Real estate leases can be very complex documents.  Tenants and landlords pay hundreds of thousands of dollars to brokers and others to negotiate favorable lease terms, but neglect to follow through with an effective way to manage the transactions once the deals are consummated.

In order to maintain control over these transactions and reduce the incidence of error or lost opportunities, many companies implement a lease management software system and expect that it will magically resolve all of their issues. However, the lease management software will only be effective if the company first designs and documents its Real Estate Lease Information Flow (RELIF) and then develops and implements a solution designed to monitor that flow.

To effectively track the flow of information the following steps can be taken.  This is part of a four part series exploring How Well Does Your Real Estate Lease Management Process Flow:

Step 1 – Define existing processes, identify hot spots and information required for and from each document that touches the lease deal.
Visualize the path that documents take, and then identify any redundancies, bottle-necks or other problem areas that can slow the process.  Be sure to think about all documents, including leases, amendments, estoppels, SNDAs, landlord invoices, change of address letters, etc.

For example, visualize what would happen if an estoppel letter were to come in.  Who should receive it, and what should happen prior to execution?  If your company requires (as it should) legal department approval, understand what documents and information it would need.  Consider who should be consulted in order to find out whether any claims exist against the landlord, the status of the rent account, etc.

Step 2 – Develop a documented process/system to keep hot spots and reporting requirements in focus.
By communicating with each department to determine their reporting needs, rework the process eliminating redundancies, bottlenecks and problem areas.  Most importantly, document the process with a flow-chart or an outline so each department/person can see how they fit into the overall picture.

Step 3 -Assign qualified personnel ownership of information.
Once you have the documents flowing correctly, delegate the responsibility of capturing missing information to those who understand the process.  They then take ownership of the data’s integrity, and retrieving missing information becomes their responsibility.

Step 4 – Monitor compliance using tools tailored around your processes.
Develop management reports that quickly identify errors in data or changes in your portfolio. For example, in order to ensure that changes in rent are supported by the lease documents, you should produce a report that identifies changes in rent from one month to the next.  Similarly, in order to measure performance of disposition activities, create a report that compares changes in net absorption of vacant, surplus and subleased space within the portfolio.

Technology is a great tool for automation, but it is only as effective as your Real Estate Lease Information Flow is developed, documented and monitored over time.

Here are the results:
1.   The most important real estate issue facing my business in the coming 12-18 months is:

• 53% reported Reducing occupancy costs with about the same locations
• 34% reported Expanding the number of locations
• 13% reported Reducing the number or size of our locations

2.   Regarding outsourcing real estate management tasks or services:

• 53% reported Currently outsourcing most or all corporate real estate services needed
• 40% reported Managing real estate in-house and it is working well
• 7% reported Is considering/open to outsourcing most or all corporate real estate services

Observations:

Reducing occupancy costs can be accomplished by managing the portfolio more efficiently with a set of tools and processes. Real-time, instant access to space availabilities and usage will be required.  This allows organizations to be responsive to changing space planning requirements.

Organized and report-able lease data will be needed to provide year over year comparisons of real estate expenses, making variances and anomalies easy to find and remedy. Variances will need to be researched using the lease terms, documents and notes. In addition, current and historical financial data for existing and expired leases will need to be accessible for desktop audits and forecasting.

The remaining 47% are planning changes in their portfolio.  This means that documents, financial information, contacts and critical dates will all need to be tracked and leveraged during the lease life-cycle.

In regards to question 2, whether outsourcing or managing real estate internally, a system is needed to monitor the process.  Changes, progress indicators and information will need to be shared.

Summary:

The combination of well implemented processes and tools can help lower occupancy costs, manage portfolio change, and facilitate an effective relationship with outsourced services. Visual Lease is a system that when combined with effective processes, helps real estate department work more efficiently.  The key features of Visual Lease that are used to meet the requirements in this article are space usage tracking, expense tracking, flexible reporting, centralized documentation and easily accessible lease terms.

About Galaxy Partners:

Galaxy Partners helps companies get the greatest possible value out of their commercial property. Through managing a wide range of lease portfolios and corporate real estate transactions, their seasoned team has solved real estate issues for clients ranging from local businesses to Fortune 500 companies.  Galaxy Partners can be reached at 770-350-0411 or online at http://www.galaxypartners.com