Unfortunately when abstracting leases, we often come across a Base Rent Provision that is worded something like the following:

Lease (2) – Base Rent for the first Lease Year shall be $50,000 per month.  Beginning with Lease Year 2, Base Rent shall increase (but not decrease) by CPI, not to exceed a maximum of 5%.

The question becomes, “What does that mean?”  We know that Base Rent will increase by CPI, but how often?  Do we increase it yearly by CPI, and even if we do, what CPI Table should be used for the adjustment?  Another question is what months should be compared in order to determine if there was an increase? 

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Many companies are weighing the options of becoming a paperless environment.  Electronic document management can make a large impact on your company, your processes and procedures and how you operate day to day.  It can improve your environment, increase productivity and workflow within your organization. 

What are the benefits of becoming a paperless company? 

There are many benefits of getting rid of the paper documents and going to a document management system, especially when you are managing a large number of locations.  An electronic document management system will eliminate the need for multiple copies of documents in a company.  With so many companies that are managing real estate, there seems to always be two or three copies of documents.  Legal, lease administration and accounting sometimes will all have their own copies.  Now you have three different departments with three different filing systems.  When amendments, notices or other documents are created there are multiple files that have to be updated, not to mention all the file cabinets taking up valuable space to store all these copies.  Scanning your documents and saving them in a data site will eliminate the need for multiple copies and will free up all the space being used for the files.

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Have you ever wondered how end user's product enhancements or requests get pushed into production?  Some companies follow what is called the Software Development Life Cycle. 

Software Development Life Cycle (SDLC) 

The Software Development Life Cycle (SDLC) is a methodology (process) that is used to create, maintain, and replace information systems as well as improve the quality of the software design and development process.  The SDLC process is executed in a cycle in which business analysts, software architects, software developers, database designers/developers, software testers, and end users collaborate to build application software.  The SDLC process can be divided into several high level phases: 

1. Requirements Specification
2. Requirements Analysis
3. Design
4. Development
5. Testing
6. Implementation/Maintenance

Typically new software or changes to existing software begin with a request from end users.  From this request, the Requirements Specification phase of the SDLC begins.  Business Analysts document a complete description of all the functions and specifications of the software that will be designed.  In addition, resources, scope of the request, purpose of the request, and software limitations are explored and documented.  The product of this process is a document typically referred to as the Software Requirements Specification Document.  The document states all of the functional and non-functional requirements and serves as a roadmap in the Design phase of the SDLC methodology. 

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Operating expenses are the cost incurred in operating and maintaining a property.  Such cost can include maintenance, repairs, utilities, landscaping, security, snow removal, management fees, property taxes and insurance.  The lease will define which costs are included in a tenant’s prorate share.

Lease Language 

The language in the lease surrounding the calculation of the tenant’s CAM expense can be very complex.  There are often very specific provisions for capping certain expenses, varying prorata shares per expense type, gross up calculations and the calculation of Base Year.

Operating expenses are often capped based on whether expenses are controllable or uncontrollable.  The lease should define specifically which expenses fall into each of these categories and/or which expenses the cap is applied to.  Typical uncontrollable expenses can include real estate taxes, utilities and/or insurance.  Landlords will likely exclude these expenses from the cap calculation since the cost of these items are something the landlord has very little control over.  Leases may even include a different percentage increase allowed on certain line items as opposed to a flat percentage increase on all capped expenses.  The calculation of a tenant’s prorate share can vary for certain expenses.  You will likely see this in properties where larger tenants pay certain expenses directly or where there is a high use by a certain type of tenant such as restaurants who have a high volume of rubbish removal in comparison to the other tenants.  Additionally, the cap calculation can be a cumulative calculation or based on prior year expenses.  Landlords must carefully scrutinize their gross up calculations to ensure expenses are recognized in the appropriate reconciliation period and based on the occupancy level if allowed per the lease.  Otherwise they may be setting a low base amount for the next year’s cap calculation.

Tenants – Opportunity for Savings 

Because of the amount of detail surrounding the calculation of operating expenses, this is an area of huge potential savings for tenants.  It is the burden of the tenant to ensure that their prorate share of expenses are being properly calculated by the landlord who may have distinct lease language for many tenants in a property thus increasing the likelihood of a mistake.  This not only includes the mathematical equation of the calculation but will require the appropriate back up documentation to validate the accuracy of the expenses being passed through.
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This year AMTdirect decided to break tradition and move their User Conference away from Cornelius, NC to a more scenic tourist locale.  Since the founders of the company are from Asheville, NC and the area is rich in history we decided it was a perfect fit. 

The conference and hotel accommodations were at the famed Grove Park Inn.  For those unfamiliar with the Grove Park it is a historic resort tucked away in the Blue Ridge Mountains minutes from downtown Asheville.  It is well known for the sensational views, spa and golf course.   

From my perspective I don’t think we could have asked for a better setup.  We had an entire outdoor terrace to ourselves for all of our meals and gatherings.  There were 4 conference rooms setup for our training sessions along with space for people to getaway and log into the wireless network if needed.  The staff at the Grove Park and our HR department made sure everybody was well taken care of in the food and beverages category.     

Anyways, getting back on track, I think the conference went well.  We had a great turnout.  The first day consisted of checking-in to the rooms and our welcome dinner/reception.  We did hold a user group kickoff meeting before dinner for those that could make it.  I thought this was a great session as there was plenty of participation from everybody involved and we came away with a lot of great feedback.  In fact, we will be hosting our second user group this August.   For more information on user groups check out the post explaining the concept of a user group. 

After a night of delicious food, drinks and a meet and greet we started bright and early with breakfast, a nice welcome ceremony and the first round of training sessions.  The welcome ceremony included some words from our CEO and CCO along with some nice door prizes. I don’t want to get into the details of each session in this post as I’m sure we can explore each session in other posts so this will be more of a high-level recap. 
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If you are like a lot of people the concept of a user group is fairly new and you may have some questions about the model as well as the benefits associated with membership. A quick definition of a user group is:

“A user group is a type of club or organization that is focused on the use of a particular technology.” - Wikipedia. 

Primarily user groups focus on a technology and how that technology can better serve the needs of the user base.  Another focus of the group is to serve as a channel of communication regarding best practices within the business domains that are applicable to the technology.   

So what do I stand to gain from a user group membership? 

1) Enhanced understanding of the particular technology/software
2) Knowledge about the most effective way to setup and utilize a technology
3) Extended support base to resolve issues
4) Influence with change and direction of the technology
5) Networking with other business professionals
6) New products and services, user group members are usually the first to know

Technology can be broad, how will we focus on specifics?
Service providers that offer large portfolios of technologies often have general user groups and also more specific subgroups that can focus on areas that are of particular interest to a subset of users.  This approach allows members to select specific topics or areas of expertise to participate in, which helps sustain member involvement for the long term. 
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I came from a Property Management background (and exotic animal training, but that’s another story), when I first heard of AMTdirect. I was more curious than anything.  How does this web based Lease Administration software work?  Is it practical?  Is it secure?  Will it catch on to be the next thing we cannot live without?  In answering the first question, I am constantly amazed at how much AMTdirect can do and how easy and readily available the information can be.  In answering the last 3 questions….yes!  1)  It is more than practical; Imagine this:  You are on a business trip to California.  It’s lunch time.  You take a walk to the beach, roll up your suit pants, take a seat in your beach chair, and open your lap top to check your Real Estate portfolio for Tenant Lease Renewal Deadlines all while hearing the sound of crashing waves and feel the salty air and waves beneath their feet.  2)  Yes; it is a safe way to handle your business needs.  Through our Security Module, each administrator can monitor their users – what access they have, (whether it be “read only” or “global” access.  Temporary users?  No problem; each user can be activated or deactivated simply by adding an expiration date during initial security set up.  3)  Yes; AMTdirect is the next and greatest idea, and no company wanting to keep up with technology should be without it.

Stay tuned weekly for topics to come such as, “Simple Solutions for Big Problems”, “Lease Abstraction, it’s not just copy and paste”, and “The Traveling Scanner”.  See for yourself the answer to the question, “Why AMTdirect?”

AMTdirect recently partnered with the AberdeenGroup in producing a complimentary new research report entitled “Real Estate and Facilities Lifecycle Management”.  Aberdeen evaluated 254 enterprises in June 2007 and distinguished Best in Class enterprises by two key measures: (1) percentage of REFLM spend under management and (2) visibility into both spend and process.  Best in Class enterprises in this study are notable for their superior performance and credit REFLM solutions for delivering the following benefits:

• 5.0% reduction in their total cost of occupancy
• 3.3% reduction in maintenance cost per square foot (psf.)
• 2.6% reduction in the cost of capital improvements
• 56% reduction in amount of time to close facility work orders

The report then goes into greater detail to show how Best in Class enterprises successfully save time and money.  To view the full report, http://www.aberdeen.com/link/sponsor.asp?spid=30410812&cid=4001. 

During this research process with the AberdeenGroup, I remember one conversation that we had on a particular statistic that they found surprising.  They were astonished by their finding that enterprise spend on real estate and facilities lifecycle management is over 30% of total spend for the average enterprise, yet, nearly 40% of enterprises report poor or no visibility into this significant category of spend and the processes that support it.  This statistic turned out to be the driver of the paper as well as a main contributor to deeper research into this area.  How could something that counts for so much spend in an average enterprise be managed by excel spreadsheets or lack the necessary attention that it deserves?  Was the lack of attention due to the typical view of real estate being a cost center?

Diving deeper into the research, AberdeenGroup found that 71% of enterprises are viewing REFLM as an increasingly strategic area.  Enterprises are starting to realize the lack of process standards and automation used to support these functions and the relatively poor levels of visibility into this spend.  As a result, they turn to technology solutions to actively manage this top spend item. 

The awareness and importance of actively managing your real estate is rising as AMTdirect continues to help ‘open the eyes’ of organizations about the potential cost savings.  As organizations like Rack Room Shoes implement on-demand solutions and track their savings, the realization of the cost savings being in the millions is achieved.  This brings me back to the age old saying, “a penny saved is worth more than a penny earned.”  The key to improving your enterprise’s bottom line is located in the cost center.