Managing Real Estate Assets by Marshaling Property-Specific Data and Relevant Expertise in an Outsourced Model

The success of a real estate transaction depends on two distinct, but related, matters: the terms of acquisition of the property and the successful management of that asset.  A poorly structured transaction, such as an acquisition of a real estate property or the leasing of such an asset, can result in an asset that is almost destined to fail or be a drain on the owner’s assets even if well managed.  Correspondingly, mismanagement of a property can turn a valuable asset into a negative asset in a portfolio.  The success of the acquisition and the success of the management, however, depend on very different factors and, accordingly, require distinct tools and expertise.

In the process of acquiring a real estate asset, the buyer must understand the current condition of that asset, including both physical condition (is the building or are the buildings in good condition?) and financial strength.  Gaining that knowledge requires ready access to myriad details about the property and its financial and physical conditions.  While physical inspection can enable the buyer to learn about the physical condition, the financial aspects of ownership can be difficult to gain because it requires a thorough understanding of documents (often, many documents) that relate to the property, such as purchase-related documents, leases, guaranties, service agreements, easements, permits and approvals from government agencies and others.

If the property includes multiple real estate assets that are leased to others or managed for the benefit of the owner or investor by another, keeping track of the various data in those documents can represent a difficult and detailed project, but one with significant implications for the success of one’s ownership.  Owning multiple properties leads to concerns regarding how best to manage those assets in order to maximize the returns on a portfolio-wide basis.

To do so, of course, and as a first step, the owner must have ready access to the information regarding all those properties that relates to the value of the assets, either positively or negatively.  With the data in hand, an owner still needs to make sense of that information in order to put it to effective use and benefit from it.  The data alone merely constitutes the raw grist for the mill of analysis.  The appropriate analysis turns those data into actionable knowledge.

Collecting data on leases and properties requires time and a limited degree of expertise.  Whether compiled manually or through the use of sophisticated software and other tools, the resulting database serves as the “grist” for the analytical “mill” that can yield insights with which to maximize the returns realizable from the portfolio of assets.  In other words, the raw data in the documents and other records, such as the financial accounts for the property, are converted from mere information to actionable knowledge.

How can a real estate investor assemble the data-collection and data-analysis capabilities needed for proper management of its portfolio?  The process of gathering the data from documents such as leases is “abstraction.”  As mentioned above, this can be accomplished manually or with the assistance of software.  If the number and complexity of the documents for the assets are considerable, doing so manually is tedious, time-consuming and often inconsistently completed or subject to error to one degree or another.  Software powered with artificial intelligence can accelerate the abstraction process and provide consistency to that effort, since the technology repeats the process similarly each time.

Having extracted the data from the documents, of course, the owner or investor must make sense of that information.  In other words, it must turn the raw data into knowledge and intelligence that allow it to properly and competently manage those assets in order to maximize their value.  That’s where a multidisciplinary approach proves its value.  Leases are, of course, legal documents regarding the ownership, possession and management of real estate.  The data that they contain, however, reflect more than just the legalities of the situation.  In order to capitalize the data contained in those documents, one must apply more than just legal analysis of their terms.  You also need expertise in finance, accounting, landlord/tenant relations and other disciplines.

Global Capability Centers (often referred to simply as GCCs) bring together in one location (the location can be either physical or virtual) multiple capabilities.  How can the management of real estate assets benefit from those operational capabilities?  GCCs typically leverage technology to automate lease abstraction and the attendant management processes. This can include lease administration software and data analytics tools. Efficient real estate management facilitated by effective lease abstraction is a critical aspect of the successful application of a GCCs' strengths to real estate operations.

Lease abstraction provides precise data on rental rates, escalation clauses, and other financial obligations.  This allows the financial experts, accountants and other personnel in the GCC to forecast accurately and to manage real estate operations by controlling costs and maximizing returns. By having a clear view of all lease-related expenses and revenues, a GCC can identify for the client opportunities for cost savings, such as renegotiating leases, consolidating multiple office spaces, and tracking critical dates like rent payment deadlines and lease expiration dates, enabling those personnel to avoid costly late fees and penalties.

GCCs are expanding rapidly, particularly in regions like India that possess large pools of qualified professionals and a lower-cost environment for business operations.  A GCC can manage large portfolios of leases utilizing the software available, making lease abstraction essential for efficient management. It enables quick access to critical information.  The GCCs can thereby assist the real estate owners to ensure compliance with lease terms, make informed decisions about lease renewals or terminations, and manage its costs effectively.

Lease abstraction ensures that GCC can make its client aware of and comply with all lease obligations, reducing the risk of legal disputes with landlords (if the client is a tenant) and tenants (if the client of the GCC is the landlord). This includes understanding responsibilities for maintenance, repairs, and insurance. Having lease information readily available from the GCC in a comprehensive database allows the client to manage lease renewals and terminations proactively, avoiding unexpected disruptions to operations. Having well organized lease data helps to prevent errors that can cause financial and legal problems. By analyzing lease data, the GCC can assist its client to develop a long-term real estate strategy that aligns with its business objectives, such as by forecasting future space needs and identifying suitable locations for expansion. For clients with properties in multiple locations, lease abstraction facilitates effective portfolio-wide management, enabling them to optimize the value of their real estate footprint. In essence, efficient real estate management, driven by meticulous lease abstraction, empowers clients of GCCs to control costs, minimize risks, enhance operational efficiency, and make strategic real estate decisions that contribute to their overall success.  A GCC can augment the owner’s own capabilities and create a competitive advantage for that owner in the market.

Steven A. Lauer assists corporate counsel in delivering maximum value to their clients. As United States Representative and Value Consultant for SKJ Juris, Inc., he provides clients with value-oriented services for their legal needs, such as document review and production and lease abstraction. He has written four books on the value of legal service. Reach him at slauer@skjjuris.com.  

Saby Ghosh is a corporate lawyer and an Arbitrator, besides being an avid reader and a prolific writer. He is an influencer with eons of experience in Indian legal process outsourcing business space. He is currently working as the Vice Chairman and Director of SKJ Juris, India. Reach him at sghosh@skjjuris.com  




By Steven A. Lauer, U. S. Representative and Value Consultant, SKJ Juris, and Sabyasachi Ghosh, Vice-Chairman & Director, SKJ Juris