Blog - Real Estate Automation Digitization of Leases to Understand the Financial Impact

Real Estate Automation. Digitization of Leases to Understand the Financial Impact

Knocking Down the Walls

Being two interconnected areas the relationship between real estate and digital is an interesting and diverse one. Depending on the functional area, your focus may be looking inward, outward or both to create detailed end to end processes, and at the same time making them smart, automating them partially or in full to fully empower stakeholders.

For simplicity, two macro focus areas differentiate processes. Complex processes (e.g. Budgets, FP&A) involving multiple persons. Complex tasks (e.g. IFRS 16 / ASC 842, Financial Consolidations) that may be undertaken by far fewer staff members. 

Driving success for each one of these requires both timely point in time execution capability, as well as the ability to define process actions at an ultra granular level, including all required transformations. This is key, as is the ability to define them as secure, compliant workflows, including segregations of duty.

Collecting lease data
Collecting lease data can be a great challenge for real estate leases that are not centralised, especially for multinational corporations where large volumes of leasing documents are maintained in different. If they do not have standard contractual terms or are written in various foreign languages, it becomes even more complicated.

IFRS 16 implementation concerns are not only for accountants. Leasing and operations teams should be involved in the task of reviewing a contract against the definition of a ‘lease’ under IFRS 16, particularly for companies with a large, international and complex lease portfolio. IT departments may also need to sign off on the detailed technical requirements for reporting in conjunction with the finance team.

Driving opportunities with technologies
Leveraging latest technologies to automate complex process steps and calculations on leases are important, including the facilitation of lease amortization schedules, calculating lease liabilities as well as performing “What-If Analysis” on liability balances. Also important are the financial reviews at a broad corporate level (across multiple entities) to drive discussions re high level cash flow and liquidity management.

This becomes an exciting enabler for deeper value creation opportunities, driving efficiencies, further improving stakeholder engagement, and enabling you to potentially disrupt others.

Software functionality that can handle the above two macro focus areas, as well as the detailed operational differences across various domain areas, are core prerequisites to ensuring that underlying systems for property management are fully able to handle both quantitative and qualitative processes within a secure and auditable environment.

Qualitative for clarity; the generation of contractual documentation e.g. tenancy agreements; emerging Covid-19 rent concession; tracking lease payments i.e. key dates; various small or large claims, maintenance process flows. The end result is to keep processes fully aligned with current realities, and having a basis of comparison across properties, clusters etc. which also helps business continuity.

Moving on and building on this, descriptively all processes can fit neatly and broadly into the following end to end structure as follows; from the data collection of various data types, through any required data transformation with contextual actionable ranked reporting and workflows @anytime @anywhere within a process + payments @anywhere + simulations.

Together with open banking a broad variety of API’s can be used for functional gain from other domain areas including proptech e.g. digital twins, processtech for inward and outward quantitative and qualitative processes, chatbots, physical robots and AI all enhanced further with 5G etc.

Whilst this sounds like a gross oversimplification of realities, it is in fact the powerful outcome of latest technologies working for you, rather than vice versa, and provides the backbone to provide total visibility to all stakeholders i.e. by tenant, contract, owner, cluster etc., as well as a basis for handling priority setting.

Data transformation that may be simple or complex is just a single step within the above process description, but this capability is key. One way to think about this is that broad generic applications are being deeply enhanced by process designs that execute what you require, with the ability to innovate on a continual iterative basis.

Typically transactional friction comes from heavily manual processes that not only touch multiple applications from varying vendors, but which also require data to be collected, transformed, often by spreadsheet, for the task at hand.

So how does this come together in practice:-

Reporting and document creation works for you. Rather than them being seen simply at the end of a process they can be @anytime @anywhere to drive proactive actionable, contextual decision making and corrective workflows for visibility.

So it is not simply about reporting outcomes by contract(s), or in aggregate by segments etc., but more about operationally strengthening relationships between stakeholders, and being able to take corrective actions to issues as they occur.

Thinking more broadly as to the recipients of reports and workflows it puts into place the continual processes that drive the end result for all stakeholders, whether they be owners, tenants or banks for one or multiple buildings. All using the required reporting GAAP, as well as being able to reconcile differences between variants.

Friction in transactional handling is removed or reduced by enabling partial or fully automatic processes (including hyperautomation) that are repeatable as well as auditable, recognising available options exist for corporates who either accept the use of spreadsheets or mandate their non use (at least in critical processes).

X-application and x-ecosystem processes can add significant value. This might be at the intersection of Property Management, Financial and Procurement, as well as involving externally driven processes across other industry leading applications, including enabling payments and enhanced tenant self-service.

Life continues to change fast, and whilst today that statement may seem very understated, we are nevertheless all perhaps more willing to push forwards to explore new options. Labour intensive transactional processing and spreadsheet based compliance controls take time away from management activities, so anything that increases efficiency and productivity is invaluable, especially as many processes today are done more frequently than usual. A game changer!

Notes:-

  • Further examples of diversity of process. Employee and tenant self service, lead management, content management, tenancy management including vacancy, lease expiration and rent roll.
  • Further examples of Proptech. Final designs of new skyscrapers, where individual design tweaks can immediately be reflected in to the underlying procurement processes of millions of components; using IoT to create smart building for ESG and usability; reduced corporate demands for workspace as new work: life norms emerge, to smart end to end financial and operational processes e.g. IFRS16 / ASC 842, contract management.

GaiaPM, a member of the FlexSystem Group, provides lease and property management software designed to help you drive performance up and costs down. As a global solutions provider in over 38 countries GaiaPM, together with proven solutions for financials, human resources, and operations is a business software vendor to 1 in 10 Forbes Global 2000 (May 2020), and 1 in 5 Global Fortune 500 (August 2020), operating at the intersection of new digital process and payment technologies, whether on-premise or cloud, to provide you with iterative opportunities for value creation.