Even the term “lease administration” is confusing because it could also involve owned properties, subleases, lease accounting or risk management and that’s just the beginning of the confusion. Add the elements of a plethora of software applications that all have a similar but competing feature set and the idea that even something as elemental as a “lease abstract” itself still has as many definitions as there are users and this can all become confusing / overwhelming. Some companies just decide it’s just easier to leave the documents in a file drawer and the estimates of whatever information they have in an Excel spreadsheet…for as long as they can get away with it. But that creates huge financial blind spots and in some cases Sarbanes Oxley compliance problems.
The secret to uncovering the mystery and identifying what for you are the “best practices” for it comes from two places:
- Understanding of the evolution of it.
- Understanding of the players and their motivations for helping you.
Then, it’s simply a matter of defining your real needs and matching up the current technologies and resources that can create and measurably demonstrate a positive business case for your unique situation.
This short history may help…Lease Administration really evolved out of big full service real estate companies offering to use the same technologies they had for managing landlord leases to offer similar tracking of data for corporate tenants. Their primary motivation to do this was to track that client’s expiration dates and renewal activity to represent them for future transaction work. Any fees that could be earned to administer this on behalf of the client were either used to offset the administrative cost for doing it and / or the software used to manage it. To some extent, there are remnants of this today, which is where the various players come in and where there are so many variations on definitions, services, fee structures and to be sure, outcome.
- Software companies do this on some level to help enable and sell software licenses.
- Tenant Representation Brokers do this to broaden their service offering and to position themselves for renewal work.
- Audit firms use this service to uncover large location contingency audit savings
- Property, project and facilities Management Companies do this as a means of tracking space and handling any number of other fee based functions.
It’s never taken a Harvard Business Degree to figure out that you can only raise net profits one way; create a greater spread between income and expenses either by increasing income, reducing expenses or some combination of both. With occupancy costs being in the top 2-3 expense position, it’s no surprise that they’re being scrutinized more than ever and the (now more fully evolved) discipline of lease administration or more perhaps more accurately characterized as “occupancy cost management” needs better clarity and focused consideration.
Whether a company is just starting to wonder how their profitability is effected by occupancy or fully aware of it and on a mission to control or reduce it, understanding the terms, tools and players starts with stripping away the generalisms, jargon and wild urban legends that pervade sales presentations. Real value is found in digging into the specifics and giving serious consideration of things in the column (to the right).
Companies interested in advancing this discipline can put themselves way ahead of the curve by considering and prioritizing those things and answering some basic questions:
- How many properties do we have?
- What are the important financial and strategic obligations that need to be managed during our use of those properties?
- What tools and expertise do we have internally to manage the risks and obligations (cost and strategic)?
- What external resources are available to us that truly understand our needs and motivated purely to help us with those on that basis alone?
- Does the cost/benefit analysis of improving our management of this show a return on investment?
- What specific measurements can we use to demonstrate improvement in the event that we invest (time/money)?
- How will this translate to business unit or company profitability (shareholder value)?
If you have any kind of real estate advisors in your life at all, any one of them may be willing to help you gather this information and consider some steps toward improvement. If the mere mention of it makes their eyes roll back in their head and ask you when your next big project or transaction is coming up…you might want to ask someone else.