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Work From Home For Property Managers

Work From Home for Property Managers

It seems that to be truly relevant in 2020, every communication must include the words “unprecedented” and “global pandemic.” This has certainly been the case for news articles of recent. We sincerely hope that those words become less frequently used during the latter half of the year. With a few months of pandemic life under our belts, we can now regather and reprioritize as we look forward with somewhat more experience and context.

While the impact of the pandemic on the working environment was sudden, all indications are that the effects will be with us for at least a year. Some are likely here to stay. Let’s take a look at those impacts and what we can do about them as commercial property management companies.

Immediate impact

The immediate effect has been the Work From Home (WFH) policy implemented nearly universally. This has done several things right away:

  • There is a need for digital online systems. Work From Home had a paralyzing impact on those that didn’t already have cloud-based systems in place. On the other hand, those that did transitioned much more easily into remote workflows.
  • Larger companies have frozen travel and group training budgets.
  • Forced business closures impacted commercial property management revenues by about 5% in the first month of the shutdown alone.
  • Most property management companies have put new capital projects on hold for the remainder of the year.

Middle-term impact

The initial response in various social media and news outlets was that the shutdown is just temporary, and things will revert to normal as soon as the shutdown is declared over. It is now apparent that the shutdown situation will end in phases. This will have several middle-term effects:

  • Revenues will continue to decline and will likely accelerate as the cascading economic effects impact more businesses and individuals.
  • There will be a strong realization that waiting this out is not a viable strategy. There will be months of people working from home still, and there will need to be greater efficiency and online capabilities for companies to survive this environment.
  • Not everyone will be returning to an office workplace. Some of the population will have significant fears about crowed workplaces and will refuse to go back.
  • High traffic events like trade shows and group training will be cancelled farther out as event attendance budgets are withdrawn for both presenters and attendees.
  • Print media will be refused in favour of contactless digital media to avoid spreading the virus.
  • Some previously crowded offices will not be able to fit everyone back in due to the social distancing in the workplace requirements. Shared workspace policies like “hot-desking” will end.

Long-term impact

Just as generals always prepare to fight the last war, companies will plan for the next crisis in response to this one. We expect to see a strong push for online software, with full capabilities for document creation and handling. There will be a need for role-based permissions within the software so that workflow processes and authorizations can be completed without physical presence requirements.

Let’s review a few of the critical aspects that a digital solution must provide.

External communications

Companies “going digital” used to mean scanning paper documents and storing them on hard drives. Interestingly, for property management companies, the original signed copy of a lease is still considered the only official version of the document, and it is kept in a “safe place” like a filing cabinet or at a lawyer’s office. A short lease abstract is referred to for daily tasks such as rent payments and lease dates referencing.

Documents

Although many professionals, such as realtors and lawyers, now support digital documents, these materials are nearly universally transmitted by email. However, as email is not a secure form of communication, this opens up opportunities for fraud. What is needed are online portals whereby authorized users can log in and access documents securely. Tenant and property owner portals can support secure document access. A tenant portal should include two types of user roles: an administrative role and an accounting role. This allows for the separation of access for accounting related items like bills and payments and administrative tasks such as lease options and extension notifications.

Messaging

Handling service requests from tenants has become significantly more difficult with the shutdowns and Work From Home policies. Many service requests for non-critical repairs are unable to be fulfilled as nonessential companies are not operating or operating at decreased capacity. This has resulted in a backlog of open service requests that need to be maintained and eventually prioritized for the service crews when nonessential work is permitted to resume. Also, service requests that were previously phoned into the main office are no longer able to be physically distributed to maintenance staff if everyone is working from home. In general, all direct communication has been replaced by other methods that were readily available such as email and online meetings. The critical solution is an internal messaging and portal system. Such a system allows tenants to create service requests that can be prioritized by your staff and shared internally with other users.

Interoffice workflows

Internal document management

Many service providers have previously switched over to emailing PDF versions of their completed work orders and service invoices. Some progressive companies also email before and after pictures of the work areas to prove they completed the required work. These enhanced services have been handy in reducing the number of follow-up site visits required of building managers.

What happens to these documents when no one shows up in an office? How do cost allocations get assigned, and how are approvals given if no one physically stamps or signs off on the invoice? This is where role-based permissions are required. CRESSblue, for example, allows for the entry of accounts payable invoices, automatic allocation of expenses and attachment of all original supporting documents with a simple drag-and-drop upload to the cloud. Notification systems alert the appropriate users to let them know there is work in their queue awaiting their review and approval. Go ahead and score yourself some bonus points for having every bit of the document processing available for an audit.

Your business system should include document management for leases and property data. On the property level, design drawings, equipment manuals, finish specifications, furniture layouts and photographs can all be stored and catalogued on the internal file storage system. For leases, scans of original signed documents, digital versions, notices, letters, lease extensions, addendums, anything and everything you used to keep in a filing cabinet can now be stored securely and accessed from anywhere by anyone with the correct user permissions. The digital workspace can be as distributed as everywhere and still fully connected. The significant advantage is that digital systems are far more efficient. The result is no lost documents and uses far fewer employee hours than processing paper files.

Staff communication

While messaging apps are ubiquitous on phones and computers, what they lack is the ability to link to office workflows centrally. Property management software that has internal messaging systems to coordinate and direct remote office staff has a clear advantage. Messages are secured within your company, and all staff can communicate together easily without disclosing personal information to co-workers.

Software with a complete, built-in messaging and notification system supports Work From Home.  This functionality allows for communication between remote staff, property owners and tenants, all contained within a secure company environment. While accidentally shared files and correspondence may make for funny social media posts, they can be disastrous on both a personal and a corporate level. Take confidentiality seriously and use professional systems to facilitate your office communications.

Another advantage of using integrated messaging systems is that they can also incorporate system notifications. In addition to automatically triggering notifications to specific workflow events, they can provide timely reminders of lease events to both lease administrators and tenants.

Work reassignment

A global pandemic can create unique challenges when large percentages of the workforce are suddenly unavailable. While actually getting sick is the most severe case, many other situations can cause disruptions in staff availability. Caring for others who are sick, those who are high-risk and self-isolating and children unable to go to school or daycare can make healthy employees unable to work their usual hours. This can create stressful bottlenecks in integrated workflows and results in significantly slower processes.

The beauty of online systems is that you can easily redistribute work. There is no need to email files or share spreadsheets and keep your fingers crossed that the changes will merge correctly. As a manager, you can easily reassign permissions and notifications to redistribute the work among available staff. When fewer people are required to be more efficient than they were previously in a physical office environment, a smart online system is essential.

But can your team learn the necessary skills and procedures quickly to complete the newly reassigned work? A well-designed system includes integrated help and training systems with definitions, explanations and best practices. In addition, it has a parallel user-enabled system whereby you can add your company policies and procedures in the same context-sensitive way.

Integrated systems

As we have seen so far, the key to Work From Home is to have everyone connected digitally for their workflows. This is also true for software systems.

Orphaned data

Paper-based systems and stand-alone applications are examples of siloed systems. The data contained within each silo is difficult to share and, once separated from its source, is impossible to update or verify. Each piece of data becomes an untraceable orphaned copy of the original. Any error introduced at any point will propagate through to all decisions based on that data. Centralized, single-source data systems combined with the original documentation permits the data to be much more valuable and to maintain its credibility.

There isn’t one single software application that does everything for any company size or specialization. Often industry-standard systems like QuickBooks are used for the accounting portions of business operations. This specialization permits accountants to work on a limited number of familiar systems and increases their efficiency. Other systems, such as online banking, have security requirements that make them the only provider of their banking services.

Automation through integration

Thus, various software systems must be able to integrate. This compatibility eliminates the need for a human to be the sole interface between them and results in greater efficiency. QuickBooks Online is doing an ever-increasing good job of integrating with online banking software. Bill payments, payment receipts and reconciliations for bank accounts and credit cards are all possible. Automation is increasing the speed and accuracy of the banking/accounting work.

By switching to a business system that has built-in integration with accounting systems, you will vastly improve data quality and workflow efficiency. Specialized applications within CRESSblue, for example, permit automated processing of tenant rent invoices and third-party property management fee invoices. These are transmitted live to the online accounting software, and payment statuses are updated in real-time. From a user perspective, these functions occur as if they were one system. Effective integrations allow each user to perform at peak efficiency on their native software choice.

Work From Home is here to stay

The recent abrupt changes have surprised everyone. Aside from the terrible impacts of the disease itself, social distancing and shutdowns are our new reality. The Work From Home environment is here to stay for a while. The overall economic impact is very uncertain.

The impetus for changing business environments is here. We already face economic hardship, uncertainty and fear. These things are part of any major change in business operations. The question, therefore, is not when will we respond, but what will we do now to survive? The companies that will withstand the current situation are those that promptly adapt and change to meet the new requirements. The stress is already present. Moving to more capable systems will only make the stress go away sooner. Move quickly to position yourself for survival, and you may also find that you also have the opportunity for growth.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Better Software-as-a-Service technology equals happier customers

5 Ways Software-as-a-Service Can Enhance Customer Service

If you are a small to medium-sized CRE PM business owner, no one knows your customers as you do. So, it should come as no surprise that technology is disrupting traditional customer service models – in a big way. Cloud-based Software-as-a-Service (SaaS) is making its biggest splash ever. But going digital does not mean getting less personal.

Digital technology is drastically altering the power balance between customers and companies. According to Forbes, digital transformation with a focus on customer experience can generate a 20-30% increase in customer satisfaction and economic gains of 20-50%. Sounds like a win-win, right? Digital technology allows customers to gain the power of information and choice while increasing business revenue.

Property managers have even more of an incentive to make the digital leap. Digital workflows can reduce overhead costs, speed up leasing processes and increase response time – just to name a few advantages.

So, how do you offer quality personal customer service in the digital age? Let’s explore 5 ways property management Software-as-a-Service can enhance customer experience.

1. Access data anytime, anywhere

Even if you’re the sole property owner of one building, it’s likely you still have a stockpile of data. Think about all the information you’re given on an annual basis. Leases, legal contracts, utility bills and receipts must be readily available on hand. Companies of all sizes can reap the benefits of asset management software.

Property management systems offer unparalleled access to accurate, up-to-date, real-time data about your buildings. Common in old-style business workflows, personal data sets are typically on individual computers manipulated by a single person with their complex spreadsheets. This produces single-source, unverifiable data that easily propagates errors throughout the entire company. Eliminate the round trip of individual departments producing piecemeal paperwork in scheduled increments. Expedite the customer experience with centralized systems that provide immediate access to all data sets simultaneously.

In times of uncertainty, the speed of access to data is vital to decision-makers and stakeholders.  Landlords using property management software can respond faster to changing conditions and benefit from automated tools and reporting features. CRESSblue is an example of a specialized Software-as-a-Service system that offers tenant and owner portals. The tenant portal allows tenants to easily access invoices and statements through an online system. The owner portal functions similarly, enabling property managers to access invoices and statements and see property management reports.

Furthermore, forward-thinking owners get the insights stakeholders need with access to comprehensive reports and ROI analytics. By applying business intelligence technology to these sources of data, you can mine them for patterns you never knew existed.

2. Take human error out of the equation

Looking to build a loyal customer base? Transparent and accurate reporting is non-negotiable. Who would want to do business with a landlord that fudges numbers on spreadsheets? Smart tenants demand more transparency from landlords on CAM cost allocations and calculations.

Manually tracking expenses leaves too much room for error. When it comes to managing other people’s money, you can’t afford to make mistakes. If you’re a landlord that runs multi-tenant properties, then you know all too well how difficult it can be to track financial information. Add custom lease terms, tenant inclusions/exclusions and cost recoveries to the mix – and the paperwork can pile up fast.  Here is an example of some of the lease errors that we’ve come across in paper-based systems:

Paper leases leave room for error.
The lease Basic Terms Sheet shows 1,050 included square feet.
There is more room for human error on paper.
But later in the lease, in Section 2, two other numbers are provided for the included square feet.

Landlords using accounting software have the clear advantage. Automation reduces the risk of human error, so you don’t have to dig through files to identify (and correct) mistakes. Digital workflows give you the option of automatically logging financial data, which takes all the guesswork out of the task.

Commercial leases are complex. Commercial property accounting software offers ease-of-use when managing cost allocations, requiring less customer involvement and accurate results. Unique tenant circumstances can be reconciled efficiently and painlessly. Deliver information confidently and professionally, with internal audit capabilities to assure tenants that their finances are in safe hands.

3. Self-service optimization

At one time, ‘self-serve’ was a dirty word. But in an age where technology offers instant access to information, self-service is an integral part of customer experience. Streamlined, user-friendly portals empower customers to get the answers they need without enduring long wait times and dreadful hold music.

What’s more, services like online payment and maintenance request submission can cut out the middleman. Landlords can promptly respond to tenant concerns. Cloud-based software, like CRESSblue, offers tenant portals with messaging systems that can alert landlords to a problem immediately. Owners can respond to tenants, message team members, schedule work orders and track maintenance tickets to ensure timely service is delivered.

Companies that embrace technology allow for greater communication amongst the team. Effective internal communication boosts morale, employee engagement and information sharing. Coupled with these benefits, integrated workflows that centralize and standardize your data also reduce customer follow-ups for additional information. In turn, this results in fewer direct calls, fewer tickets and happier customers.

The best part of all? It’s cost-effective. Keeping investors, landlords and tenants happy improves retention, minimizes vacancy and maximizes revenue.  

4. Customers want to make green choices

Consumer research shows that customers find it important for businesses to demonstrate social responsibility and take stances on current social movements. According to Business Insider, a recent survey found that 47% of internet users worldwide had ditched products and services from a brand that violated their personal values. Protecting the environment tops the list.

Not only does going paperless help the environment, but it also significantly reduces operating costs. You can cut out the expense of printing, storage and the transportation of paper itself. No checks to print, stamps to lick or envelopes to stuff. Swap the unnecessary administration time – in favour of secure, digital files that are easy to search. Still not convinced? As a tenant, would you prefer a firm that constantly delivers notices through your mailbox or one that simply sends emails straight to your phone?

Most important, digital information storage greatly reduces the risk of paper documents ending up in the wrong hands. Enterprise-level Software-as-a-Service systems like CRESSblue, lock sensitive information down and control access to files with user credentials. Real-time monitoring of the system health and intrusion detection ensure that records are securely backed-up and intact. Unlike paper, which can be destroyed, lost and never returned.

As businesses plan for the post-coronavirus future, more owners are converting physical offices into remote property management teams. Remote working is an opportunity for companies to work more sustainably and increase productivity. Think less office space, less commuting, fewer business trips, shorter breaks and greater focus for employees.

5. Increased productivity equals more time for better service

Companies that leverage data-driven decision-making are far more productive than companies that rely on low-tech solutions. By investing in technology, owners are free to look beyond day-to-day operations and focus instead on property management leadership.

Automating complex processes and repetitive tasks saves valuable personnel hours. Adopting cloud-based Software-as-a-Service technologies increases business intelligence while decreasing administration time. These tools will enable you to effectively and productively improve internal processes and deliver professional service.

Phone calls, faxes and paperwork will only slow you down. And that will ultimately hinder your stakeholders. With smart business systems, you can automate e-notifications and reminder emails, as well as digital reports and documents.

The benefits of the cloud go beyond increased productivity. Digital and analytic tools can reduce the cost of operations while fostering flexibility. Smart business systems do the heavy lifting, so you can focus on strategies to boost your service level and ROI. Take pride in knowing your business is using tools to accelerate and scale. 

Start with your customers

The rules of business are being rewritten nearly every day with this imperative for digital transformation. There’s no denying that customer service is changing too. The current global climate has forced companies to rethink how customer interactions are handled, performed and tracked.

Emerging Software-as-a-Service technologies present an incredible opportunity to make customer service more natural, authentic and emotionally intelligent. Not surprisingly, customers value total convenience. What systems can you leverage to meet their evolving needs?

Commercial property management software rewards customers with easier, more efficient and ultimately, more responsive service. It’s your job as a business leader to apply tools to engage, connect and grow relationships. You owe it to your customers.

Embrace Software-as-a-Service

“Digital transformation” was a buzz phrase before the coronavirus crisis. Since then, it has become a necessity. Leaders must continuously reinvent their customer service model – with technology at its core. Otherwise, watch from the sidelines as tech-savvy customers are swept up by high-tech competitors using innovative Software-as-a-Service solutions.

Customers have already become accustomed to the digital experience. The demand is growing strong. They expect new standards of excellence, performance and just about everything in between. Failure to adapt will risk a loss of efficiency and frustration among your stakeholders.

Digital transformation is modernizing how companies work and compete in an evolving digital economy. What’s also evident is that executives are, by and large, prioritizing technology in their business goals. Not investing in remote systems will have far-reaching consequences on the way you work when the pandemic dust settles. Are you ready for a fresh customer service strategy?

Book a demo to learn how CRESSblue cloud-based property management software can help increase your profitability while cutting costs and positioning your business as an industry leader.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Changing workplaces - post-pandemic workspaces

Changing Workplaces – Thoughts on Post-Pandemic Workspaces

We share a few thoughts on workplaces becoming non-tactile and managing environments in the post-pandemic period, and invite you to comment and share your insights.

Assessing the scope

There are two main areas of concern in workplaces: tactile surfaces and managing the air in the work environment. Both are directly related to containing the spread of viral infections through engineering controls. Behaviour modifications will be primarily outside of the scope of this article except concerning how they can be manipulated by means of building and environmental design changes.

There are broad implications when addressing these two areas. We will only touch on some of them superficially. Our goal here isn’t to provide answers. Instead, we first seek to provoke thoughtful consideration and secondly a reasoned discussion of possibilities.

Employee density

As employers are permitted to allow workers to return to office, retail and other commercial workplaces, the issue of maintaining physical distancing must be addressed. Some will not return for a myriad of reasons, including elevated risk factors for themselves or dependents, personal anxiety, loss of employment or the ability to work from home with ease and efficiency. These factors will serve to reduce employee density.

However, this does not automatically make workplaces suitable for returning employees to maintain physical distancing. Many shared workspaces were designed to maximize density, and these spaces will still be unsuitable for returning employees. It is estimated those office environments will lose 50% of their previous capacity. Workstations that are less than two metres apart, or those that face each other may only allow for every other workstation to be occupied diagonally to those across from them.

High-density workplaces also increase the demand placed on cleaning crews. Daily cleaning of elevators may still leave hundreds of people exposed to contaminated surfaces. The same for cafeterias and washrooms, meeting rooms and doors. Elevators, designed to hold many people in close proximity, will now have reduced capacity to one or two persons.

The increased use of aerosol disinfectants will inevitably give rise to respiratory irritation with increased exposure to harsh chemicals. Reducing the risk of contact contamination will have other side effects on human health.

Transit

Social distancing and work from home (WFH) have reduced public transit ridership to a mere fraction of its former use. It is difficult to see how social distancing and surface disinfection can be maintained on busses and trains. There are so many surfaces and hand-holds that are required for safety while standing or moving on these vehicles.

Will the risks of infection on public transit drive people back to personal vehicles? What impacts will this have on traffic congestion and parking in our cities? Will we see increased environmental impacts if more people choose to return to work using cars?

City planning

City designs may change to having wider sidewalks and pedestrian pathways to facilitate separation between people. This, of course, is much easier to write into building codes and city planning policies than it is to retrofit in existing infrastructure. There may not be enough space to accommodate both roads and wider walkways. One proposal is to reduce roadways in favour of broader pedestrian pathways while at the same time changing zoning regulations to permit a much greater range of mixed uses. The idea is to create mini-communities of residential, retail and office, and supply all within walking distance.

The concept of small communities where all necessary amenities are within walking distance is not at all new. In fact, before the invention of the personal automobile, that was the norm for all communities. It will be interesting to see a return to the old ways of city community design combined with online shopping providing worldwide access to goods. This concept could provide many benefits, including shopping local, reduced commuting and related environmental effects, a physically healthier population and a greater sense of community. All the while, helping reduce the spread of infectious diseases.

Reducing tactile surfaces

Workplaces contain an amazing number of tactile surfaces: light switches, keyboards, coffee and vending machines and serving utensils. Nearly every piece of office equipment has a button keypad. Handles are on everything: washrooms, closets, cupboards, entrances, drawers and cabinets. Humans use their hands for everything!

Sensor technology has enabled us to reduce the number of tactile surfaces we need to touch. Occupancy sensors have replaced light switches while simultaneously reducing energy consumption, and motion sensors have replaced faucet handles in washrooms. Fobs can replace keys and keypads for access systems. New technology is demonstrating that contactless holographic projections can be used instead of metal elevator buttons. While these systems can be expensive, the engineering difficulty is quite low for the implementation.

We will likely see a redesign of office equipment used by more than one person that further reduces the need for contact. Buttons on multifunction office printers/scanners/copiers may be removed and replaced by touchless technology or alternative processes. This may finally drive paper use down to near zero in offices, something that was predicted long ago that hasn’t happened yet.

Building design

Building codes invariably get more complex and all-encompassing over time. Over the last decade, the primary driving forces of change have been the reduction of building energy usage and internal environment conditions. Expect to see numerous changes to building design requirements and allowable capacities as a result of the knowledge gained during this pandemic.

Designing buildings for less touching and wider separation is possible. Many large facilities, such as stadiums and airports, have washrooms without doors by using winding entrances. For large buildings, the space penalty isn’t significant. However, the predominantly smaller workplaces simply do not have the space to rework the interior to meet those designs. It will be economically infeasible to reconfigure and rebuild many older compact layouts to meet the new standards. Add to that the reduced permissible occupant load and the market rents and value of older buildings will decline significantly. Low-valued buildings in good locations will lead to an increase in redevelopment. Combine these opportunities with changes in city planning bylaws and policies, and we could see significant progress towards the small community proposal outlined earlier.

Internal air quality will likely become a focal point. Already we see an increase in interest in HVAC disinfection systems through UV lights and better filtration media. With the increased use of aerosol disinfectants and airborne viruses, the number of air changes per hour will also be increased to improve the indoor air quality.

Internal traffic patterns

Traffic patterns within buildings have already been altered to prevent people from passing close or bunching up. This is accomplished through the use of arrows and spacing indicators in lines and waiting areas. Expect to see wider hallways or even unidirectional hallways and traffic patterns designed into new buildings. Mats with circles indicating personal space areas are already available and are showing up in office opening plans across Europe and North America. With separated workspace fixtures becoming firmly in favour, the purchase price of densifying office furniture is now steeply discounted. The pandemic regulations have reversed a decade long trend of workplace densification in mere months.

What are your thoughts?

These are just some of the current thoughts on the changing workplaces in the near future. Doubtlessly politics, legislation, engineering, economics and human behaviour will play important parts in the developing story over the coming months and even years. While disruptive, the circumstances also provide the opportunity to innovate and improve. Let’s choose to be positive and use the forces that have been unleashed to make the world, our world, a better place for all. We invite you to add to these topics. What things did we miss? Are there other solutions that can address multiple facets simultaneously? Share your insights and join the discussion.

Remote Asset Management During COVID

This is why COVID Makes Remote Asset Management Essential

Virtual offices, rent deferrals, building closures. As coronavirus sweeps the globe, property managers face new daily challenges in a rapidly evolving economy and remote work requirements. Companies that haven’t already moved to remote asset management are experiencing significant disruption and inefficiency.

How long this “new normal” will last is anyone’s guess. In response to COVID-19, local and federal governments remain fluid in rolling out relief and stimulus programs for small-to-medium size businesses. The Government of Canada introduced the Canada Emergency Commercial Rent Assistance (CECRA), which will lower rent by 75 percent for small businesses. In addition, the Business Credit Availability Program (BCAP) supports financing for Canadian companies in all sectors and regions. Comparatively, through the CARES Act, the U.S. Federal Government will send a one-time stimulus check to many Americans and make low-interest loans available to small businesses.

One thing remains clear – the pandemic has changed how we do business. Companies must understand their limitations and then act on that knowledge wisely and aggressively if they are to survive. Is your company positioned to survive? Is it possible to actually come out stronger on the other side of this current crisis?

Work-from-home technology, and empathy, enable you to care for your properties, staff and tenants safely and effectively. Here’s a look into how now moving to remote asset management can future-proof your property management business.

Take a page from history

Pivoting a business model in times of crisis is not new. It has long been an integral part of business innovation. Historically, during recessions and downturns, companies survive and outperform competitors when they invest in new growth areas and improve efficiency.

While it may be true that industry experts had forecast some turbulence in the markets, none of us saw COVID-19 coming. Then again, market disruption – while uncomfortable and anxiety-producing – generally creates opportunity.

Already we have witnessed companies quickly pivot to support immediate needs. Gap, Nike, Zara, Brooks Brothers and smaller manufacturers are using their factories to make masks, gowns and scrubs. On a smaller scale, some businesses have introduced new services and technologies to expand market reach.

Property managers, too, must pivot in real-time to deal with a rapidly evolving crisis. Businesses must ramp up with current technology to compete efficiently and support work-from-home staff and stakeholders. Now is the time to think fiercely about every resource available. Ad hoc responses won’t be enough. Property managers must implement new remote asset management tools and lay the groundwork for their recoveries now. How you restructure your business model will be crucial in optimizing solutions to problems that seem impossible to solve.

Why risk-averse leadership is reckless in a pandemic

Pivots generally bring significant risks, but strong leadership recognizes that the potential benefits outweigh the risks. Strong leaders see that paralysis in the face of danger can result in the most devastation. Indeed, it requires a unique type of leader to take risks during an economic crisis. The coronavirus pandemic is plunging the global economy into its deepest slump since the Great Depression.

When the situation is uncertain, human instinct can cause leaders to avoid action until the threat becomes clearer. But according to The New York Times, this means failing the “coronavirus leadership test.” Passing the test requires leaders to act in an urgent, transparent and consistent manner. All the while understanding that mistakes are inevitable and course correction is the best path to survival.

But where to begin?

You’re probably wondering which fire to put out first. This is an unprecedented time for a commercial property owner. From rent deferrals, to being unable to complete service requests due to shutdowns, to implementing new technologies – property managers have a great deal of stress on their hands.

However, the lack of strategic action only exacerbates disorientation. To start, carve out time to reflect on mistakes and take a long view at where you want to be post-pandemic. How prepared was your business to work remotely? Are there systems that could have increased efficiencies and productivity? How will your stakeholders see your business when this crisis is over?

Digital property asset and lease management is no longer a luxury

The stakes for digital transformation are higher than ever before. Property managers are being forced to consider contactless systems. Virtual business systems have become the most logical choice and, more importantly, the safest choice.

Property owners already leveraging integrated systems are far better equipped to respond to the rapidly changing market. Unfortunately, those still living in the digital dark ages will be left behind. Let’s take a deeper look at how property management software can increase efficiency in times of crisis.

Remote asset management and document sharing

At this point, the pandemic lockdown has likely exposed the shortcomings of entry-level software – or even worse manual workflows. Handwritten invoices and property details in filing cabinets make document sharing difficult on a good day, let alone amidst a global war against infectious disease.

Landlords face the challenge of responding to uncertain owners, accountants, realtors and tenants quickly, safely and accurately. All the while, they are juggling the collapse of customer demand, significant regulatory changes, supply chain interruptions, unemployment and economic recession. Fragmented, inaccessible data management is just another critical problem to solve.

With revenue dropping and budgets getting tighter, fewer people must do the same work as before. The new reality is, working from home now must be more efficient than working in the office was previously.

Online business systems give you instant access and control over your data. Centralized data storage is critical for tracking and moving information while providing a holistic view of records and the transition of people and properties. It is the only way to efficiently access information at all levels and in all areas – without the worry of passing paperwork by hand. CRESSblue significantly increases efficiency and supports remote working. It enables your company to be more productive than ever.

With CRESSblue, your team can seamlessly work from home or the office as needed. To illustration, one at-home worker can enter an invoice while another can review and approve it for payment – all without being in the same building. The right technology is now a lifeline for businesses.

Keep digital security concerns at bay

The pandemic has made it harder for companies to maintain security and business continuity. With work-from-home orders at an unprecedented scale, executives must prioritize initiatives to safeguard sensitive information.

Information sharing through excel and email only increase the risk of security leaks and human error. Cloud-based solutions can make it easier for staff to work remotely because they can be implemented faster than on-site systems. Also, software systems with configurable user restrictions will allow you to control both viewing and editing permissions.
CRESSblue is a cloud-based software with role-based permissions for each user type. It enables you to distribute documents and be confident knowing your data is safely centralized and backed up.

Now is the time to automate complex calculations

Economists warn that it may take years to recover from the COVID-19 lockdown financially. Therefore, executives must maintain strict discipline in monitoring cash-flow with special attention given to capturing and collecting receivables.

There are emerging government exemptions and refunds available for companies aiding in the prevention and treatment of the epidemic. For example, in compliance with infectious disease control, multi-unit building owners may be required to invest in changing building security systems from a keypad to a touchless key fob system. If contributions to these types of leasehold improvements are rolled into the rents, the capital expenses should be clearly identified in new/renewed lease negotiations and in calculations to avoid paying income tax on money that isn’t really revenue. We covered more about leasehold improvements in a previous article.

With the right asset management software capturing recoveries can be easy. Capital costs can be automatically classified and added to the building capitalization. Along with the appropriate depreciation values for annual tax returns and financial statements.

Let property management software do the math

While the coronavirus lockdown holds grip, landlords can expect to see more vacancies, tenant changes and rent exemptions. Multi-tenant property owners must prepare now for increased complexities when it comes time to calculate the proportionate share of CAM expenses.

Let’s consider a scenario in which a first-floor tenant in a multi-tenant office building institutes work-from-home orders, leaving their space vacant. In this hypothetical example, tenants on the second floor remain operational. Naturally, vacant spaces will have lower water and heating/cooling costs. Expenses are allocated to those tenants based on proportional areas, but now the usage varies widely for the period covered by the invoice. Work from home policies are creating vacancy-like conditions for calculating fair and accurate expense allocations. Imagine trying to track and reconcile intricate expenses and invoices on spreadsheets? Not a very efficient use of time.

Commercial software, such as CRESSblue, can automatically calculate the proportionate share for each tenant including occupancy/vacancy expense gross-ups and provide an audit trail for each invoice. This one-stop-solution will increase efficiency in your business and ensure nothing is overlooked. Perform complex calculations with automated actions that do the work for you – quickly and accurately.

Customers will remember how you react during the crisis

The best way for property managers to protect their revenue is to provide superior customer service, despite catastrophic circumstances. As we learned earlier, coronavirus leadership requires one to behave in an urgent, transparent and consistent fashion.

Consequently, it might be time to step-up your accounting game. Scrambling to gather invoices and lease agreements and amendments will only delay delivery, increase stress and leave room for error. An automated accounting system, like CRESSblue will increase reporting speed and accuracy for anxious stakeholders. What’s more, its internal audit capabilities can prove that accounting documents comply with the lease documents terms. In turn, the company can be confidently transparent in its dealings with tenants and prompt with auditors.

Plan for recovery now, not later

The COVID-19 crisis was impossible to exactly predict. But all crises contain the seeds of opportunity. The question is not if we can avoid uncertainty and crisis. That has already happened. Seeing that that disruption has already been forced upon us, what positive changes will we apply that driving force to?

Leaders must take action during a crisis with recovery in mind. Think broadly about where you see your property management business once the dust settles. More importantly, how do you want your investors and customers to see your business?

There is some speculation that this crisis may last for a year or more and may reoccur in the future. Post-pandemic, some people may need to continue to work from home at least part-time. How will you adapt if laws are passed requiring more space between work stations, but you don’t have more space available? What if key talent requests to continue to work from home 1 or 2 days per week? How will you ensure your company is capable of expanding and contracting as needed? Companies that are flexible and agile are the ones that can thrive during change.

Now more than ever, there is the need for innovative ideas and solutions to tackle unprecedented problems. It’s important to remember that technology-driven change and digital disruption are here to stay. When the crisis is over, it will be clear which companies have the resilience and agility to reshape their business model to thrive in the future.

Remote asset management is here to stay

You know it. We know it. The old way is no longer good enough in this new reality. Not quickly adapting is too risky and costly. Be the company that survived, no, thrived in the pandemic. When they ask in the future, tell them, yes, we survived AND grew. Your company and leadership will be more valuable than it was before the crisis.

CRESSblue can help you streamline your productivity and bounce-back stronger than ever before. Book a demo for a guided tour through the automated, time-saving features. It only makes sense to use a system that lets you do more with less when it matters the most.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Commercial Net Leasing 101 Terms and Definitions.

Commercial Leasing 101: Here are the Industry Terms You Should Know

Whether you’re a first-time investor or a veteran looking to brush up on your commercial leasing terms, we’ve got you covered. This article defines the various lease agreements and industry jargon to help you better understand what they mean to landlords and tenants – and the relationships between them. In the simplest terms, a lease agreement is a document that lays out the allocation of risk and responsibility for the use of property in exchange for money. Now, let’s dig into the terms and definitions.

Gross lease vs. net lease

There is no one-size-fits-all approach to commercial leasing. Lease agreements between landlords and tenants can take many different forms. To start, let’s define the difference between a gross lease and a net lease.

Gross lease

A gross lease is a lease in which the landlord pays all (or most) expenses associated with owning and operating the property. This ‘all-inclusive’ lease agreement is sometimes perceived as the most tenant-friendly lease type as the tenant can budget for a regular flat fee. However, the gross lease may be higher than necessary in order to protect the landlord from cost increases over time.

Most often used in office buildings, industrial and some retail properties, a gross lease eliminates tenant responsibility for the variable expenses associated to the property. Typically, gross leases are easier for small spaces, very short lease terms or unsophisticated tenants where convenience is paramount. However, there are instances when an overconsuming tenant may be on the hook for overage charges. For example, if a tenant exceeds electricity consumption beyond building standards, additional fees are often charged back to the tenant.

So, what is a net lease?

A commercial net lease, or N lease, is a lease agreement in which the tenant pays base rent plus additional expenses such as insurance premiums, maintenance costs and property taxes.

From a landlord’s perspective, the advantage of a net lease is that it offsets the variable costs of property ownership to the tenant. For example, if property taxes increase by 2% next year, it is the tenant’s responsibility to cover the additional rate in a net lease arrangement.

At the same time, net lease agreements can also be risky for the landlord if the tenant is responsible for making all the net lease payments. Let’s imagine the tenant fails to keep their property tax payments up to date; this may result in additional fees and fines that the landlord is responsible to pay. Even public utilities are often charged against the property title if the tenant defaults on the payments, resulting in an additional surprise for an unaware landlord. Therefore, most landlords prefer to file their own property taxes to ensure payments are made on time and in the correct amount.

Net lease tenants typically have the advantage of lower rental rates than that of a comparable gross lease. This is true even when factoring in the taxes and other operating expenses. Since the tenant is accepting a higher risk level, the compromise is that the commercial leasing landlord accepts a slightly lower income in exchange for consistency.

A gross lease versus a net lease.

Single, double and triple net leases

Let’s dive deeper into the different types of net leases. As a disclaimer, it’s important to note that net lease terms are often used interchangeably. Commercial leasing landlords and tenants will want to avoid making any assumptions based on how a lease is characterized. Lease documents should always be carefully reviewed to understand the obligations and the expenses for which each party is responsible.

Where net leases can differ is dependent on how the operating costs and expenses are allocated. This presents landlords and tenants with an array of choices for various scenarios (we’ll cover more about operating costs a little later in the article).

There are three basic types of net leases: single, double and triple net.

Single net lease

Single net lease properties are the least common of the bunch. In these leases, the tenant is responsible for paying base rent, plus all or a portion of the property taxes. In these leases, the tenant becomes responsible for the property taxes, whereas all other expenses such as operating costs, maintenance costs and insurance costs are managed by the landlord. Usually, tenants with a single net lease pay a lower base rent because of the added responsibility of property taxes.

Double net lease

Double net leases, also known as net-net or NN leases, is an agreement in which the tenant pays the property taxes and insurance premiums in addition to the base rent. All other expenses, such as maintenance and repairs, are paid directly by the property owner. Most commonly used in commercial real estate like shopping malls or expansive office complexes, landlords will charge double net lease expenses proportionally to the size of the leased space. A single or double net lease may also be called a semi-gross lease.

Triple net lease

A triple net lease removes the landlord from the equation entirely, as tenants pay most if not all property expenses. Much different than the ‘all-inclusive’ gross lease agreement, under a triple net lease the landlord is ‘hands-off’ as the tenant is responsible for all property taxes, insurance, maintenance and repairs in addition to the base rent.

Historically, triple net refers to leases where one tenant rents an entire commercial building and pays all property expenses for a longer-term (ten years or more). As leasing practices have evolved, the term triple net lease now also describes leases for a multi-tenant building where each tenant pays its proportionate share of expenses.

The types of commercial net leases.

Single-tenant and multi-tenant leases

By now, hopefully, we have demonstrated that commercial real estate can offer opportunities in a variety of arrangements. Whether an investor is looking to establish a single-tenant net lease property or a multi-tenant net lease property, both types of options have their pros and cons.

First, let’s enhance our understanding of single-tenant and multi-tenant net leases.

Single-tenant net lease

A single-tenant net lease is a rental agreement between the one sole occupant of a space and its owner or landlord.

Due to their simplicity, single-tenant net leases are often a good fit for first-time commercial leasing investors. With only one tenant to attend to, the property investor encounters less of a burden in comparison to managing the needs of multiple tenants. Imagine a scenario in which an investor has a single-tenant agreement with a triple net lease; the landlord could be alleviated of almost all property obligations.

Of course, investing in a single tenant property heavily relies on the quality of one sole tenant. The investor’s primary source of income significantly depends on the occupant’s financial contribution. If the tenant unexpectedly vacates, there could be detrimental financial and maintenance implications the longer the property remains unoccupied.

Multi-tenant net lease

Comparatively, in a multi-tenant net lease the odds of total vacancy are very low. A multi-tenant net lease is a lease between a landlord and a tenant where there are also other lease agreements within the same building complex, typically in a larger commercial retail property.

Investors might favour a multi-tenant property because they prefer to manage several units simultaneously instead of several individual projects. Contrarily, it may increase duties as multi-tenant buildings usually require more structural maintenance and repairs, and additional provisions to consider.

Retail lease agreement: common clauses

Retail lease agreements have various provisions to ensure both landlords and tenants are protected. The following terms are just the tip of the iceberg when analyzing the multiple permutations that can inform a retail lease agreement.

Retail anchor tenants

For many retail tenants, success is dependent on their neighbours. Anchor tenants is a term that refers to the key retailers that play a critical role in bringing crowds and human traffic to malls. Landlords are very likely to provide favourable rental rates and terms to anchor tenants, as they help sustain the business of smaller retailers.

In some leases, an anchor tenant agrees to a “continuous occupancy clause” which is a provision in a lease that requires the tenant to stay open during specified hours and operational throughout the period of tenancy.

Strength in numbers

Another negotiable lease agreement provision for retail tenants is the “go dark” clause. Under the go dark clause, tenants can stop operations in an unprofitable space while still paying rent for it. A tenant may choose to go dark for a few hours, days or weeks. They may wish to focus their resource on more profitable locations, or they may need time to overhaul the space decor.

Consequently, if anchor tenants or multiple anchor tenants leave the retail space, it is likely to result in a drawback of foot traffic and less business for the remaining tenants. Thus, the need for a co-tenancy clause. A co-tenancy clause is a retail lease provision which provides the tenant with protection in the form of reduced rent to compensate for traffic loss.

A provision that is advantageous for both property owners and tenants is known as “percentage rent.” Simply put, percentage rent is additional rent paid by the tenant based on a percentage of gross sales. The idea behind percentage rent is to give the owner the opportunity to negotiate the placement of a retailer in exchange for a percentage of their sales. If a tenant is experiencing periods of slower sales, the rent adjusts lower to accommodate the lower cash flow the tenant is experiencing. It provides a method to make the rent representative of the value the space has to the tenant over a wide range of profitability experiences.

Percentage rent, operating costs, capital costs and CAM fees

Now that we have a baseline understanding of the various lease agreements and clauses, we’ll conclude by exploring different lease expenses and how they are calculated.

How is percentage rent calculated?

With a percentage rent lease, a tenant must first pay a minimum rent. Once gross sales surpass a specified mark known as a ‘breakpoint’ the tenant is required to pay the owner a certain percent of every additional dollar in sales as additional rent. The percentage rent is often estimated and reconciled on a monthly or annual basis and may be averaged over a period of time. In some cases, the percent is industry standard and isn’t subject to much negotiation.

How percentage rent is calculated.

Natural vs. artificial breakpoint

The breakpoint is an important negotiated method, as there can either be a natural or artificial breakpoint.

A natural breakpoint is calculated by dividing the base rent by an agreed percentage.

Whereas, an artificial breakpoint may be determined by the bargaining power of the parties or specifics of the transaction. For example, a landlord may negotiate a breakpoint below the natural breakpoint, while a tenant with more clout may be able to negotiate a higher breakpoint.

Operating costs

Operating costs are common expenses that are paid frequently as they are necessary to operate and maintain a property. As noted throughout the article, operating expenses are often tacked onto a lease agreement in various forms. Some examples of operating expenses include property taxes, property insurance, maintenance expenses, utilities and administrative expenses. Operating costs do not include capital expenditures, debt or amortized cost recovery.

Capital costs

Unlike operating costs that are frequent and relatively low-cost, capital costs in a commercial lease are intermittent, expensive upgrades to the property that provide long term value. Some examples of capital costs include the installation of a new security system, a new parking lot or HVAC repairs.

These expenses are paid by the landlord and then amortized over a period of years. Some leases allow these costs to be recovered under specific conditions and over a period that is specified in the lease agreement. Typically, the amortized amount is charged monthly along with the rent and additional rent on an invoice for a specified period after the first replacement has occurred.

Common area maintenance

Common area maintenance charges, also known as CAM expenses, are the fees paid for the upkeep of areas designated for use and benefit of all tenants in a shared space. CAM expenses are common in multi-tenant lease agreements such as shopping centers and can include charges for parking lot maintenance, snow removal, utilities and more.

There are two basic calculations for CAM fees: variable CAM fees, where the amount charged to the tenant can vary based on expenses that may fluctuate monthly, and flat CAM fees, where the fees are a fixed amount.

CAM cap refers to the maximum amount for which the tenant pays its share of common area maintenance costs, and the owner pays for any CAM expenses that exceed that amount. For larger shopping centres, the anchor tenants may negotiate a flat CAM rate or CAM cap, and the remainder of the tenants will proportionally pay the balance of the CAM charges.

Optimal commercial leasing

The best way to understand the ins and outs of commercial leasing and manage optimal lease terms is to work with a team of experienced professionals, including realtors, lawyers, accountants and tech partners. When it comes to calculating complex multi-tenant expenses, leveraging property management software like CRESSblue can help commercial leasing landlords automate cost-recovery calculations for more accurate and professional results. CRESSblue is designed and backed by experienced commercial real estate professionals. This specialized net lease software efficiently handles custom leases for various unique circumstances – from multi-tenant to single-tenant, or any combination in between.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Formalizing processes for maximum wealth with asset management software

Formalizing Business Processes with Asset Management Software for Maximum Wealth Creation

Small landlords with just a few buildings own most commercial property. Often, these landlords share a similar pathway to becoming landlords. Initially, they purchase real estate assets for their business operations. Over the years, they add a few more properties as their business and personal wealth increases. Their idea is to use real estate assets to diversify their investment portfolio, but their original business operations remain their primary interests. The property acquisitions are of secondary importance, valued as passive investments and loosely managed. They haven’t yet invested in asset management software.

And therein lies an important – and costly – gap. 

The fact is, there is a significant difference between real estate and other forms of investing. Financial investments such as stocks, funds and REITs have people that can manage all aspects of the investment independent of the owners. Real estate, on the other hand, is more like a business than a simple financial instrument. Commercial real estate is much more complex and requires active management by a variety of professionals, as well as dedicated asset management software and systems, to achieve full yields. It’s worth it, though, as correctly managed real estate can potentially provide higher returns than the other investment types.

What is an informal landlord?

Let’s get clear on what an “informal” landlord is. It’s not about size. The informal label refers to the management style. For example, a large company might lack formal procedures and comprehensive data management. Meanwhile, a smaller property management company might run with precise data control and efficient vertical integration. In this scenario, the larger company is actually the informal landlord.

Your team of industry professionals is vital

Every business uses industry professionals to meet the need for particular expertise and licensing. Small and even mid-sized companies rarely have all the required professional associations represented internally. Licensed professional agents and brokers assist with securing the best commercial real estate lease opportunities. Lawyers draft and review lease agreements that provide the best protections. Accountants prepare essential financial statements and file the annual corporate taxes. Property owners contract these external specialists when required and often view them as long-term, trusted business associates.

Professional engagement with external PM industry experts opens you to better opportunities.

But these industry professionals can’t replace you

These professionals are essential in the success of your property management business. But they can’t provide the kind of central leadership that maximizes your wealth creation. Only the business owner can meet the business responsibility to lead, ensure the use of proper asset management software and processes and bind all these various responsibilities together. If the real estate is being passively owned like an investment rather than a business, the generation of wealth will be limited.

How the informal management style limits your wealth creation

Let’s peek inside the operations of a hypothetical (but very common!) informal landlord. We see that the owner has internal staff that run the primary business. With the acquisition of properties, they inherit the added responsibility of administering the daily operations of the properties. None are specifically trained or experienced in commercial property management.

Sure, this has immediate cost savings in terms of paid labour. Unfortunately, it creates far greater losses in other areas, to the point of making the investment neutral or even a loss to own. Moreover, the informal landlord may have no idea how their properties are actually performing. How could they? A line or two in the business annual financial statements contain no relevant information on the state of the property management operations. 

Some losses incurred by the informal landlord include incorrect calculations, costly administration and audits, and lost recoveries.

So, what are these great losses that the informal landlord is suffering? Let’s now consider each of the key gaps that exist in informal real estate management. (We assume that our readers have some experience with owning commercial property. If you are new to commercial property ownership, you can read about the basics here.)

Let’s talk about CAM slippage

The primary factor in the annual performance of commercial real estate is the handling of the operational costs for the property. For the informal landlord, the problems with recovering costs occur long before the calculations start. The biggest issue is trying to make sure the invoices for the year are all included. Often significant recoverable expenses are simply overlooked. Even some as large as the property taxes – which typically comprise most of the additional rent amount – are missed. 

Dedicated asset management software, such as CRESSblue, prevents missed recoveries in two ways. One, the invoices are tagged to the property and tenant when they are entered for payment. That means nothing is overlooked. There is no hunting for the expense documents when it’s time to do the year-end annual reconciliation. There is no mad scramble when lenders or governing bodies request reports. Two, the software automatically performs the calculations. With this kind of professional system, there are no miscalculations or missing expenses that result in slippage.

Knowing who pays

Aside from missing invoices, there are a few other ways legitimate CAM expense recoveries go missing on the statements. Invoices often have poor work descriptions. They also can have mismatched addresses, where the tenant name doesn’t match the unit number. Nearly a year later, can the person doing the reconciliation remember what the invoices were for? What happens to invoices where you cannot figure out whose CAM statement they belong on? They get left out of the calculations to avoid embarrassing questions from the tenants. It feels safer to forget about them rather than respond to questions over poor paperwork. 

Knowing which expenses are recoverable

Another common problem in an informal system is the separation between the various parties involved in business operations. The property owner decides on the maintenance work to be done. The company bookkeeper, although skilled in the primary business activities, often has little or no experience in commercial property management. 

That person rarely has access to the leases or understands the legal language. Who interprets what expenses are permitted to be recovered based on the lease agreement terms? Small landlords rarely have skilled internal staff that commercial leases require to make this type of decision and effectively manage the business. 

Sure, successful property management comes with procedural and document complexity. But the right asset management software makes it much easier. Alternatively, ignoring the entire issue and neglecting proper data management because it just looks too complicated results in significantly reduced potential return on the investment.

Knowing how to split shared costs across multiple tenants

Even if the invoices clearly describe the work and where it was done, further complexity lies ahead. Proportional expense allocations for multi-tenant properties can be complicated, especially when there are renovations, vacancies, tenant changes and a variety of free rent exemptions during the budget period. We won’t get into the details of how to calculate the proportional cost allocations for multi-tenant properties here. We covered that in another article.

The right asset management software makes expense allocation easy 

Dedicated asset management software makes a huge difference here. Vendor accounts can be linked to specific property locations. This is especially useful for accounts that never change, such as utility accounts. It also provides significant time savings as well as eliminating the potential for allocation errors. The software can automatically calculate the proportional share of the expenses for each tenant based on the premise’s areas. 

Going one step further, CRESSblue software will screen the expense allocations for eligibility as defined in each lease setup. The combination of the linked vendor accounts, automated calculations and lease screening eliminates all losses previously incurred from those sources. These losses alone are often three to four times the annual costs for the software, making the financial decision an easy one. 

Keeping track of lease dates

Rental increases

Most commercial leases have provisions for rent increases during the term of the lease, either specified step-up amounts at various intervals or annual adjustments for inflation tied to a consumer price index. These rent increases are often applied late or missed entirely. Without a system to provide notifications about upcoming rent adjustments, the same rental invoice goes out each month without anyone checking the leases left in a filing cabinet. Good luck trying to collect all that missed rent when the lease term has expired, and someone finally notices the initial rent was never changed. 

Lease management

Aside from missed rent money, how about letting tenants and realtors know when the lease term is up? What about notifications about upcoming extension options? Proper commercial asset management software has all these features built-in, providing timely lease management notices to landlords and tenants alike.

Knowing where stuff is

Document management is another crucial feature of any professional business software solution. It is easy to add documents to a tenant’s records library, as most documents are exchanged digitally now. Combined with online software services, anyone who needs access to the documents can do it at any time. Property records are handled the same way, with drawings and tenant fit-up specifications available for the realtor listings and maintenance personnel. Online document storage means you no longer need to remember to look something up when you get to the office as you have access anytime and anywhere. You can also send copies to your lawyer, accountant; you get the picture. Documents are there, and they are available.

Letting people know

Of course, good commercial asset management software solutions provide multiple user roles. With CRESSblue, it isn’t one-size-fits-most. The access and editing rights of each role are customizable. A large company can establish access parameters for roles such as building managers, property managers, portfolio managers, regional managers, asset managers, capital expense managers, department managers and division VPs. A smaller company will have most of these positions vertically integrated into a handful of people and can assign accesses accordingly.

Remember those transaction records your accountant wanted to see? You don’t need to send them; they can log in and get what they need. Customization is standard, with specified roles and permissions giving advances in efficiency other methods can never achieve.

Reporting

If only you had professional reports! Perhaps it would save some time on the telephone, trying to explain what you meant on that annual statement you had sent over to your tenants. What is on a “standard” statement anyway? What do other landlords have on theirs? These are common questions, and they indicate that you could use professionally laid out statements and standardized reporting.

Keeping lenders happy

While we are talking about reporting, what about the property rent rolls and operating statements your mortgager asks for every year? Commercial property management systems also instantly generate those. Property reports are also useful for getting insurance quotes. 

Say no to avoidable loss

None of the above is news to anyone who has worked in property management. At one time or another, most of us have experienced at least one of those slip-ups. Commercial property leasing involves large sums of money, and any mistake, whether accidental or deliberately taking losses, is costly.

The larger the informally-managed PM portfolio, the greater the total loss.

As odd as it seems, informal landlords normally accept recoverable expense losses every single year! Those losses are typically several times more than it would cost to implement a professional commercial software system. 

At some point in the decision to purchase commercial real estate, consideration was given to the investment potential of the property. How does an otherwise successful business person end up taking avoidable losses on their real estate investment year after year?

Understanding systems inertia

Small commercial landlords typically acquire their real estate portfolio scale later in life. Understandably, they do not want to invest significant time in learning an entirely new industry at the time they would be expecting to enjoy the rewards of their business growth and investment wealth strategies. 

The business systems of their primary business now serve secondary duty as real estate management systems. This is despite the fact that they are clearly inefficient and ineffective for that purpose. Perhaps the landlord doesn’t know the scale of loss. However, the recognition that it isn’t working well is no mystery to anyone.

Effective and efficient enterprise-level business systems able to automate critical business functions require quite extensive initial setup. Any business system looking to provide software services to smaller landlords must also include a significant amount of the initial setup as part of the package deal to ease clients through that transitional period. Look for a software company that is relational rather than transactional in the sales process. The days of boxed asset management software are long gone. Today’s software continually receives upgrades and updates. Your solution provider should be a business partner with an ongoing support relationship. 

Professionals want to work with other professionals

Compounding the above-mentioned risks is another significant gap for informal landlords not using professional commercial business systems. As we touched on, your commercial property management company relies on external industry professionals that offer unique expertise. The main three main types are realtors, lawyers and accountants. To be confident in the performance of their responsibilities, each needs specific types of information. Giving them what they need, how they need it, lets them spend their time more efficiently, opens you to better opportunities to which they have access and improves your credibility with them.

What real estate professionals want from landlords

Real estate professionals want their landlord clients to have information available and accessible. They need to know:

  • That the landlord has the lease agreements, is familiar with them and adheres to them
  • They are getting timely notifications of lease terms expiration, extensions options and new listings
  • The policies for the property, such as signage, security, waste handling and package deliveries 
  • The specifications on the premises, such as:
    • Supplied utilities like heating and cooling, electrical power and communications
    • Door sizes, numbers and types; and dock levellers
    • Zoning, permitted uses and prohibited uses
    • Exterior storage
    • Hours of operation
    • Drawings, space designs, space layouts and finish schedules

Having accurate and current information readily available makes the realtors work much easier. People like to work with other people that reduce stress and required effort. Be one of those people.

Realtors also look at potential landlords’ professional standards to see if they will impact the realtor-tenant relationship. This is especially important if the tenant is a national or multi-national client, and there is an opportunity for repeat business. Landlords that fail to meet professional standards for accuracy, timeliness and reporting create lost opportunity. The tenant account may go to a competitor if the tenant feels the realtor misrepresented its interests in a deal.

Missing out on high-value tenants means the landlord must take higher risk tenants. National and multi-national tenants have good covenants. They are low risk for defaults and pay their rent on time. Missing out on the opportunity to attract these kinds of tenants significantly increases the landlord’s overall default risk. For a landlord with a small portfolio, this can wipe out the returns on the real estate investments for an entire year.

What lawyers want to see

Lawyers like clients that, at the very least, know where their legal documents are. Do you know what is even better? Clients that operate within the scope of their agreements and meet their commitments. 

What is the area of highest tension between landlords and tenants? Operating costs. Defaults are rare. So are insurance claims. But everyone constantly deals with operating costs. No one enjoys conflicts over which expenses are legitimately charged back to the tenants.

This is where CRESSblue makes a notable difference. The terms of the operating expense recoveries in the lease agreement exist in a logical framework for processing expenses. The lease moves from being a static document in a filing cabinet to an active system automatically applying and adhering to the commitments made by the landlord. Any changes to the original lease setup automatically trigger a flag for review, so nothing slips by unnoticed.

If you want to avoid conflict over expense recoveries, put a system in place that automatically makes the best practices your default workflow.

What accountants need to know

Of course, all accountants want to see complete and accurate accounting. Rental income and expenses are the core of every financial statement, and CRESSblue links those to the tenant and property. External accountant professionals preparing financial statements under a review engagement commitment for a client will want to see the documentation for anything that creates a significant change to the balance sheet.

CRESSblue has a complete asset management capability with the ability to track assets and associated equipment. It also has fully customizable capital cost allowance functionality to track depreciation per federal and provincial or state regulations.

You create capital assets in the property database. In addition to calculating and tracking depreciation for tax purposes, you can link properties to individual leases. If the lease agreement permits capital cost recovery, the software can automatically add them to the expense recoveries similar to the operating expense recoveries.

Information access is greatly simplified for external accountants. As CRESSblue is an online application, accessing the data live from the server is simple. Depending on the level of service provided, access can be read-only or include full editing rights. Accounting review engagements requiring data verification and validation have never been so easy.

Formalizing property management for maximum wealth creation

Only you can effectively fill the responsibility to lead in the management of your property portfolio. Owning real estate investments is not as simple as holding a stock fund. If you view your real estate as a passive investment rather than a business, your potential wealth generation is lower than it could be. These case studies demonstrate how formalizing property management with better business systems results in significant gains.

Formal property management systems optimize wealth and professionalism.

Through your leadership, you can upgrade your operations with industry-specific software that delivers business systems and automation that encompass the full scope of commercial property management. This brings incredible efficiency to your business, in addition to control, accuracy and professionalism. Moreover, CRESSblue allows your internal team to manage your business with surprisingly little ongoing input from you. Professional operations and reporting are attainable by any landlord, big or small. Maximizing your wealth creation is within reach. You need only to decide to be professional.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

When to make the leap to new commercial real estate investment software

New Commercial Real Estate Investment Software – When to Make the Leap

What factors hold you back from making decisions on new business systems? Have you been holding back from upgrading to commercial real estate investment software? Let’s take a look at the common causes of inaction and how to address those fears.

The case for leaping forward with specialized commercial real estate investment software

Without a doubt, there has to be justification for transitioning to new business systems before arguing when to make the transition. To that end, we have previously made a case for new business systems. Not utilizing the right tools can strangle a business, severely reducing responsivity and profit. Interestingly, Forbes Technology Council lists 11 signs your software is due for a major update. Let’s dig specifically into the key reasons you should move forward with commercial real estate investment software designed for your business.

Centralized business data

Sources of data are everywhere now – in leases, abstracts, offers, contracts, agreements, invoices, term sheets, building operations and many others. The issue isn’t the quantity of data that can be collected. Instead, the issues with data collection and use are:

  • Data quality
  • Data integrity
  • Data aggregation
  • Data control
  • Data assimilation
  • Data dissemination

Data quality

Quality data can only exist with accurate and reliable collection. Further, the data must be relevant and suited for individual transactional use. Furthermore, the data must be qualitative and not just quantitative.

Data integrity

Data integrity involves encryption and user security controls in the software itself. What’s more, data validation can be done utilizing incremental change tracking for irrational or outsized changes (i.e. upon entering a 10% rent increase when the typical rent increase is 1% to 5%). Another method is to set data input limits for the expected values. On the human side, there are data governance policies to ensure that the data is collected and maintained accurately and consistently. More than that, though, the reliability of the data must be verifiable. This means that the source materials need to be readily available, typically in a digital format. It isn’t enough to have a spreadsheet of aggregated data. Unquestionably, the source documents must be accessible to verify the aggregated data.

Data aggregation

Data aggregation (collection and organization) from disparate sources must be done consistently through the use of systematic processes and repeatable workflows. Individually created spreadsheets are demonstrably the worst means of collecting and collating data due to the single user creation and the inability to display verifiable data sources.

For example, compare a spreadsheet of data to a database where every number links to a digital source document for verification purposes. In addition, each number that exists in isolation in a spreadsheet directly links in a database to the tenant, premises and accounting transaction history. Together, the aggregate data presents a total picture.

Data control

Setting controls on the data are critical for two key reasons. One, the data is now much more valuable in its curated form that it was in the various disconnected sources. Two, no one user should have singular control over the data. This is important both for maintaining the quality of the data and for preventing internal fraud.

Data assimilation

With the collected data now in a consistent, verifiable manner, a sophisticated Software-as-a-Service (SaaS) solution will assimilate it into the relevant areas of the business decision-making process. The data is collected once, curated and then made available for all. These unified data sets enable consistent business decisions. Siloed data systems with multiple duplicate data entry points, on the other hand, lead to inconsistencies in both the data and decisions based on them.

Data dissemination

The final step for the effective use of data is to disseminate it to the right people at the right time. Accessibility to the central data repository is key to making use of the data while it is current. The speed of access is vital to decision-makers and stakeholders, enabling them to respond faster to changing conditions or make changes to stagnant positions.

The centralization and control of quality data is likely the most significant immediate benefit you will realize when switching to a commercial business system.

Increased business knowledge through integration

Commercial real estate investment software made specifically for your business gives executives and managers access to a much more complete set of data. Centralized business systems provide access to all data sets simultaneously. They do not rely on individual departments making data available on scheduled intervals, such as monthly or quarterly reports. Not only do decision-makers have better data faster, but they also benefit from specialized insight and reporting tools. This makes for much quicker analysis and leads directly to more accurate and timely decisions.

Vastly improved efficiency

Business workflows and tools built into the systems benefit from standardization in all areas. This includes data entry and processing, allowing multiple users to enter data while the system processes that data independently of the user. Old-school spreadsheets hold individual user data inputs until they are blindly handed over to the next person.

SaaS-based, commercial real estate investment software, on the other hand, allows multiple users to enter data that is immediately available to all relevant users. Moreover, your team benefits from standardized data input forms and consistent reports.

Better investment returns

Obviously, another primary outcome of all the business process improvements is ultimately to increase ROI for the company. This objective is easily achievable in conjunction with improved work systems for all the staff when using enterprise-level, dedicated business solutions.

The impact of increasingly sophisticated tenants

Landlords aren’t the only ones with access to large amounts of data. Tenants are increasingly switching to more intelligent business systems. Larger tenants that have desirable lease covenants use sophisticated lease analysis software. What’s more, they demand more transparency from landlords on the CAM cost allocations and calculations. Landlords that do not meet the requirements of these tenants will find a shrinking pool of tenants willing to do business with them. Landlords using commercial real estate investment software have the clear advantage.

Existing systems and sunk costs

You’ve made it this far in the reading and understand the case for better systems. But you purchased software licences for other systems. Although you haven’t been able to meet all of the objectives you had hoped for initially, you haven’t fully amortized those costs. Perhaps you should wait until those costs are used up?

The costs for anything unrecoverable are known as sunk costs. It is a fallacy to allow those costs to influence new decisions. They cannot have any impact on the future because the spent funds will not change now or later. Draw a line under them and start fresh in your decision process. All that matters now and going forward is whether a new system will have a positive outcome on the business or not.

The fears (you’re not the only one who has them!)

How much will it cost? Purchase cost and ongoing licencing fees

The initial cost of enterprise-level systems is a shock to many just starting in the quest for better business workflow. Financial cost considerations often overshadow the financial benefits so much that fear petrifies the buyer, or they turn to software that costs almost nothing upfront.

Software system costs vary greatly. Why does some software hardly cost anything, and others charge so much? The difference is in the capability to save or even make money through efficiency and sophistication. The case for business software is financial on one side offset by the significant ROI that purpose-built industry solutions for commercial property management can achieve.

How do you know what you can achieve? For one thing, book a demo of the commercial real estate investment software. Indeed, do more than one demo and focus on each group of users to see the workflows and interaction between departments and management levels. Have your decision team see and understand how the system works for your specific case.

How hard is it to set up? Implementation, training and deployment costs

The fear here is that setup will require a serious time commitment from the existing staff who still have to use legacy systems while doing the setup work. Where will the extra hours come from? Will there be overtime wages? When can we schedule all the extra work? How much resistance will there be?

Resistance to change

Change across an entire organization is always difficult. While helpful implementation strategies such as these are useful to get employees on board, CRESSblue recommends getting people involved even sooner. In this way, change is a response to their feedback directly and enables a more fluid process. Furthermore, the staff sees management implementing change to suit the needs of its staff, rather than forcing change.

Implementation of change

Implementation, training and deployment are typically lumped together as setup. There is a push to market software products that require little or no setup. However, to achieve exceptional levels of automation, the business system needs to understand your business structure and its data relationships.

Once you have created a shortlist of workable systems, what will it take to deploy the solution? SaaS software systems have significant advantages over legacy boxed software. The provider does the deployment. You are not required to supply any dedicated, onsite hardware. Typically, SaaS solutions completely bypass the old-style software installation process and provide instant, encrypted access using your Internet browser.

Look for after-sales training options. Is personal training available, or are you left to dig through a user-created knowledge base? Getting adequate training is important for several reasons. First, training reduces user frustration and gets early buy-in from the staff. Second, it allows for an earlier realization of newfound workflow efficiencies. Third, those who launch into sophisticated systems without training often pull together a workflow that works, but that doesn’t fully utilize the most efficient workflows available.

Look for a company as committed to your success using their product as they are in selling it to you. Insufficient or ineffective training can cripple the launch of a new software system through user frustration. Merely purchasing a sophisticated system in no way determines its effective deployment and use.

How long will it take? Slow realization of initial goals

What if the system we try doesn’t work out for us? What if it costs a small fortune, takes a lot of effort to set up and then doesn’t meet our expectations?

Take a serious look at using professional setup and training services. While doing all the setup internally can be beneficial for training and familiarity with the new system, manually inputting historical data can be very tedious. See if software scripts can be provided to import much of the historical data into the new system. Of course, this assumes you have enough good quality data available in a useful format.

In summary, online software avoids all of the deployment headaches of traditional boxed software products. Taking advantage of training advances the implementation curve significantly. Together, these factors lead to more effective use of the system and earlier realization of returns on the technology investment.

How long do I have to sign up for? Commitment liability

Commitment isn’t really the issue here. No one worries about commitment when they like where they are. Asking about commitment is actually looking for an escape mechanism in case you made a serious mistake.

The question then becomes “How long will it take to realize if I made a mistake?” The uncertainty is the highest at contract initialization and decreases inversely with software familiarity. Make a definitive commitment to fully implement and deploy the software. Subsequently, within a few months, you will know whether it will work out. Look for a 3-month money-back guarantee in your contract.

Will this work with my other software? Integration problems

This is more or less important based on two questions. One, how many other software packages do you use? Two, how much will the new system replace older systems? Other factors include reporting to or integrating with external systems used by others, such as financial reporting tools.

Newer software systems are typically built with an integration layer that enables rapid and relatively painless programming to connect systems. Ask what other systems have already been integrated and get quotes on the integrations you require.

Is change really necessary? Uncertainty

Facing uncertainty in business often feels worse than sticking with the processes you know. This inertia can be useful as a hedge against too rapid change and gives stability to the company. However, too much inertia and the company will stagnate and fall behind nimbler competitors.

Inefficient responses, improper reporting documents and poor accounting records are evidence of stagnation. Small landlords are not impervious to this measure. Being small and self-contained does not insulate you from the competitive influences of growing tenant expectations. Businesses must invest in themselves or get left behind.

What if I look like I don’t know what I’m doing? Image and reputation

This one is a personal issue. An outside expert is going to look at my business? What if I have been doing things wrong? Won’t that make me look inadequate or incompetent?

First of all, taking steps to improve is the smartest thing a person can do. Bravo! No one has ever grown by hiding in ignorance. Step up, learn and be surprised by how quickly you can make improvements with modern business systems working for you. Secondly, if you were far behind, you have the most to gain. Moreover, you will realize your efficiencies faster than most. Get the tools to make the improvements you need to outflank the competition.

If you have progressed this far in business and life, you undoubtedly have what it takes to master enterprise business systems. They exist for people like you, in your situation. Software solutions have advanced tremendously. CRESSblue is an example of a very specialized system that brings something brand new to the table. You aren’t unique in your need for better software solutions. Knowing what needs to be done and not doing it is a fool’s path. Seeing room for improvement and advancing toward growth is the behaviour of the savvy and successful. You have what it takes to be successful. A big part of that is a hunger for continuous improvement and competitive advantage.

Addressing the fears (the solution is right here!)

Briefly, here are the main steps that alleviate the concerns of moving forward with new commercial real estate investment software.

Get informed

Research and discovery diminish change-induced fear. Utilize the sales team resources for your benefit. Get more details, get more demos. It’s their job to educate you on the possibilities and capabilities of their solution, so inquire to your satisfaction.

Demo and test

One standard demo will demonstrate the general use of any system. However, unique situations and process exceptions can break the workflow for the user. After the first demo, ask the other future system users to weigh in with their feedback. Schedule additional demos to see the functionality and workflows and how they address the atypical situations.

Mitigate the impact of change

Since early adoption of the new system is critical to its successful implementation, use the provided training resources. Get everyone using it effectively as quickly as possible. Concurrently, have the system provider run data import scripts as soon as possible. This step in effect informs the system on your business data relationships.

Avoid new risks

Have the system provider make the necessary software integrations for you. Avoid using workaround solutions as they destroy the efficiency you hoped to achieve. Awkward workarounds also lower user confidence in the new system.

Utilize newfound efficiencies quickly

Rapid deployment means reaching efficiency milestones sooner, and that means greater profitability. Minimize the initial hump as much as possible, and then cross it as soon as possible. With this in mind, fully commit to making the commercial property management system fully operational within the first three months.

The cost of not leaping

If you are looking for better property management software, there is obviously room for systems improvement. Delaying or declining the move to the right commercial real estate investment software can cost your company in many ways. Here are the top five risks faced by a commercial property management firm using outdated systems:

1. Lost revenue

Slippage is a significant source of direct income loss. Improper CAM calculations and missing expense recoveries immediately impact the bottom line. In reality, remedying slippage can, by itself, cover the cost of the entire software system and associated setup costs in the first year alone.

2. Disorganization

Lost documents, disjointed leadership activities and inattentive business management are symptoms of ineffective business systems. Dedicated, purpose-built enterprise business systems allow you to “get your stuff together” and keep it that way. So, replace “What the heck am I doing?” with “Check this out!”

3. No progress

Business systems have changed significantly in even just the last few years. If you are still using spreadsheets and individual independent employees, untapped efficiency gains exist. Improvements in workflows are one of the main reasons for using professional software.

4. Operating on assumptions

It is a point often overlooked, but if you do not have aggregated business information readily available, critical decisions stand on loose foundations. Basing big decisions on isolated data points and assumptions of past performance based on memory is risky. Get a complete picture of each property’s performance covering all aspects from asset purchase to capital expenditures to operational revenues, recoveries and losses.

5. No integration with partners

As a small business, you likely don’t have inhouse professional services. So then, what connects your outside legal, accounting, insurance, leasing and contracted maintenance services? You do. You hand responsibility from one profession to another. Your broker gets an offer to lease, and you give it to your lawyer for a lease agreement. If you are a careful landlord, you get your insurance broker to review the new tenant’s risks. Your bookkeeper does the daily accounting, and you hand the books off to the accountant to file your annual returns. At the centre of it all is you. It’s your responsibility to integrate all the information from everyone into a business plan and to act. Why deprive yourself of business tools you need to organize, cooperate and understand?

Purposeful striding

Given these points, it’s clear that there is a strong case for moving forward with modern business software, and that there are logical steps to resolving the associated fears.

Now we get to the heart of the matter. Insomuch as something needs to be done, and done quickly, the best advice is: Don’t leap at all.

That’s right. Don’t rush into anything. Plan. Prepare. Execute. It isn’t a question of leaping off a cliff and hoping you make it. A smart executive strides purposefully toward intended goals.

The timing is now

Change inevitably happens in the business environment, regardless of personal stagnation. Consequently, this will either force personal change or force you out of the industry. The only thing worth feeling embarrassment over is awareness of what needs to be done while doing nothing about it. To let critical opportunities for continuous improvement and competitive advantage slip you by. You know what to do. You know how to start. More importantly, you know you can do this.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Old system and ad hoc workflow in online business systems. What is the competitive cost?

The Costs of Not Moving to Modern Online Business Systems

Online business systems in the financial sector

Modern online business systems for commercial property managers? There’s a common expression in commercial property management that real estate runs on spreadsheets. It’s true. There are four major categories in the financial investment sector:

  • Banks
  • Investment funds
  • Insurance companies
  • Real estate

Of the four, real estate lags the others in available software and systems adoption by up to 15 years. The others have invested heavily in current online business systems. As a result, they have reaped the rewards in the form of higher returns and faster response to market changes.

Let’s take a look at the ways this lack of digital sophistication has impacted the real estate management companies. Most importantly, let’s get clear on how smart executives can lead the way out of the digital dark ages.

The cost of time

The most readily observed, and perhaps resignedly accepted, is the length of time it takes to use patchwork software systems. To illustrate, imagine a business that allows the use of generalized software such as spreadsheets and word processors to be the core of its business systems. It’s easy to perceive that it uses its people to repeatedly design and maintain micro solutions to digital problems on an ad hoc basis. Obviously, this ad hoc process results in insanely inefficient use of time. Imagine trying to run a production line of cars where one person does the majority of the build on their own with hand tools and personally built fabrication jigs. Sure, a limited-run, high-end car might return value from a process like that. However, there isn’t a single real estate leader that would brag about hand-crafted, individually-constructed property reports based on the skill of individual property managers.

Workflow efficiency is a competitive advantage

There is an excellent opportunity to increase the efficiency in the preparation of reports, budgets, approvals and document travel through the use of software specific to the workflow of each sector of the real estate industry. Labour costs are one of the largest overhead costs in property management. Clearly, it’s time to move on to digital workflows that efficiently promote consistently better results while reducing individual effort.

Workflow efficiency is a competitive advantage.
DILBERT © Scott Adams. Used By permission of ANDREWS MCMEEL SYNDICATION. All rights reserved.

One of the topics that come up is that of employee job security. “If I switch to an integrated system, I’ll have to lay off half the people.” That is seemingly a valid sentiment. Who wants to be responsible for half the staff losing their jobs to software?

However, that thinking has a critical flaw, and it is this: inefficiency does not secure jobs. All that does is make the company worse than the competition, and the whole company will eventually go under or be taken over. No other company is going to hang around with you in the digital dark ages for the sake of your employees. The choice isn’t between all or some; the option is between some or none of them.

Online business systems empower your staff to do more

On the contrary, if you want to save jobs, it is done by being the most efficient firm in the industry. Therefore, switching to innovative online business systems is one way to achieve time efficiency. It results in higher margins overall. Plus, it generates higher revenue per person. That is the only way to secure employment long term, and it also creates more valuable employees. Secure jobs with better pay. Use that extra employee capacity to take more market share.

Data management and document control

The typical scenario with small and even mid-size property management firms is every-person-for-themselves when it comes to maintaining a set of documents for each property and each position. Data resides on the computer hard drives of the building manager, the property manager, the portfolio manager, the regional manager and so on. In fact, it’s unlikely that a complete set of data for each property even exists in this fragmented storage system. After all, no one person has the ability to see the entirety of it.

Seeing the entire picture

There tends to be a serious lack of consistency and transparency when it comes to fragmented and siloed data filing systems. It leads to reporting with very little supporting data included. Numbers in isolation lose their credibility and reliability as there is no way to verify their accuracy or the completeness of the calculations. Warren Buffett is famously known for his detailed and in-depth research on his planned stock purchases, right down to the notes in the margins in the raw data. How can someone effectively manage their investment responsibilities if they cannot get a complete picture of their own business?

Instant access to comprehensive information

Centralized data storage is critical for managing property data. It contributes to the effective movement of information, the completeness of the records and the transition of people and properties. It is the only way to effectively scale a company and still know – and know quickly – what is going on at all levels and in all areas. KPI’s are just that: key performance indicators. They don’t give details on why things are changing. Fast responses head off developing problems, and that requires readily available information right through to the lower levels. Periodic individual compilations of data aren’t enough. Relying on an annual financial report from an outside accountant to find out if the firm made money that year is ineffective for strategic business planning. It’s too late to correct the course for that year, and possibly for the next year also.

Centralized data enables deeper CRE insights consistency and transparency.

Specialized online business systems give you the ultimate control over your data.

Security

Data security has several aspects to it. First and foremost, where are the files? Are they travelling around on personal phones and laptops? If so, the risk of total loss is relatively high due to device theft, failure of the storage media, accidental deletion, file corruption and malicious software attacks. Using office desktop computers can limit the device theft aspect. However, that’s not enough. Often, the other risk factors are not addressed in any significant way until a data loss or breach has already occurred, especially in smaller private companies.

Centralized data storage on a local network was commonplace a decade ago. In any event, times have indeed changed. Now it is considered an ineffective and costly way to address access, security and backup concerns. There is no guarantee that users are keeping files on the network as opposed to their local drives. Moreover, individual machines must be set to back up the contents of their drives to the servers. IT support is limited to external contracted services or internal staff. Purchased equipment asset lifecycles have more influence on upgrades than the changing security environment does, resulting in less than stellar data security.

The best business systems currently use online software hosted on large server farms. This economy of scale leads to five critical improvements.

The best property management systems use modern, secure technology.

First

The actual hardware is now in a competitive environment: Amazon, IBM and Microsoft all provide hosting services. The primary competitive edge is hardware performance vs. cost. Everything is best-of-class. Additionally, users can scale immediately based on need, not whether cash or financing is available to make computer equipment purchases.

Second

The “big 3” all provide automatic backups and data storage redundancy.

Third

There is real-time monitoring of the system health, intrusion detection and security by specialist professionals and enterprise-level software systems.

Fourth

Hosted software systems automatically centralize all data storage by default. There is no need to control individual devices to make sure files are intact and backed up.

Fifth

Access to files and sensitive information is also controlled centrally via the software system user credentials.

The right online business system reduces the non-stop burden on the internal IT department. Management of hardware performance, security and backups are professionally managed with best-of-class services and technology.

Agility

The agility to structure deals in new ways to meet a rapidly evolving real estate landscape is vital for business competitiveness. Markedly, it is an often overlooked aspect of what specialized, online business systems can offer. Previously we talked about landlord-tenant loans and how they can provide compelling advantages over traditional lease financing methods. The days of buying an accounting system and adding property management modules to it are fortunately heading into the long-awaited sunset. User experience and intuitive workflows are crucial now, making the software conform to the user rather than the user to the system.

Connectivity is the holy grail of data systems. Users can record and access relevant data from anywhere with their workflow. Plus, it is automatically accessible to others who also need it. Information becomes consistent and coherent, no longer dependent on a single individual’s performance and skill.

Opportunity costs drop to their lowest possible value with agile systems as such business systems consistently avail of the optimum response. Say goodbye to lost opportunities due to systems that cannot record the necessary information. No more missed gain waiting for software releases to catch up to what is already possible in real life. Best practices can become the default standard for a business that uses a software system optimized for their industry.

Monetary considerations

For commercial real estate management, the big one here is slippage. The inability of user-created spreadsheets to correctly handle complex cost recovery calculations isn’t the fault of the spreadsheet. It’s often simply too complicated and too time-consuming to create the correct formulas to do the math accurately. You can read more on the complexities of these and CAM calculations here. The resulting slippage is either accepted as an alternative to spending time doing the math, or as lost audit challenges from tenant lease analysts.

Other direct losses occur from insufficient management data to see developing trends and make timely decisions. There is an incorrect assumption that past data is sufficient for future performance predictions.

As an example, there was a period where the bitumen supply for roofing and asphalt paving was of low quality when prices for oil sands products rose sharply in the late 1980s. The effects were not immediately known. However, BUR (Built-Up Roofing) systems and parking lots started incurring significant maintenance issues and costs as early as 13 years into the expected 25+ year life cycle. Roof systems and parking lot replacements are the two most capital intensive prospects most properties ever face, and as a result, these costs were unexpectedly early. Aggregate information gathered from properties with this type and vintage of roofs and parking lots could have alerted property management firms of this issue. The managers could then strategically prepare to either dispose of those assets or plan for the capital expenditures.

Professionalism

One of the most significant benefits of adopting advanced business software systems is the substantial increase in professionalism. Due to the consistency and detail that is readily available in such systems, there is a marked increase in reporting speed, authority and accuracy. Internal audit capabilities can prove that accounting documents comply with the lease documents terms. Consequently, the company can be confidently transparent in its dealings with tenants.

The move to current online business systems

Staying in the digital dark ages will put real estate management companies out of business. Real estate is big business and forms a significant part of the financial investment portfolio. All of the other three sectors of banking, investment fund management and insurance have surged ahead with sophisticated software systems. Inevitably, the real estate management sector will also experience the same changes to software systems. In fact, there is much evidence that the change is already occurring. There is a rise in the number of available software systems for the residential, multi-tenant management companies. Commercial net lease real estate management systems have been much more challenging to develop. Fortunately, newer entries, such as CRESSblue, are now forcing change into the sector.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

CAM Calculations

Calculating the CAMs (Common Area Maintenance)

Why is common area maintenance relevant?

Commercial net lease cost recoveries are in the same order of magnitude as the base rent. Given that fact, three things are vital to determining the value of each lease and the property investment returns. Specifically, you need to know what these costs are, how they are calculated and what categories of expenses are legitimately included.

Common area maintenance (CAM) calculations affect:

  • Net lease negotiation
  • Operational and capital budgeting
  • Accounting
  • Property and asset management
  • Property owners
  • Tenants

In truth, there is hardly any aspect of commercial leasing into which common area maintenance costs and recoveries do not consistently factor.

What is common area maintenance?

Common areas are portions of a property that are available to all tenants, a group of tenants, or their invitees. 

It must be remembered that not all of the tenants or their invitees necessarily participate in the use of all common areas. As an illustration, an elevator system in a high-rise building provides no benefit to an outside facing street-level shop. Additionally, the washrooms on each floor of an access-controlled building are only useful to the tenants that use those levels. Under those circumstances, a limited group of tenants, as opposed to the entire rent roll, share in the common area costs.

Common area maintenance costs are the maintenance costs associated with those shared areas. For the purposes of calculating cost recoveries, other maintenance costs that are not for the exclusive use of one tenant are also grouped into the CAM as operating costs. These can include costs associated with the building walls, roof, exterior lighting and climate control systems. Commercial net leases typically list all the permitted and excluded categories of expenses. Unfortunately, most leases do so only in a broad set of terms and do a poor job of providing practical guidance in specific cases.

Can capital costs be recovered?

Often commercial leases exclude capital costs and costs that are capital in nature, from the definition of operating costs. You can read more about capital expenses and proportionate share here. It doesn’t mean that every lease excludes capital costs from recovery. On the contrary, there are other ways in which capital costs are legitimately included in a lease for recovery as an expense.

If capital costs are recoverable, the lease should clearly describe the method for calculating the portion that is recoverable in any one period. Typically, the preference in this case is the straight-line amortization method. It may or may not include interest on the unamortized portion. The lease schedule should include the amortization period for each classification of asset for clarity.

What about reserve funds?

Some property management firms use reserve funds. A reserve fund is money collected from tenants to be set aside for future capital expenditures. Reserve funds deserve a special mention because their deployment and use are often problematic.

Firstly, it is impossible to reconcile their use under normal methods. Obviously, the whole point of the fund is to not reconcile the account balance to the actual expenses every fiscal period. Otherwise, a regular budget and installment payments would work just fine.

Secondly, what determines how and when a fund is used rather than a budget line item? What keeps a reserve fund from being used as a slush fund to make up for sloppy budgeting? Does its designation for a particular purpose like “roof fund” lend enough meaning to keep everyone honest? What level of discretionary use is permissible?

Thirdly, what happens in the sale or acquisition of the building? Does the fund go with the building, or does the fund disappear with the prior owner? Is a reconciliation attempted at that time, notwithstanding the turnover in tenants over the long period?

Fourthly, is there a cap on the fund level or can it accrue indefinitely? Is interest paid into the fund on the balance?

Any indication of the use of reserve funds is certainly worth investigating in a net lease situation.

Cost recovery methods vary

The simplest cost recovery method for a landlord is a bill/rebill method. This works for any expense that is individually determined, such as a service call to a particular location. The landlord gets a bill and invoices the tenant for the amount, usually with an administration or management fee added to it. In the cases where more than one tenant shares costs, a multitude of different factors must be addressed explicitly for each expense.

Where tenants share variable costs over a season or fiscal period, a commercial landlord uses a system of property budgets to prepare for the upcoming expenses and charges instalment payments along with the monthly rent. At the end of the period, the manager performs a reconciliation between the actual expenses and the instalment payments collected for that period. Not all leases on a multi-tenant property will have the same anniversary date. For this reason, setting the budget period for a calendar year rather than a lease term year is typical.

Types of cost allocation calculations

The simplest type of cost allocation is an equal distribution based solely on the number of users. Each tenant pays an equal share. This method can be acceptable where the benefit to each tenant is nearly the same and is largely independent of any other factors. However, a simple equal distribution of the expense does not fairly allocate most expenses.

Commercial net leases use a proportional allocation of expense costs based on the rentable area of the premises. In this method, each tenant’s share is the rentable area of their premises divided by the sum of all the rentable areas. This method isn’t perfect, but it generally more accurately reflects the usage by each tenant and is a predictable and repeatable method for making the CAM cost allocation calculations.

Rentable area and area gross-ups

When using the proportional method for allocating CAM costs, the definition of the areas is vital to making the calculations. The most common standard referenced is the Building Owners & Managers Association (BOMA) standard. This standard has changed over time, and also includes different methodologies for the same class of buildings. It is vital to have the lease specify which standard it uses. Additionally, it is critical to have the lease reference track to the most recent version of the standard. Together, these allow the landlord to use a consistent standard for all property leases. Note that individual tenants cannot specify the standard for all the other tenants. In truth, it is common to find that leases reference different standards for tenants in the same complex.

Buildings with non-rentable common areas will typically have those areas proportionally allocated to the rentable areas. This type of calculated area is known as the grossed-up floor area. For example, the common hallways and washrooms on a particular floor of a building will have their floor area divided up and added to the rentable areas of each of the premises on that floor. Grossing-up areas is a means of allocating those non-rentable areas to the tenants that use them. It is important to note that the gross-up process should consider which group of tenants benefit from the common area that is shared. In other words, each of the common areas may not apply to the same group of tenants every time. There’s a good article here with an overview of how and why to implement gross-ups.

Areas can change over time

Lastly, on the subject of areas, the areas may change over time due to building renovations, area audits that result in changes to stated values, area caps specified in leases and changing measurement standards. Renovations, in particular, can affect not only the related area values but also the user groups if additional or fewer units are made and attach to existing services and common areas. Each of these can force a discontinuity into the fiscal period calculations. Resultantly, another set of calculations is now required using the new data on the effective date of the change.

Expense gross-ups

First, let’s broadly define a few terms for clarity.

Fixed costs are costs that do not vary on occupancy or usage. Examples of fixed costs are utility infrastructure charges like water and wastewater connection charges.

Variable costs are those that vary with occupancy and operations. Following the above example, the amount of water used and the wastewater generated is a direct result of occupancy and operations occurring on a property. Tenants use water for washrooms and lunchrooms when they occupy a space. Site operations like irrigation use water seasonally.

Expense gross-ups reflect variable operating expenses for buildings not fully occupied. Moreover, these may be grossed-up to accurately reflect the portion of the variable costs that are attributable to the occupying tenants.

Slippage is the difference between total property expenses and the amount the landlord can recover from the tenants. Landlords are always trying to minimize slippage, and they do this through the use of expense gross-ups.

Not everything can be grossed-up

Fixed costs are allocated to all of the premises in the user group. Moreover this allocation applies regardless of any vacancies or lease exclusions. These fixed costs that are not recoverable result in slippage. Fixed costs should not be grossed-up to the tenants.

Expenses that should be grossed-up

Operational expenses that are variable with occupancy should be grossed-up to fairly allocate those expenses to the tenants that enjoyed or benefited from them. For example, vacant units don’t use water. It isn’t reasonable to proportionally allocate the water usage portion of the bill to all of the premises if some are unoccupied during that billing period. However, not all variable costs are wholly attributable to occupancy. Even vacant units are heated minimally to prevent water and fire sprinkler pipes from freezing in the winter. Security lighting and building controls still use some electricity. In these cases, reasonable estimates or building information systems may provide reasonable guidance on how much of the expenses should be grossed-up.

Accounting for discontinuities in calculations

We have already mentioned discontinuities in area data that result from changing standards, area audits, renovations and individual lease terms capping allowable changes. These all affect the proportional allocation part of the calculations.

At the same time, variable expenses affect the way the proportional use gross-up calculations are made.

In addition to those factors, leases start and stop mid fiscal periods. Not only does this force a change in allocations to a new tenant, but the leases may also include different, previously negotiated caps and exclusions. What wasn’t recoverable under the previous tenant’s lease may now be recoverable under a new lease and vice-versa.

For all of the above reasons, expenses with billing periods often need to be reduced to per diem amounts and allocated on a daily basis. Certainly, any billing periods spanning the start and end of a fiscal period will need to have adjustments made to allocate the correct amounts to each period. Additionally, any billing period that covers one or more discontinuity events further adds complication. In these cases, the manager will need to proportionally adjust each for the specific date ranges.

How to do common area maintenance calculations

Here are the steps for manually performing CAM calculations:

Step 1

For each invoice, check if it actually is a common area maintenance expense. If it is with respect to at least one lease, check which cost recovery method is applicable.

Step 2

For each class of expenses, determine to which group of tenants the fee applies. At this point, it doesn’t matter if the lease has an exclusion on that particular expense as the denominator requires the total area. Calculate the area gross-ups. If there is a discontinuity in the area values, compile area data for each time period that is at least partially within the relevant fiscal period.

Step 3

Check the expenses to determine whether it is a fixed or variable cost. Undoubtedly, some invoices will have both types on the same invoice. Apply the correct proportional allocation to the fixed costs and calculate the gross-ups for the variable costs based on occupancy. At the end of this step, you should have the correct cost allocation for each of the premises based on the type of expenses and the relevant areas.

Step 4

Using the lease terms, determine if the expense class is eligible for recovery. For example, if the lease states that the roof membrane maintenance is the sole responsibility of the landlord, roof leak repairs aren’t allowed to be charged to that particular tenant even if it is allowed for all the other tenants. This ineligible amount is slippage to the landlord; the remaining tenants do not pay for it. The same process applies if there are limiting caps on cost recoveries for all or some of the common area maintenance and operating expense classifications.

Step 5

Perform per diem calculations for each billing period not fully contained within the fiscal period. Then, do this for each service period that spans a discontinuity in applicable areas, and every time a tenancy change occurs. Equally important, a discontinuity can arise when a period changes within a lease term, for example, at the end of a fixturing period. Often a tenant only pays CAM charges for the property tax and insurance classifications and nothing else during leasehold improvements and fixturing periods of the lease term.

@$%&!, that’s complicated!!

If this all sounds incredibly difficult, you are right. Single-tenant properties and static leases aren’t that difficult to figure out with some experience and reasonable spreadsheet skills. Once the property management company moves into multi-tenant properties and there’s some action with improvements and lease turnovers, it gets tedious and quite difficult to do the calculations correctly. Without doubt, this provides ample employment opportunities for lease analysts and accountants. On the other hand, landlords and property managers benefit greatly from getting it right from the beginning.

The time-consuming approach

One solution for property management firms is to hire lots of people to do the calculations. Let them spend plenty of time doing the calculations as best they know how. Also, hire more staff to review the results. In the end, the reports still have to go out to the tenants. The more sophisticated tenants have staff or consultants to check those reports and perform audits. Even if the reports are vague and don’t contain much verifiable information, there will be several tenants that request an audit of the statements. It’s an expensive and insecure way to run a significant part of the property management business.

The inaccurate approach with slippage

Alternatively, a lot of smaller firms without the available resources give up on making the complex calculations. Consequently, they accept thousands of dollars annually in slippage in what are otherwise legitimately recoverable CAM charges.

The quick, accurate and efficient way

Is there a better way to perform CAM calculations? Yes, there is. CRESSblue commercial property management software has automation systems that perform all those steps and provides an audit trail for each invoice. It’s one of the key reasons we designed it. Our software system also produces the annual reconciliation reports without the need for any math skills or spreadsheets. This is enterprise-level sophistication at an everyday price, far below the cost of doing it any other way. Confidence, efficiency and professionalism are within reach for all commercial property management companies. It’s your time to be ahead.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.

Landord-tenant loans - Risky and difficult or win-win?

Commercial Landlord-Tenant Loans: Yes or No?

Landlords and property management companies don’t often employ commercial landlord-tenant loans during lease negotiations. In our experience, there are five main reasons for this. Here we break them down and investigate their validity. Additionally, we show ways that commercial landlords benefit from providing tenant financing options.

Would you give a tenant financing?

Ask commercial landlords if they would consider giving a tenant a loan to pay for improvements to the leased premises. You are likely to hear one standard response:

“We don’t do loans.”

If you press them further on why they wouldn’t consider financing landlord-tenant loans when negotiating new lease agreements, additional reasons come up. Let’s examine the logic behind the most commonly expressed justifications.

Reason #1: We’re not a bank

This reason is brilliant! Banks take money from clients, pay those clients some interest, and lend it out to other clients for higher interest rates. The banks profit. On the other hand, landlords usually take money as rent and give portions of that money away on various leases as incentives or allowances. In this scenario, landlords do not profit on the dispersed money. Indeed, that is not bank-like behaviour.

Banks make money on everything they offer to clients. So, it isn’t a proud moment for a business owner to give this reason for not doing landlord-tenant loans. To clarify, why would you choose to give money away rather than loan it out at interest? It’s true, your real estate company isn’t a bank. However, there is a compelling case for making loans instead of giving away incentives or allowances.

If cash flow is a concern, consider borrowing against the equity in the building. It is much more likely that a bank will lend a building owner money for property improvements than a tenant who needs business financing to scale up to a new facility. Concurrently, mortgage interest rates for loans secured against real estate are lower than unsecured loan rates. Therefore, it is easier for a landlord to secure financing, and at a lower rate, than it is for a tenant to obtain unsecured credit. This interest rate spread works to the landlord’s advantage. The landlord could not only borrow at a lower rate but also lend to the tenant for a 4-6% interest rate spread. The one-source deal for the property and funding is markedly in the landlord’s favour if the alternative is sending a tenant to their bank for a loan.

Reason #2: We don’t want the risk

Risk of what, exactly?

Without a doubt, loans have a risk factor for defaults. Although this may be true, giving money away is always a 100% loss. It’s a complete write-off every single time. There is no possibility of recovery, full stop.

To be sure, giving away money removes the ongoing risk of default. However, it is very doubtful that the incentive process was designed with this purpose in mind.

As a matter of fact, landlord-tenant loans are far less risky than any other method of getting money to a tenant. A tenant loan comes with a low risk of default. In contrast, an incentive or allowance comes with a complete loss.

Evidently then, the way to remove risk is to secure the loan through the lease agreement and not by explicitly accepting a complete loss from the outset.

Evaluating tenant risk

Every tenant gets evaluated on their creditworthiness when they submit a lease proposal. The financial score factors into two key lease components. Firstly, it impacts the terms and conditions of the lease. Secondly, it affects the qualifying incentive amount. Tenants that have a strong financial showing receive more favourable lease terms, lower rates, and larger incentives. Regardless of how credit or monetary rewards are extended, the same type of financial analysis is performed.

Furthermore, a modified lease agreement is sufficient to secure the tenant loans. In a properly written contract, a tenant cannot walk away from the loan without also losing the premises. This provides additional security to the landlord.

Reason #3: Tenants want free things, not loans

Is there resistance to loans from the tenant side? Obviously, it doesn’t make sense to pursue the loan option if there aren’t tenants willing to take that route. But is this really the case?

Tenants want the premises optimized for their foreseeable business needs. That is the overall objective. Exactly how it is accomplished is another thing. Notwithstanding the fact any tenant would take free incentives over paying for them, it doesn’t preclude using other means to achieve their objectives.

What drives the requests for incentives and allowances?

The need for finances beyond what a tenant can carry at the time of the move drives the requests for incentives and allowances.

Firstly, moving disrupts a tenant’s income stream. Before the move, staff evaluates the amount of space needed and the type of facilities that could improve work processes. During the move, the team faces ongoing disruption from regular routines. Uncertainty slows whatever production is still able to go on. Moreover, the staff still working are doing so without the full strength of the workforce and leadership.

Secondly, equipment is often disconnected and reinstalled in the new premises. This equipment disruption additionally reduces output. All of this is happening at a time when the old facility was already inadequate for production requirements.

Only charities and non-profits work on the business model of getting things for free. Every other for-profit business operates with the assumption they will have to pay for the things they want. What most tenants need isn’t so much getting things for free as the ability to meet financial obligations during a time of reduced cash flow. For this reason, deferring payment for significant expenses during this period of unforeseen costs and low productivity is desirable. Providing financing for a tenant is an acceptable method of easing the transition to the landlord’s building.

Reason #4: We aren’t set up for making loans

Let’s break this down into two parts: internally working out how much to loan and what to finance, and dealing with the loan itself. We’ll investigate the business systems portion of how to deal with the loan in reason #5.

What to finance?

This isn’t really that difficult. As a landlord, you can start with whatever improvements that you might otherwise consider giving as incentives or allowances. As has been noted, loans provide a greater chance of getting your money back than incentives. Owing to that fact, you could consider other work the tenant would want but would be too costly to otherwise capitalize.

For example, perhaps the building really could merit the installation of two additional loading docks. The tenant may not have the cash to do the work now but could benefit from the increased productivity the docks could provide. The landlord may not be certain that the new doors would generate high enough rents in the future to cover the capital cost now if given as a free incentive. A landlord-tenant loan would enable both parties to achieve their objectives now. It’s a win-win situation.

Here is where another real benefit shows up. The tenant loan agreement has created a situation in which the landlord’s building has actually increased in desirability!

Offering a tenant loan creates leasing possibilities that wouldn’t exist otherwise in the world of free incentives and allowances.

How much to finance?

If a property management company is prepared to offer a tenant a loan, how much should it offer to finance? A risk limit was already determined during the review of the tenant’s offer to lease. The financial standing of the tenant and the proposed terms of the lease deal determine the amount of money normally allocated for lease allowances in cash or landlord’s work. Given that incentives would otherwise be given out with no expectation of a return, this amount is easily justified within the existing business decision process.

What about additional work that might otherwise be a capital expense? The landlord-tenant loan is unique in that the landlord has an amazing amount of extra control that a bank doesn’t have.

For one thing, the landlord has control over exactly what will be done. It has the right to examine the scope of work proposed, to approve how it will be done, and what materials will be used. The landlord can choose to finance work that is more generally suitable for the building and its functionality. It can opt for improvements that are likely to generate higher rental rates with subsequent leases.

As discussed in this lease improvements article, the landlord owns all the improvements made to the building. The asset’s value fully secures the loan. The fact that the landlord owns the leaseholds they financed mitigates the risk of loss. Regardless of whether the tenant defaults, the building still has the improvements.

Reason #5: Our business systems don’t support loans

Now that is a problem!

Most business decisions follow the path of least resistance to an acceptable solution. The result is generally a solution that does not deliver optimal results. If perfection takes too much time to work out and implement, then less-than-perfect suddenly becomes acceptable. Any time a business process adds too many steps to a workflow, the best solution will be abandoned for the most practical solution by those required to implement it.

As we have seen, the financial evaluation for landlord-tenant loans is the same process that is used to evaluate any tenant’s creditworthiness. The same types of improvements are available for consideration. However, the value of them can increase due to financing the improvements (rather than writing them off or capitalizing them). Clearly, the case for landlord-tenant loans is solid. On the other hand, considerable resistance exists via property management business systems that don’t support the ability to account for tenant loans.

Ideally, the system would show all aspects of the lease costs in one place:

  • The total cost of improvements
  • The landlord contributions via incentives or allowances
  • The tenant’s contributions
  • The tenant’s down payment on any excess over approved expenditures

Following those records, the business software should have the ability to:

  • Generate a loan amortization table for use as a lease schedule
  • Account for loan payments on the lease invoices
  • Record any extra or lump sum payments and adjust payment schedules
  • Keep track of the loan through any of the tenant, property, lease, and financial records simultaneously
  • Adjust automatically to the lease term dates in case of delays in the lease commencement

Does such an ideal business solution exist? It exists in CRESSblue. Register for your discovery demo today.

Making the case for landlord-tenant loans

Indeed, making loans available really helps smaller companies with limited cash get into a lease agreement. A loan creates possibilities that wouldn’t otherwise exist for both the landlord and the tenant.

Additionally, it can be an easy revenue source for landlords. The legal cost combines into the existing lease agreement setup. It’s a natural source of extra income derived from a property.

A tenant loan offer can significantly lower the amount of incentives a landlord would otherwise give away. Tenants ask for landlord incentives because they don’t have the cash flow or ability to finance the work themselves. Landlord-tenant loans can work out very well for both the landlord and the tenant.

It doesn’t create any extra work in evaluating the loan risk or scope of work. It’s all within the original capabilities and expertise of the persons already making those decisions.

As a property management company, you want your business software systems to support the best business practices. If your systems make the ideal outcomes the easiest outcomes, you will get better results as the default workflow. Limited software systems not only waste efficiency; they also waste opportunities. In contrast, ideal systems create opportunities to allow competitive advantages others cannot match.

Effective leadership is about seeing opportunities and enabling others to seize them. Add landlord-tenant loans to your toolbox and get the business systems in place to implement your new best practices. Make the path of least resistance the optimum outcome.


This article is for informational purposes only and is not intended as professional advice; please consult a competent professional for advice specific to you. This blog is written to stimulate thinking on concepts related to commercial leasing. Please join the discussion with your experiences.