Just because you’re bringing in revenue doesn’t mean your commercial property is profitable. Particularly in properties with small spaces and multiple tenants, it’s easy to chip away at profitability in the minutia of managing the leasing process.
The good news: leasing is back. But, high leasing volume is the proverbial high class problem for commercial property owners, a welcome change from the slow leasing market during the great recession. At all portfolio sizes, owners and investors tend to gravitate toward the same short list of habits that can sandbag profitability. These bad habits can chip away at the revenue contributions of a well-leased asset, so it’s imperative to recognize and challenge old patterns within your organization.
The good news? Technology is the natural solution to inefficiency. In this market cycle, there are more options than ever before to improve the profitability of your assets—particularly those with high leasing volume.
The Paper Factor
How much time does your staff spend touching paper? It sounds like an absurd question, but the reality is, paper-based documentation systems are inherently time-consuming. Imagine this: a capital partner asks about the tenant inquiry history of an asset, because they want a deeper understanding of who has expressed interest in a soon-to-be vacant space. The next day, a regulator demands comprehensive information on tenants that have occupied your building for a period of five years, which was several years and many lease turnovers past.
These scenarios can be easily addressed using the technology that quietly advanced during the financial crisis, reducing ‘runaround/turnaround time’ to minutes from days or weeks. With an efficient technology solution, think of the many more productive ways your staff could spend their time, and how much your organization can save on its bottom line.
Profitability Pitfalls & How to Avoid Them
As a portfolio manager for a large commercial real estate investor, I observed four primary ways owners unnecessarily harm their own profitability, ironically many times in the interest of saving money. Here are some pitfalls that might sound familiar, and solutions for managing them to maintain your margins.
This failure to anticipate market timing can be avoided with past and forward-looking software that analyzes both market trends and portfolio data, suggesting touch points for ideal negotiation timing.
- Reduce Documentation Runaround/Turnaround Time. Every owner has at some point lost costly staff time with personnel at all levels of the organization running around meeting documentation requests. When capital partners, local officials and other stakeholders demand a paper trail that crosses time and tenants, even the most rigorous paper-based systems can require hours, days or weeks of key personnel time to gather data from disparate sources. Most commercial property owners use at least three separate systems for leasing proposals, executing leases, and leasing data. It is now possible to consolidate the entire life cycle of building leasing into one software system, so the runarounds are reduced to much simpler searches and reports generated from a common source, which allows for consistent data across the company.End-to-end lease documentation capture is one way to reduce this unnecessary burden on staff time and resources, and to consolidate documents that are pre-closing, closing documents, and follow-up tracking. This centralization of information is critical because when documentation is needed that summarizes activity, occupancy, or other key metrics, partial or inconsistent information just doesn’t cut it. Total capture of all relevant paperwork—from lease inquiry and beyond execution—can contribute significantly to efficiency in these situations. You’ll see some technology systems that capture a portion of your lease documents, many times solely related to the marketing process. However, if the entire lifecycle of a lease is not captured in a single compatible system, staff time will always be required to reconcile records from multiple disparate locations, which are often in various formats.
- Anticipate Lease Renewal Timing. Without an automated alert system for anticipating ideal negotiation timing requires a high degree of rigor to align ideal market timing with anticipated lease renewals. In many cases, particularly in a market where rents are rising, it might benefit an owner to approach tenants early, to create a win-win leasing situation. When owners follow the traditional process of reviewing leases on a standardized schedule prior to the renewal date, market opportunities could be lost.
- Streamline Closing Hassles. Inefficiencies in the closing process are the bane of any owner’s existence, particularly on large leases with multiple stakeholders involved. Having a centralized system where all documentation is available related to any given transaction at a single click can go a long way toward reducing delays and simplifying the process. The ability to review and sign updates to the transaction documents at any time, from anywhere, has an immediate impact on getting deals done.
- Seamlessly Field Regulatory Demands. Nothing raises the stress level within an organization that owns real estate like demands from investors, regulators, and attorneys. When it comes to the aforementioned demands, quick and thorough responses can help avoid negative interaction, and create positive outcomes. A lease data system that gives your executives the confidence a quick search will provide accurate and documented answers can reduce not only your immediate staff time investment—but costly future legal fees, data inconsistencies, etc.
The higher your lease volume, the more opportunity your ownership group may have to improve its efficiency. This could be true for owners of large portfolios or owners of buildings with high leasing volume, such as retail centers, business parks, industrial parks, or medical office buildings. The common thread is that owners can increase their overall profitability by challenging old habits.
Where there are inefficiencies in a process, there is potential for technology-based solutions. Given the recent advances in technology through software like LeasePipeline.com, sticking with inefficiencies that sandbag commercial real estate profitability is inexcusable.
Christopher Perry III is a former portfolio manager and was on the investments team for large institutional commercial real estate organizations. He recently took his expertise in commercial real estate investments, operations, and information technology to advocate the development of new commercial real estate technology. Chris is a principal of LeasePipeline.com.