Last Updated on August 30, 2022 by Neil Patel Accel
Commercial real estate leases are long, legal documents. Lease abstraction takes those lengthy details and distills it down. So, within that lease abstract is a concise summary of valuable information. It outlines important legal, financial, and business obligations. Extracting key information within a lease portfolio is a time-consuming task, but that is where lease abstraction comes into play.
What is lease abstraction?
Lease abstraction is the process of extracting, processing, and organizing critical lease data. The abstract enables teams to gain better visibility into their real estate portfolio. With any data extraction, your in-house team will then be able to find crucial information. Including data point like critical dates, clauses and rent amounts, CAM, etc.
How does lease abstraction influence the lease management process?
Lease management requires attentive execution in order to unlock crucial information. For businesses with large real estate portfolios, lease management is a full time job. The day-to-day includes document management, critical date tracking and decision-making, and financial reporting.
Many real estate teams approach this process manually. Leaving their lease data and due diligence processes in spreadsheets, pdf documents and emails. The future of lease management lies in leverage software to unlock silo’d data. In fact, 41% of CRE companies plan to increase their investment on data analytics this year.
Lease abstraction systems and lease management softwares work hand-in-hand to create lease summaries. Once those lease abstracts are in a software than automation of administrative tasks is simplified. By having relevant information at your fingertips, it empowers your real estate portfolio to make better business decisions.
Working with accurate lease data reduces financial risk and saves your team time. Operationalizing business processes isn’t only a great organizational decision but it enables collaboration.
When the real estate team signs a new lease deal. They can then abstracts that lease, so the finance team analyze that data to stay in compliance with ASC 842. The new lease accounting standards require detailed information surrounding financial obligations.
Lease abstraction and lease management software work together seamlessly. Creating the foundation for real estate and finance team to collaborate on the lease life cycle.
Why is lease abstraction necessary?
Missing critical dates, renewals, and lacking insights into your clauses is an easy way to give your landlord more money. Within every lease lives a plethora of financial data and business insights that are mission-critical to your business. A lease abstract delivers the essential information living within your lease including:
- Landlord Information
- Address and Square Footage
- Lease Terms
- Critical Dates
- Expiration Dates
- Critical Dates
- Operating Expenses
- CAM Charges
- Options and Rights
- Real Estate Taxes
- Termination Clauses
- Security Deposits
- Rent Projections
Now that you have an understanding of the critical data points a lease abstract delivers, let’s dive into the value of unlocking that relevant information:
Real estate is the second largest expense for an organization after payroll! Yet, many organizations rely on legacy solutions, spreadsheets, or even leave their printed lease documents in a file cabinet.
Lease abstraction is a due diligence best practice. It ensures all stakeholders can analyze and understand their lease liabilities. In addition, stakeholders including C-suite, real estate, finance, auditors, facilities teams and many others have job role commitments associated with a lease. To operate at their full potential, they need the unique data points in a lease to be easily accessible.
If you are still working in pdf documents and spreadsheets then you know the pain of flipping through a lease document. For example, say the facilities team is curious if it’s their responsibility or the landlord’s responsibility to replace a lightbulb… Well, that information likely lives in a lease. A lease abstract would quickly reveal that information. Even better, a lease management system would enable that data point to be a few clicks away.
Data is knowledge. And knowledge helps to inform better decisions. Lease administrators can use lease abstracts to understand the total rent expenses of their real estate portfolio in one, five, even ten years. For instance, say you are expanding your real estate footprint, it could make financial sense to let one large square footage property go in order to bring on two smaller footprints. Lease abstracts enable a better understanding of data, expenses and cash flow.
How can software enhance lease abstraction?
Lease administration software not only analyzes your lease abstracts. But, it also allows for better time management and financial analysis. CRE software incorporates automation, collaboration, and data insights into your lease management process.
Once you take your abstracted lease and import it into lease administration software. Then you can create automated and collaborative real estate workflows. Like, tracking critical dates that need your teams attention. Or assigning tasks to team members on a lease by lease basis. In addition, you can schedule email notifications on rent renewals, rent expiration dates, and CPI increases, amongst others.
In addition, every clause in your lease agreements is now filterable and searchable across the portfolio. Seamlessly, search and identify which leases have percentage rent clauses. Find out who is responsible for building maintenance. And track tenant improvement allowances in collaboration with your accounting team.
Lastly, lease administration software allows you to export financial reports. Your accounting team can review monthly rent, rent variances by space type, clause type, and term type.
Lease Abstraction Services
Lease abstraction services accurately converts large amounts of real estate data into a digestible abstract. Lease abstracts are beneficial for all parties involved. The tenants, tenants representatives, property managers, and landlords. An abstract distills the legal jargon of a lease down to a digestible document. One that is easy-to-understand and highlights only the most critical information.
The first step to lease management is lease abstraction. A good lease abstraction service will partner with your organization to ensure your data is extracted quickly and accurately. These following steps outline Lease Abstraction Services workflow to unlock your real estate data:
- Plan – Outline a plan to source documents, lease data, embedded leases, and any essential elements that pertain to your real estate portfolio.
- Abstract – Machine learning and artificial learning technologies automate the extraction process of your lease data.
- Lease Audit – Once your data is abstracted, your team will want to audit the information for accuracy and quality of critical dates, clauses, base rent, and financial descriptions.
There are undeniable benefits from lease abstraction. Tenants, and clients will enjoy cost savings, time savings, and quality data. Together, both lease abstraction services and lease administration software are insightful tools. Especially for organizations with a large real estate portfolio. That powerful combination helps your team to mitigate financial risk and fuels your decision-making. Learn about lease abstraction services by Occupier.