Using Your Lease Management System to Optimize Property Portfolio Value: Part One

Property portfolio management, also known as lease management, involves the systematization of property data obtained from lease documents, ownership documents, and other property data sources into a data warehouse. The property data warehouse is used for multiple purposes, such as reporting and to manage accounts receivable/payables functions associated with the property portfolio. Lease administration can also involve data analytics such as rent benchmarking, performance management, supply chain rationalization, and other portfolio-related tasks. Discipline can typically be viewed from two perspectives, the ‘corporate squatter’ perspective and the ‘property management’ perspective. This is the first in a two-part article series looking at ways lease administration can be used to optimize a corporate real estate portfolio.

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

However, most of the portfolio management functions stop short of data analysis and portfolio optimization. In just the last few years, real estate support service companies that support real estate fund managers have led corporate CFOs and corporate real estate organizations to use lease administration to enhance the value of their property portfolio. Some techniques are:

desktop audits – Real estate asset managers that support REITs typically implement a check and balance system to ensure that expenses are properly recorded and to ensure that real estate managers have reasonable financial oversight. Similarly, corporate property managers can incorporate the desktop audit feature into their lease management process. For example, a desk audit administered by qualified property CPAs is an easy way to spot capital expenditures that are incorrectly recorded as building operating expenses. In addition, double entry or incorrect transfer of building advertising expenses can be detected, all common errors found in the billing of lease-related costs.

Fund risk analysis – Lease management is used by property fund managers to stagger lease terms to obtain stable cash flows, continually assess tenant risk, and forecast property returns. Real estate asset managers also compare rents against competing buildings to discover opportunities that will increase the financial performance of the property.

CFOs and corporate real estate departments can similarly use lease administration systems to support staff conducting real estate transactions. In addition, data from the system can be exported to analytical software to support decisions on lease renewal options, lease interruptions, and other actions to improve balance sheet performance in light of the new FASB 13/IAS 17 rules. Similar to property pools, corporate occupants can also compare their rents with competitive properties and determine opportunities to renegotiate leases and reduce costs.

Supply Chain Analysis – Perhaps the most significant opportunity is to analyze ‘value added’ to the corporation’s portfolio by looking at properties in terms of the company’s supply chain. For example, lease management data can be exported to supply chain analytics software to assess the effectiveness of ‘location’ in terms of ‘value added’ for the company’s sales and service supply chains.

In summary, corporate occupants who improve their lease management system to create a ‘smart’ portfolio of properties typically receive 5-10% savings in cost reduction, as well as other significant benefits by better aligning the portfolio with the company operations. Since most global companies already have their portfolio data systematized, the next step is simply to use some of the proven techniques used by real estate fund managers to enhance the value of the property portfolio for the company.