Bemchmark study highlights lease administrators' biggest worries

Real Estate Weekly, June 14, 2006

Some real estate executives fear their current information technology systems are not integrated very well with the general ledger, and are even more concerned about the accuracy and integrity of their data, according to the results of a new benchmark survey conducted by the Lease Advisory Services practice of Deloitte Financial Advisory Services LLP ("Deloitte FAS").

Many executives also expressed difficulty finding and retaining talented people to become lease administrators.

The survey, which polled 200 owners, corporate tenants, and lease administrative services providers, offers a snapshot of current practices and issues in the industry.

Companies surveyed include those that lease, own or provide lease administration services to properties with a combined total of more than six billion square feet of leased space under more than 300,000 leases. Participating executives represented a cross section of industries, including financial services, manufacturing, and technology.

Real estate technology system integration ranked as a serious problem for both corporate tenants and building owners, according to the survey.

Eighty-one percent of executives of corporate tenants, and 46 percent of building owners, said their real estate IT systems were stand-alone, rather than part of their accounting systems. But, roughly two-thirds of corporate tenant executives and one-half of building owners felt their real estate IT systems were not well integrated with their accounting or general-ledger systems. A significant portion of executives reported that their companies were not investing in technology to stay current. While one-half of executives said their companies had purchased or upgraded their lease administration software within the last two years, 35 percent said they had not done so for three years or longer.

"Our survey indicates that most real estate executives involved in lease administration have a good distance to go when it comes to making the best use of technology," said Josh Leonard, Deloitte FAS partner and leader of its Lease Advisory Services practice.

Most companies rely on off-the-shelf applications. Of the executives who said that their companies used lease administration technology, 64 percent said they used off-the-shelf solutions, either with or without customization; approximately one-quarter reported that their systems had been designed by a vendor.

However, there was a great deal of variety in the software systems employed; only about one-half of the executives surveyed said their company used them. These top five packages were: Accruent, Virtual Premise, SAP, TRIRIGA and Fraser Williams-Horizon.

While companies are increasingly using more sophisticated techniques to increase efficiency, the use of application service providers (ASPs) to host lease management systems has not yet gained wide acceptance. Only approximately one-third of executives from corporate tenants said they worked with an ASP.

The executives also expressed major concerns over data integrity and accuracy. "Forty-six percent of executives said that this issue represented significant challenges for their company that could lead to a loss of confidence in the information gathered in the lease administration system," said Keturah Bay, senior manager, Deloitte FAS's Lease Advisory Services practice.

"That can lead to duplicative processes, missed lease options, overpayment of rent, manual gathering of lease information, and eventually a significant expense to have the database cleaned," added Leonard.

Eighty percent of executives reported that their company abstracted lease attributes into a lease administration database. Interestingly, the relative effort devoted to abstraction increased as the volume of leases involved grows--37 percent of staff time at corporate tenants managing 200 leases or more compared to 18 percent at those managing fewer than 200 leases.

In contrast, most other areas--such as reporting, desktop reviews, account as volumes receivable/payable and budgeting/forecasting--appeared to benefit from gains in efficiency; executives at larger organizations said that these activities received a smaller portion of total resources than those at smaller organizations did. Mr. Leonard noted that these findings appear to indicate that larger organizations are using these savings to invest more staff and resources in building sophisticated lease administration databases.

The Deloitte FAS survey also found another critical issue for the executives: finding and retaining talented employees. Roughly one-third of executives reported that hiring skilled lease administrators was extremely or very difficult. And, 37 percent of executives said the difficulty in hiring skilled lease administrators had increased during the last two years.

"Executives at real estate companies are always looking for ways to streamline their operations and reduce costs," Leonard said. "Our survey provides comprehensive insight into what challenges they face in offering accurate, consistent, and timely data to help them achieve their goals."