‘Lease Administration’ Category
|International Best Practices for Lease Administration
Wednesday, December 7th, 2011
By Jeff Tosello, Principal
I get asked all the time from clients: what are the best practices for capturing our international real estate portfolio? Maybe I’m just a little confused or too cynical but my immediate response is usually that there aren’t any. Even if there are, the reality of what you can do is usually more of a factor than what somebody thinks you should do.
So let’s look at what you should and can do and see if we can carve out something real and actionable rather than a hypothetical model that just sits on the planning table indefinitely.
Similar to the original data and document gathering that you did when the domestic portfolio was compiled and centralized, you’ll have to first get an idea of the total listing of properties, preferably by country. This is sort of a chicken and egg scenario because often there is no target listing of what you should be getting a copy of. This entire process relies heavily on senior level sponsorship and good relations and communication with local country managers or the on the ground personnel.
Lease translations are next and that’s almost an entire article in itself as there are many different ways to go about this and a huge disparity in costs depending on how you go about it. You’ll want to plan this out carefully before even beginning to translate.
Once locations are identified and documents are translated, you’ll need to plan what data to capture and how and how often updates will be made. Note: Whenever the other shoe drops on the FASB/IASB ruling, international leases are going to need to be included.
CresaPartners Lease Administration compiled a comprehensive International Lease Administration Integration Checklist into our modular service menu. If you need help with this and are not sure what makes the most sense for your company, feel free to contact me. We can help you build best practices that work!
Tags: corporate real estate, international, real estate portfolio
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Audit or Administration? Providing Value to Smaller Spaces
Wednesday, June 8th, 2011
By Jeff Tosello, Principal
Choosing a boutique firm to audit your company’s largest leases at the lowest possible contingency fee you can negotiate—isn’t that all you need to do to ensure that your portfolio is protected?
In a word: no. You may be missing one of the greatest potential sources of cost reduction in the real estate department and passing up an opportunity to be a hero not only to the business unit with the largest amount of space, but to the smaller space users as well.
Often, lease audit is a phrase used to raise questions and entice tenants into discussions about representation. It can also mean many different things—a desktop review, an exhaustive desktop analysis, an onsite review of the landlord’s books and/or extended discussion with the landlord over any number of gray areas open to interpretation in the lease where expenses are involved. Many times, what a tenant thinks they’re going to get is not what the contingency firms actually do, and as a result, they end up paying too much to have the work done. Understanding the nuances of this business and considering a more specific approach to expense review may influence how a company proceeds with this type of program.
Used properly, lease audit is an effective means of resolving past issues and, more importantly, of ensuring compliant lease payments in the future. But the type of audits employed and how they are applied to the portfolio of locations is a big part of the equation. Further, implementing procedural changes in the payment process after audits are performed can increase the benefit of such a review exponentially.
Looking at a real-life example, let us suppose that we are considering a company with 50 locations in the US making up 1,000,000 SF and having an average size of 20,000 SF. A closer look at this portfolio reveals the following (using the old 80/20 rule):
Assumptions:
-1,000,000 SF portfolio (average = 20,000), 50 locations
-80% of the portfolio averages 8,750 SF
-20% of the portfolio averages 65,000 SF
-Of the 10 locations that make up the 65,000 SF average, only 3 are above 40,000 SF
-Average cost per square foot = $30 (base rent plus OPEX and taxes)
-Ratio of basic errors to complex errors = 1% vs. 2.5%
| Factors | Conventional Approach | Our Approach | Net Difference |
| # of Leases to Audit | 3 for 195,000 SF | 50 for 1M SF | 47 |
| Basic Errors Found on All Leases (1%) | $58,500 | $300,000 | $241,500 |
| Complex Errors on Big Leases (2.5%) | $146,250 | $146,250 | $0 |
| Total Savings = | $204,750 | $446,250 | $241,500 |
| Cost of Auditing Just 3 = | $71,663 | Flat fees of $900 + % of $51,188 = $52,087 | ($19,575) |
| Cost of Auditing the Balance | $0 | $14,100 | $14,100 |
| Net Savings to Client = | $133,087 | $380,063 | $246,975 |
As you can see from this example, avoiding review of the small locations leaves $250,000 on the table even assuming a 1% error rate! Pure audit firms won’t touch these because a 1% savings at a 2,500 SF location means saving about $750, netting them only $263 which is less than their cost of doing the work.
The bottom line: Higher value, more savings, better results – Isn’t that what wins business?
Tags: corporate real estate, cost savings, landlord, lease, lease audit, tenant
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FASB Fears = Opportunity to Shine
Wednesday, November 24th, 2010
By Jeff Tosello
With all of the hype surrounding the now not-so-newly proposed changes to the way the Financial Accounting Standards Board (FASB) and International Financial Reporting Standards (IFRS) will require companies to report lease costs, it’s going to take expensive, highly developed software and a team of Harvard mathematicians working for weeks on a complicated set of algorithms to figure it all out, right? Wrong!
Here’s the good news: much of the information that will be needed to perform the compliance calculations are already essential components of good solid lease administration now. The trouble is that many companies cannot or do not properly execute lease administration, so they don’t have this crucial information. Companies often fail in one or more of the following areas:
- No firm grasp on their complete lease portfolio (international or domestic)
- No confidence that all of their documents are signed, accessible, and up to date
- No reliable extraction of lease information (abstracts)
- No up-to-date database of lease information (working from an outdated
spreadsheet)
- No idea what market rent is or will be when renewal needs to be considered
- No idea about business units’ plans relative to available options
Getting these items under control now is critical in order to anticipate the proper numbers on the company’s balance sheet later. Having a documented business process for knowing where these numbers come from, what considerations are given for changing them, and how to track changes from reporting period to reporting period is the key. These are services that can be immediately available through Lease Administration professionals.
If your company is concerned about FASB/IFRS changes in lease accounting but aren’t sure what to do to even start considering how you’ll comply, consider the list above. If you feel confident in these areas and want some help considering the impact to their financial statements, schedule a consultation with Capital Markets experts. If you do not feel confident in these areas, consult with Lease Administration professionals to discuss getting these things in place today.
Tags: corporate real estate, FASB, lease accounting, lease portfolio
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Lease Administration in Smaller Bites
Wednesday, July 28th, 2010
By Jeff Tosello
In this economic climate we rarely hear our clients use the words “over-staffed” or “under-worked.” It seems that now more than ever, our clients have less time to focus on strategic or proactive decision-making. Strategic or proactive projects are getting put on hold as our contacts try to keep up with never-ending task work. As a result, the lease administration service has an even longer sales cycle than in previous years even though it could help clients alleviate some stress. The analysis and internal approvals necessary to get lease administration moving represent one more project that just cannot seem to make it on to the full plates of Corporate Real Estate Managers during these challenging times.
In order to help, we are suggesting clients take things in smaller bites. By doing so, we are potentially reducing the analysis time (due to the lower scope and cost), helping improve the client’s ability to focus on the project, and reducing the risk that making a decision typically represents to the status quo.
Smaller bites means offering a “trial period”, “evaluation period”, or “pilot program” designed to mobilize on one or more of the lease administration service products on a limited basis. Abstracting leases and hosting data for one business group or auditing only a portion of the portfolio are examples of lower cost projects on a restricted timeframe. Smaller bites provide an opportunity to address some low hanging projects and show the value of a program if expanded on a wider basis.
We’re also trying to provide an easier means of engaging our service contractually. Conceptual proposals that are shorter often have a few lines of agreement language and a signature line that get a project or service started without any further documentation. We also routinely agree to use the client’s internal service agreement format and simply add our proposal as a scope of work exhibit.
The bottom line is that rather than let clients stand in the crossroads paralyzed by their progress or pursuit of some strategic initiative, we’re trying to use good old fashioned entrepreneurial flexibility to break the gridlock.
Do you think lease administration in smaller bites would work for your company?
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The Evolution of Lease Administration
Wednesday, June 2nd, 2010
By Jeff Tosello
For years, lease administration was reduced to a service that was:
-Nice to have but not essential,
-A free service your real estate broker gave you, or
-A software program that your administrative assistant ran in between other projects.
These solutions were better than completely losing control over your real estate obligations but lacked several important elements necessary to truly create value for your organization. Further, they did not respond well to concerns about financial integrity relating to reporting obligations.
Today’s lease administration is more than just managing addresses and expiration dates for leased properties. A properly integrated real estate function does all of the following:
-Tracks all property obligations and opportunities,
-Integrates with business unit and enterprise-wide strategy,
-Incorporates and supports multiple departmental disciplines, and
-Complies with internal audit requirements relating to the financial management and reporting that the portfolio requires.
These important aspects of a fully-functioning, enlightened real estate process cannot be achieved with software alone and are not well managed by inexperienced personnel motivated only to execute tasks and be content with the status quo.
Corporate real estate departments require accountability for results which means that there has to be a formally articulated work plan, regularly measured progress, and reliable and agile collaboration and reporting responsive to a dynamic landscape of risks and opportunities. Lease administration or more broadly, corporate real estate support services, are an important part of enabling practically every other service we deliver across the real estate services spectrum.
If this approach makes sense, you should know that our lease administration team is fully capable and already delivering on this level. If you are still defining lease administration as an after-thought and unimportant to the delivery of your services, you may want to reconsider if you are delivering truly strategic services.
How do you define lease administration?
Tags: corporate real estate, support services
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Software Envy?
Wednesday, February 10th, 2010
By Jeff Tosello
Maybe it’s just software confusion that has people looking, wondering, and scratching their heads asking about which lease administration software is the best and how they can get their systems to “talk to each other” or to generate this report or that one. Entering the words “lease administration software” in Google produces more than 11 million results! But the truth is, aside from the interface, most of the prevailing systems out there today do many of the same things. When clients begin thinking that software can solve their problems it can be an opportunity to educate, but it’s often an uphill battle against a tide of marketing dollars spent to make it look about as easy as a diet pill…just buy this and you’ve found a magic cure. Furthermore, what they might think they are looking for in software can sometimes be found in their existing systems if they can change business process enough to generate the data the software needs to run in the first place. At a minimum, reviewing these processes is an important first step even if software procurement, data migration, and new reporting are in the company’s future.
Real estate software applications break down into a few neat groups. First, there are applications that can be purchased and run on a company’s own network environment. Typically a license fee is paid once, the software ships, and then there is an annual support contract that is a percentage of the upfront cost. Opposite that model are the ASPs (application system providers) that provide web access to the software on a monthly license fee basis, but the application itself and the data are stored in their own server environment.
The next division is between applications that have built-in accounting functionality and those that do not. The accounting-based systems have an underlying general ledger so that when items like rent are “posted” or bills are “paid”, this debits and credits ledgers that run behind a number of the applications and can produce financial statements for properties or companies. Typically these systems are in place when a company has a lot of owned property and is, or at least functions like, a landlord or asset manager.
Finally, software applications can be grouped by features. Some applications are designed to take care of a particular function like lease administration, project management, or property accounting. Others integrate a number of functions on a relational basis such as property and lease management (data, dollars, and dates), transaction and project management (starts, stops, and status), and facilities management (parts, places, and people). Often though, and this adds to the confusion, these applications morph from one area in which they are or were strong into the other areas where they have added features to make them appear as though they can also handle other functions as well…but do they?
Everyone has probably seen many different software demonstrations for different reasons. Despite a few horror stories where someone’s demo crashed or failed, these demonstrations are usually very enticing. Dynamically updating charts, colors, graphs, alarms, maps, links to web sites….they practically run themselves (at least for the short time that the demonstration runs). At the same time, everyone has also probably bought something they saw on television or read about, taken it home, gotten it out of the box, and had that moment when they realize that “some parts are sold separately” and this thing isn’t going to work like it did on the commercial. Falling in love with features but not considering functionality can be a problem because now you own the software, and the only answer might be spending more money on software development consulting time. Ouch.
The decision to replace the old spreadsheet and try to get information access the new way via portals or dashboards can be appealing and often leads business customers to their real estate broker for an opinion. This can be a great opportunity for advisors to demonstrate the ability to listen. What is it that customer is really trying to accomplish? How can your real estate advisor help? There is a lot to consider and it certainly can start with what the customer wants things to look like when it’s all done but should it start with CresaTrac? Virtual Premise? Archibus? LeaseHarbor? Acruent? The answer is simple: maybe.
Tags: lease administration software, real estate software applications
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