Prep lease administration for the change in your CRE strategy

Tessa Author

Changes for many CRE portfolios are inevitable as employees favor hybrid workplace strategies, while most executives aren't ready to give up space.

Some portfolio managers and administrators worry that with many office employees working remotely and retail shops empty, the need for the lease admin and their workload will decrease. 

Fortunately, not the case. Rent still needs to be paid, and more than half of recently polled companies expect to increase their footprint and look to strike a deal this year, making this the perfect time to prepare and mobilize your lease admin function. 

The highlights of an anticipated rebound in CRE activity 

According to the recent PWC survey, the changes for many CRE portfolios are inevitable, with 87% of recently polled executives planning to pivot their CRE strategy this year. 

Those strategies are broad in nature, from downsizing and consolidating office space to relocations from malls into the industrial sectors in the western deserts and everything in between.  

Office

Many stated they aren’t ready to give up the office. 56% of polled CRE executives expect an increase in the office space to accommodate headcount growth and social distancing requirements within the next three years. 

Many employees look forward to coming back too, yet not as fast as the executives would like. Only 61% of the asked employees think that at least 50% of the workforce will return to the office by July 2021, compared to the 75% of executives anticipating the same. 

Developers are reacting accordingly, as well. In an attempt to ease some of the pandemic-induced struggles, landlords convert high-dollar retail space into offices. In some markets, like NYC, which’s known as an office hub just as much as a retail destination, the office space demand will have a higher ROI, at least until shoppers come back into the stores. 

Sublease

A popular strategy to recoup at least a portion of the occupancy costs by the tenants is subleasing. There are many benefits, especially for those hoping to get into the premium space for less price and time commitment. Prestigious addresses previously only available to the “high-rollers” are now open for the tenants looking to boost their brand image. 

The challenge is that many tenants will find themselves acting as landlords, while most won’t have a process to manage subleases. Pro tip: don’t set up your tenants as your clients to keep track of aged receivables and billing. In the famous words of The Offspring, “you gotta keep ’em separated” for a smoother reclassification process. 

Acceleration of M&A 

Not all are losers in the pandemic, and many are looking to grow and expand. Prepare for an uptick in the M&A activity as companies with a fantastic product, yet unable to keep up with the expenses, will be swallowed by opportunistic conglomerates and private equity funds. 

According to the Global M&A Industry Trends report by PWC, 2021 is ideal for a high volume of M&A deals. Pandemic created both pressures and opportunities, forcing companies to transform. 

What does it mean for lease administrators? 

Amendments and assignments will start coming in. Regardless if it’s a downsizing or expansion, new lease, or termination, your operations folks will be busy. 

For the acquiring company, the lease admin will need to integrate data management and rent payment processes. Transitions are typically fast-paced, forcing companies to quickly get lease data into the system to enable rent payment. Luckily, you’ll know about the merger in advance and will have time to prepare. 

Lease data affects many departments and decisions. It’s critical to be ready to accommodate this influx and deliver timely services that support your company’s operations, compliance, and strategy.

How to prepare your function

By now, you see that the lease administrator’s workload isn’t going down, and it would be the worst time to reduce your team. If anything, you need more resources. 

A bump in a paycheck is usually a great motivator, yet it’s not an option for most companies right now. Still, there are plenty of other things you can do to help your team thrive:

• Equip lease admin with technology tools that simplify the job, not add more unnecessary steps. I’m talking about a PDF editor and a scanner, at the very least. A robust CRE database makes the process better unless there are a hundred clicks for you to get to the right screen. Have the team test it before committing.   
• Create a process, a set of instructions, for your team to follow. It will eliminate wasted efforts of recreating a wheel. For deliverables you repeatedly do but don’t have steps written down, start with a simple checklist and build on that. Instructions don’t have to be too detailed; someone with practical knowledge of the industry and standard tools should be able to figure it out. 

• Invest in practical training on how to do the job better and faster. Many lease administrators use the knowledge acquired through painful trial and error to guide daily activities. Simplify your life and the life of your team with a guided course or lunch & learning sessions to keep up-to-date on the industry’s best practices. 

• Monitor, praise, and coach your lease admin to keep the scope manageable and ensure deliverables are on track. Paying rent and abstracting leases doesn’t take a full-time job for small companies, yet as the company grows, so does the portfolio and the responsibilities for managing it. Keep a pulse on the workload and challenges encountered by the lease admin function to avoid becoming a bottleneck in the real estate process, as mistakes could be devastating.

• Recognize your lease admin team for the job well done. Leadership typically doesn’t hear about lease admin unless there was a missed termination option or a late payment for the HQ lease. Yet, there are typically hundreds of payments issued and thousands of dollars saved by the function on an annual basis, in addition to supporting other departments with timely data. Don’t forget to share and celebrate that!  

Create a function that pays for itself

Forced to cut costs, many miss an alternative scenario where a team in operations can earn money—kind of. 

I’m talking about the savings that come from the recovery of overpaid expenses, complete elimination of late fees, and reduced operating cost charges. Landlords overbill, and tenants overpay millions of dollars annually due to inadequate processes, so opportunities for efficiencies are abundant.

Of course, this doesn’t happen overnight, but you can generate a hefty return on your investment by developing the lease admin function with proper training and motivation. 

Granted, that’s a marginal amount compared to your annual rent paid, but every little bit helps offset real estate costs. Still, having a vital function that pays for itself is exciting for everyone, from the contributing team to the C-suite. 

Warning: for some board members, it’s hard to recognize avoidance of costs as a reduction to the P&L expenses. To combat that, you need context. And, nothing tells a better story than numbers. To create context, establish and track performance data to measure your savings and costs as the portfolio changes. 

If forced to downsize, some lease administration functions are more suitable for outsourcing than others. Yet, remember to account for the additional time the in-house team will need to review and comment on the service provider’s work.

Developing your talent isn’t a back-burner activity.

Leaving your team unsupported is an easy reason for them to leave, especially since your competitors are proactively gearing up for the future economic rebound. 

Turnover rates are higher than you think, and costs are atrocious, but the real kick in the gut is the time commitment. As you’re trying to wrap your head around the ever-changing performance goals, you’ll now have to find extra time to seek and onboarding a new analyst.

I urge you to consider dedicating your efforts to creating a function that pays for itself. No denying that you’ll go through the same amount of agony and work, but the results will be completely different. 

Instead of a disgruntled overworked team and haphazard structure, you’ll have a positive workplace where an accountable team operates cohesively to support the company’s vision. At the same time, the leadership is sure to notice when your team generates savings that overshadow their cost.