LEASE ADMINISTRATION CASE STUDY 1

Streamlined Lease Administration Processes For Global Real Estate Portfolio Saves Client $3.7 Million

Client
Fortune 500 furniture manufacturer with a portfolio of 26 million square feet of owned and leased office, showroom, warehouse, manufacturing, and distribution space in US, Canada, Europe, Asia, and Australia.

Initial State of Lease Administration
Client performed lease administration in house utilizing portfolio management software purchased as a stand-alone product. The real estate department was involved in transaction management, lease negotiations, subleasing, acquisitions and dispositions, portfolio analysis and metrics, C Suite reporting, managing landlords, monthly rent bills and payments for some of the leases; the rest were paid by different local managers. Some annual operating expense reconciliations, other rental bills and utility charges were received by AP directly and paid without further questioning. Duplicate payments and payments on expired leases had occurred as well. Some tax bills related to owned properties were paid after land disposition. Monthly rent payments were taking place several times in the month, some of them subject to late fees due to missed due dates. Due to the decentralized rent payment approach, the client had difficulty budgeting and reporting on basic portfolio costs, metrics and performance. Managing the real estate assets was a reactive function with often occurring crisises. Several options for an early termination were missed resulting in substantial penalties and lost opportunities. The client explored the option of outsourcing the lease administration function in order to minimize the time committed to lease administration issues; to proactively manage the portfolio; and to be aware of all upcoming critical dates.

Resolution
MBG Consulting streamlined lease administration by implementing specific lease administration processes and procedures. Major steps included: new lease administration software implementation, complete lease document abstraction, rent payment centralization, once-monthly rent processing, authorized personnel approval, and rent check distribution. All bills started coming to MBG Consulting where we carefully examined them for lease language adherence. All lease documents (new amendments and new leases) were routed thru MBG Consulting right after execution and promptly added to the database. Centralized rent payments meant all relevant costs and their trends were captured; we produced annual budget forecasts with 99.9% accuracy. All critical dates were reported a year in advance with electronic follow-up notifications.

Evolving Relationship
After including all domestic leases in the database and centralizing all rental payments, the client chose to fold its entire international real estate portfolio into the database managed by MBG Consulting. MBG assisted in collecting all international lease documents and translated them into English using its team of translators trained in lease administration. Costs were 300% lower than any other translation service by a legal or brokerage firm. Today, all international leases follow the same processes for critical data tracking and lease administration. The corporate real estate department gained an incredible amount of visibility from its increased knowledge and control of all global real estate related operations.

Savings
MBG Consulting has saved our client $3.7 million to date by eliminating billing errors; recovering uncollected tenant improvement allowances and uncollected security deposits; reviewing and analyzing annual operating expense reconciliations; collecting subtenant rental income; adjusting CPI calculations; and contesting real estate taxes. Additional intangible value is brought by decreased time spent on administration functions; minimized paper use; critical date management; and elevation of the real estate department's profile by the virtue of its proactive management of the company's portfolio.