February 22, 2024

Fryer And Brown

Creating Your Dream Home

Using Your Lease Administration System to Optimize Property Portfolio Value – Part One

Property Portfolio Administration, otherwise known as Lease Administration, involves the systemizing of property data obtained from lease documents, ownership documents, and other sources of property data into a data repository. The repository of property data is used for multiple purposes such as reporting and to administer accounts receivable/accounts payable functions associated with the property portfolio. Lease Administration can also involve data analytics such as benchmarking rents, yield management, supply chain rationalization and other portfolio-related tasks. The discipline typically can be viewed from two perspectives, the ‘corporate occupier’ perspective and the ‘property management’ perspective. This is the first of a two-part series of articles where we will look at ways lease administration can be utilized to optimize a corporate real estate portfolio.

For most corporate occupiers, real estate is one of the company’s most significant expense-line items, normally second only to employee costs. For most global companies, leases are spread across the world and are in multiple languages. With the passing of the US Sarbanes-Oxley Act in 2002, and in anticipation of the accounting rule changes to be made to FASB 13/IAS 17, most companies have already centralized their lease data and other property data into a lease administration system.

However, most portfolio administration functions stop short of data analysis and optimization of the portfolio. It is only in the past few years that real estate support service companies who support property fund managers have guided corporate CFOs and corporate real estate organizations to utilize lease administration to enhance the value of their property portfolio. Just a few techniques are:

Desk-top Audits – Property Asset Managers supporting REITS normally deploy a system of checks-and-balances to ascertain that expenses are being properly recorded and to ensure that property managers have reasonable financial oversight. Similarly, corporate real estate managers can incorporate the desktop audit function into their Lease Administration process. For example, a desk-top audit which is administered by property-qualified CPAs is an easy way to detect capital expenses that are being improperly recorded as building operating expenses. Also, double-entries, or the improper pass-through of building advertising expenses can be detected — all common errors found in the billing of lease-related costs.

Fund Risk Analytics – Lease Administration is utilized by property fund managers to stagger lease terms for steady cash-flows, to continuously evaluate tenant risk and to forecast property yields. Property asset managers also benchmark rents against competing buildings to discover opportunities that will increase property financial performance.

CFOs and corporate real estate departments can similarly utilize lease administration systems to support staff who perform real estate transactions. Additionally, system data can be exported to analytic software to support decisions on lease renewal options, lease breaks and other actions to enhance balance sheet performance in light of the new FASB 13/IAS 17 rules. Similar to property funds, corporate occupiers can also benchmark their rents to competitive properties and determine opportunities to renegotiate leases and reduce costs.

Supply-Chain Analytics – Perhaps the most significant opportunity is to analyze the ‘value-add’ to the corporation’s portfolio by analyzing properties in terms of the company supply chain. For example, lease administration data can be exported to supply-chain analytical software to evaluate the effectiveness of ‘location’ in terms of ‘value add’ to the company’s sales and services supply chains.

In summary, corporate occupiers who enhance their lease administration system to create an ‘Intelligent’ property portfolio usually receive a 5-10{bc081577d937b036760250a838c458dd2cdabe6c805de7ee78ca03a8e3da3931} savings in cost reduction as well as other significant benefits from better aligning the portfolio to the company’s operations. As most global companies already have their portfolio data systemized, the next step is simply to use some of the proven techniques utilized by property fund managers to enhance the property portfolio’s value to the company.