5 Reasons to Optimize Your Real Estate Portfolio

Many companies have experienced changes in their real estate properties in the last few years, including variations in lease terms to fit new work environments. This has put a strain on the people and processes in their real estate and accounting departments to keep up with the variables. If you’re feeling this pressure, consider making some changes to optimize your portfolio and implement better systems for managing your real estate accounting and leases.

With lease accounting standards now requiring businesses to diligently track and account for variable lease payments, lease term changes, and lease modifications, your real estate and finance and accounting teams need to sync up. Optimizing your real estate portfolio will give you greater efficiency and control over risks and returns. At the same time, it makes sense to consider how well your real estate management system can keep up with all the important details of your different properties.

In a recent webinar, Blake Swenson, Solution Consultant, and Karan Sehgal, Product Owner for LeaseAccelerator from insightsoftware, shared five strategies for optimizing your portfolio.

Maximize Property Returns

The goal of any real estate team should be to get the best return from every property the company owns or leases. If you increase returns, you may be able to reduce the number of properties you manage. You save costs by letting go of locations that are no longer needed.

To improve how you manage your commercial space, pay attention to critical dates. To take a proactive approach, track all important dates like break options and deadlines for using improvement funds.

• Review all the properties your company owns or leases.

• Start the renewal negotiations early to get better deals.

• Use your tenant’s improvement allowance wisely or negotiate lower rent.

• Always get approval from the landlord on any future projects if you plan to use funds.

• If you didn’t use all the improvement dollars, consider a new approach that helps you gain better value through reduced rent.

Reduce Financial Risk and Operational Risk

During the COVID-19 pandemic, many companies suddenly realized they had too much space and needed to reduce it. During that time, two types of lease clauses became very important, break clauses and force majeure clauses. First, companies checked their force majeure clause to see if they could get relief due to events outside their control, like the pandemic. Next, they looked at the break clause and what penalties would apply if they exited a lease early.

If a clause is missing, your system should note that it is incorrect. For example, you need to know that the lease is silent on force majeure. You also need to track notice periods, break clauses, and all other critical dates. Let’s say your internal process is to review renewals nine months before the end date, but one of your leases requires twelve months’ notice. If your system doesn’t notify you, you could miss your opportunity and lose negotiation power.

Wherever possible, aim to standardize key contract clauses like exercise windows across your lease portfolio. This will make your process easier and more predictable over time. Always review key clauses like break options, renewal terms, and exercise windows, and use a checklist of required clauses to avoid missing anything. Checking to see if your lease rates match the local market will help your company succeed in the long run.

Finally, check who's responsible for repairs and maintenance and what timeline applies. If the landlord is responsible, ask how delays might affect your operations. If your company is responsible, make sure you have the people and resources in place to manage repairs quickly.

Improve Cash Flows

Understanding your cash flows helps your organization plan better for the future.

Key practices include:

• Centralize rent processing and payment tracking: Assign one team to manage all upcoming rent payments across the organization. Some companies only centralize base rent payments, but the best practice would be to centralize all payments under one deal or center of excellence. This approach helps reconciliation. If all expected payments are tracked in one place, it’s easier to match them with the lease terms.

• Perform regular cancel reconciliation and desktop audits: If you are not regularly reviewing landlord charges, it becomes difficult to know if you are obeying. End of the year cancel reconciliation can be complex and time-consuming, but it pays off. You can review important data and ensure the financial accuracy of your payments.

• Avoid late fees and maintain a good landlord relationship: Making timely payments not only prevents penalties but also help preserve trust and flexibility with your landlords.

• Acknowledge the complexity and look for support: The accounts payable and receivable process in any large organization can be difficult to manage and change quickly. Many companies choose to partner with external firms to handle certain processes, especially cancel reconciliation. If your real estate portfolio is large enough, outsourcing this could provide a good return on your investment over time.

Improve Analytics and Reports for Proactive Strategy Decisions

To move from reactive to strategic real estate planning, your organization needs accurate data and a strong reporting foundation. Build a structure that captures the true cost of ownership by including all relevant agreements and cost categories such as service contracts, parking agreements, landscaping, cleaning, and snow removal.

Benchmark your lease rates against the market to ensure competitiveness and informed decisions. Whether you're a landlord aiming to stay competitive or a tenant ensuring you're not overpaying, benchmarking helps identify if your lease agreements are aligned with the prevailing trend. This insight can guide negotiations, highlight opportunities for cost savings, and ensure your portfolio remains financially sound.

Regularly review your portfolio to make sure it is the right size for your business needs. Include metrics like current deployment counts and maximum occupancy levels. These help you determine how much space is needed.

Create and maintain standard operating procedures (SOPs). This is especially useful for companies with decentralized real estate management. You want to ensure that everyone is aligned across different regions of teams. Review your SOPs regularly, especially if your strategy changes. Your SOPs should support accurate data collection and smarter decision making.

Integrate Administration and Accounting Workflows

It’s important to work closely with your accounting team and create clear operating procedures where possible. You want to start by defining which team is responsible for leasing data points. For example, both real estate and accounting teams need accurate lease dates and payment values. Clarifying roles can help avoid duplication of effort and improve data accuracy.

In many companies, both teams extract lease data separately via their own processes. However, for efficiency you could have one team extract the contract data and then share a summary with the other team. That way, you save time, lower the risk of errors, and create alignment.

If your organization uses software tools, assess whether these tools can help connect the two teams. Some systems may be integrated or may offer reports that are useful for both real estate and accounting. Leveraging these features can reduce manual work and improve visibility for everyone involved with your leases.

You also need to ensure continual compliance with the appropriate lease accounting standards, ASC 842 for US-based companies and IFRS 16 for international companies. These standards dictate how you account for specific leases on your balance sheet. It’s typically harder to account for real estate leases than it is to account for equipment leases.

So, make sure your real estate management system aligns with your accounting and finance system. Mistakes cost not only money, but also your reputation. Accuracy, compliance, and efficiency pay off and keep you competitive.

How LeaseAccelerator Can Help

The LeaseAccelerator platform is made up of multiple modules, including Lease Accounting Manager and Real Estate Manager. Lease Accounting Manager provides accounting compliance and relevant reporting. Real Estate Manager helps with the day-to-day portfolio administration. They offer different functionalities to support the organization’s needs, and they can operate together or independently.

Many clients who start with Lease Accounting Manager functionality later choose to add Real Estate Manager. Others adopt the accounting and real estate technology at the same time. The ability to connect the two modules offers workflow synergies and creates a more controlled process, which can save you time. Choose the path that works best for your company.

Explore the LeaseAccelerator functions that fit your business and reduce your risk.