By Tom Pfister
High-volume portfolios of space held under lease have hundreds or thousands of individualized lease agreements spread over multiple locations nationally or worldwide. The type and quantity of lease data varies from site to site. This jigsaw puzzle, if you will, interests bright minds in commercial and corporate real estate, and can attract new talent to the field.
Property portfolios of owners and lessees are managed internally or outsourced to third-party providers. Lease administration services are often joined with recognizable offerings in asset management, like property management and leasing.
As a crucial understructure to grow net operating income, avoid costs, mitigate risks, optimize portfolios and support tax compliance, lease administration allows informed decisions to improve business and portfolio performance.
High lease volumes generate daily assignments, including processing new leases, reporting on dates, preparing renewals and amendments, and gathering proper approvals. Lease administrators often operate across interrelated channels. They liaise between C-suite, partner-investors, landlords, occupiers and vendors. Working with the legal department, lease administrators coordinate letters of intent, review estoppels and interpret lease language. Participation in reconciliations, audits and other supports are common with the accounting division.
The purpose of tracking data in lease administration is to communicate critical information. Lease administration software enables data configuration in a centralized database, to help streamline critical information in order to manage dates, obligations and much more. For instance, new compliance data points to track pertain to the implementation of new lease accounting standards set to take effect in 2019 and 2020.
As the scope of lease administration widens, the durable value of adept lease administrators affords companies scalability. Communication counts. Knowledge in communication and aptitude in tailoring messages are qualities that typically align with, but are not exclusive to, traditional client-facing roles of sales and leasing.
“There are great merits to having someone with excellent communication skills join the lease administration team instead of the brokerage team,” says Chairman and CEO Jason Hughes of San Diego-based commercial real estate firm Hughes Marino. “Great communication skills are a necessity for sales–but also incredibly helpful for every role.”
For voluminous portfolios, the absence of exceptional lease administration can lead to formidable consequences. Hughes expresses the upshot this way.
With a large portfolio of leases comes a high volume of lease transactions that need to be constantly tracked and abstracted to ensure critical data is not overlooked that could prove to be costly in the future. The risks inherent to this process include accurately maintaining future dates when decisions and actions need to be taken by our clients. This goes beyond just changes in the rent schedules and expiration dates, but includes dates that could trigger an unanticipated commitment by our clients if action is not taken. Examples include notice deadlines to vacate at expiration, contraction or termination rights that could allow the client to exit undesirable locations early, or expansion rights that would allow them to better accommodate long-term growth.
Solving the puzzle involves a combination of the best of innovation with high achievers. “The need for human interaction and oversight continues to be instrumental in the success of lease administration functions,” says Retransform’s Vice President Global Operations Lynn Peters, “despite the wave of artificial intelligence (AI) and automation tools that have been introduced to our industry.” Retransform provides real estate business management services and technology solutions worldwide.
Peters shares, “Attention to detail, domain expertise, critical thinking and process management knowledge continue to be top skills that lease administrators must have to be successful in the management of their portfolios.”
“AI works at great speed and great volume,” she says. “When AI gets it right, it’s enormously right. But when AI gets it wrong, the disaster will be equally enormous! If one is adopting AI, an element of human oversight is essential to ensure that the AI has indeed got it right.”
Scribcor Global Lease Administration is a full-service lease administration company dedicated to helping global clients manage their commercial leases most efficiently. Scribcor Global’s Vice President, Client Development Denise Hinkle knows more than a thing or two about the value of lease administration to a company’s success. She sees greater complexity in the profession today than in years past, and the necessity for talented personnel now and in years to come. Hinkle breaks it out this way.
The best lease administrators have a tripod of essential skills in their arsenal. The first is the ability to read and interpret legal language in a lease. Lease administrators need to interpret what is being conveyed by the lease language and understand that the placement of punctuation can affect that interpretation. They need to be able to understand and use the lease to support or refute specific situations as needed.
The second leg of the tripod is accounting skills. It is increasingly important that lease administrators understand lease accounting and how their data supports the needs of the accounting and finance functions that are responsible for corporate financial reporting. With the advent of new lease accounting standards, accounting and finance must rely heavily upon lease administration to provide them with accurate and relevant financial data.
The third leg is knowledge of real estate management and operations. The ability to apply lease language to real estate activities is crucial in the oversight and governance of the lease administrator’s portfolio. Lease administrators need to be able to understand that a teardown and rebuild of a HVAC chiller is not a normal repair or that patching a parking lot differs from a full resurfacing. That knowledge you don’t acquire from just reading leases all day.
Hinkle sees promising performers with communication skills gravitate to companies which value that quality about their employees.
“On the top of the tripod is communication. The very best lease administrators can communicate all of the above plainly to their colleagues and customers, who may not have backgrounds in one or more of the three areas above. Lease administration is effective and essential in bridging the skills gap between the deal makers, the accountants and the property or facility managers, who process information through different lenses.”
To Hinkle, the understructure remains a force. “Great lease administrators have the most well-rounded view of the entire function and truly are the hub of the wheel.”
This article originally appeared in Forbes.
Jason Hughes is chairman, CEO, and owner of Hughes Marino, an award-winning commercial real estate company with offices across the nation. A pioneer in the field of tenant representation, Jason has exclusively represented tenants and buyers for more than 30 years. He writes about topics in commercial real estate from a tenant’s perspective on his blog, Downtown Dirt. Contact Jason at 1-844-662-6635 or firstname.lastname@example.org to learn more.