Property portfolio management, also known as lease management, involves systemizing property data obtained from lease documents, property documents, and other property data sources into a data warehouse. The property data warehouse is used for multiple purposes, such as reporting and managing accounts receivable/accounts payable 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 occupant’ perspective and the ‘property management’ perspective. This is the first in a two-part series of articles looking at ways that lease administration can be used to optimize a corporate real estate portfolio.

For most corporate occupants, 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 come in FASB 13/IAS 17, most companies have already centralized their leasing and other data. property data in a lease management system.

However, most portfolio management features fall short of data analysis and portfolio optimization. In the past few years alone, real estate support services companies that support real estate fund managers have guided corporate CFOs and corporate real estate organizations to use lease management to enhance the value of their property portfolio. Some techniques are:

desktop audits – Real estate asset managers that support REITs typically implement a system of checks and balances to ensure that expenses are properly recorded and to ensure that real estate managers have reasonable financial oversight. Similarly, corporate property managers can incorporate desktop auditing into their lease management process. For example, a desktop audit managed by qualified property CPAs is an easy way to spot capital expenses that are incorrectly recorded as building operating expenses. In addition, double entries 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 administration is used by property fund managers to stagger lease terms for stable cash flows, continually assess tenant risk, and forecast property returns. Real estate asset managers also compare rents to competing buildings to uncover opportunities that will increase the property’s financial return.

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

Supply chain analysis – Perhaps the most significant opportunity is to analyze the ‘value added’ to the corporation’s portfolio by analyzing the 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 ‘added value’ to the company’s sales and service supply chains.

In summary, corporate occupants who enhance their lease management system to create a ‘smart’ property portfolio typically realize a 5-10% cost savings, as well as other significant benefits by better aligning the portfolio with 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 improve the value of the property portfolio for the company.