Lease administration is the process of gathering critical data from leases and configuring them in a centralized system. The activities involved are lease review and abstraction, cam audits, certificate of insurance management, important document storage and maintenance, critical dates monitoring, operating expenses review etc. Effective lease administration helps to limit costs, mitigate risk, monitor contractual obligations and ensure compliance with legal regulations.
Let’s look at some present and future lease administration challenges –
New accounting standards – New accounting standards have left many companies grappling with a large amount of data abstraction and accounting work. As a result, they need to train their existing resources or hire new ones with industry knowledge. This means additional expenditure and time investment.
Technology – With the large amount of data that needs to be analyzed, companies can no longer depend on excel sheets to manage lease data. Any data lost or overlooked can prove to be costly in the future. Ideally, critical lease data should be gathered and configured in a centralized system.
Coordination – Implementation of the new accounting standards is not just confined to real estate. It now requires input from the management, accountants, auditors and IT department. Companies will have to implement technology designed to support this cross department coordination.
In-house or outsource – Companies need to make a choice between hiring, training and managing lease administrators or outsourcing the function to a lease administration service provider that already has the requisite expertise. While companies with smaller portfolios might find it acceptable to build this function in-house, the costs of labor and the complexity of managing all of the data make outsourcing a logical alternative.
Lease expansion – a company with a massive portfolio will have leases spread across global locations. Organizing, managing and monitoring these leases is a huge challenge, especially in situations where there is limited in-house support. Maintaining data consistency and accessibility is a top priority.
Process – In the absence of an effective lease abstraction and administration process, as well as a centralized system to manage and monitor the information, companies may struggle to maintain data consistency.
Technology – Technologies get obsolete with time. Companies need to keep pace with the evolving lease administration and accounting systems.
Evolving role of the lease administrator – There has been a significant shift in the role and skill set of a lease administrator. From a job that once meant primarily processing paperwork, lease administrators now are managing entire real estate portfolios. This shift is proving to be challenging not only for the lease administrators but also for the companies hiring them.
To sum up, lease administration is comprehensive and far from easy. Plus, its implementation comes with a load of challenges. Irrespective of whether lease administration is done in-house or outsourced, establishing an effective lease administration function is the core element of commercial real estate.