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Blog Apr 03, 2019

Winning with Data: 5 Lessons for Landlords and Property Owners

Recent phenomenon in the last 5 years have caused tenants and occupiers to become more formidable against their landlord and property owner counterparts. The relationship between renter and rentee has evolved into a customer and supplier relationship – one in which landlords are inadequately prepared to handle.

Having been a landlord and now a tenant, I have seen firsthand the power of data at the tenant’s fingertips that is driving negotiations. At LEVERTON, we help both tenants and landlords to collect structured data out of their real estate leases and contracts and help them to become better negotiators utilizing big data analytics. I can deduce that all of these great changes have taken place due to the following phenomena.

WeWork and the rise of co-working

WeWork changed the game for tenants all over the world. Flexible terms and shorter durations made going into a long-term lease a thing of yester year, especially for emerging companies. In addition, the free beer, the cool aesthetic, and the overall vibe of flexibility made WeWork into a lifestyle brand that all companies wanted to be a part of and emulate rather than their stodgy, old-fashioned traditional real estate private equity firms who were only in it for the rate of return. In addition, WeWork got rid of a lot of headache items like insurance, tenant improvement dollars, and CAM reconciliations that waste tons of administrative time. Finally, you can by credit card or direct bank, rather than waiting for check deposits like most landlords. WeWork truly made the tenant and landlord relationship one of cool and hip vibes with a keg of beer, rather than a side order of paperwork and lack of communication.

IFRS16 and US GAAP ASC 842

Across all industries including tech, insurance, finance, manufacturing, and healthcare, one thing remains constant: real estate is your largest fixed liability. In the last 5 years, the IASB and FASB (accounting standings boards) have decided to hone in on such liabilities and ask all large public and private corporations to re-evaluate their real estate and asset liabilities on their balance sheet. The deadlines for this was were 2019 and 2020, respectively, and at LEVERTON we assisted many tenants in getting their structured data out of these contracts and into ERP and BI systems where they could be further analyzed. This data came from many regions and in many languages but was homogenized for the purposes of accounting compliance. The inadvertent effect of these regulations was that it caused tenants to get organized around their lease contracts more so than they had ever done in the past. All of a sudden, they began to find terms and conditions that they were scratching their heads on as to why they signed up for these in the first place. This sparked a conversation that heads of real estate at major corporations began to have – are we with the right landlords? Are we getting the best terms?

Big data analytics

These same tenants already had big data analytics teams who were already processing and analyzing tons of company data such as inventories, customer metrics, and manufacturing KPIs. The structured data that was now produced by technologies like LEVERTON gave these tenants a whole new data repository to analyze. All of a sudden, “Why is my late fee % varying depending my landlord” or “Why do we sign up for such long renewal options when we’re moving towards co-working in major cities” or “Why do I have these egregious co-tenancy clauses when our retail is suffering” became normal questions that tenants looked for answers to. As they continue to analyze this data and make sense of it, landlords can be assured that tenants will come back during the renewal cycle with a new sense of data to support their claims that they should get better terms.

Amazon happened and retail has never looked back

Retail stores from Madison Avenue to the largest malls in the country are looking desolate like a Clint Eastwood western with a tumbling of weeds and a soft whisper of the dessert. Retail tenants are resizing up and repositioning themselves to take up less square feet, lower their lease requirements, and never again sign up for crazy exclusion and radius restriction clauses that seem completely obsolete in today’s digital shipping age. E-commerce is continuing its wrath of wiping out traditional retail and stores from Payless to Sears to Toys ‘R ‘Us have had to pay the ultimate price. Modern retailers are rethinking how they use space and what kind of relationship they want to have with their property owners. None the less, Tesla’s latest snafu in prematurely announcing its exit from retail only to realize it was locked into millions of lease liabilities is a kind reminder of the way contract law works, even for the most chic and futuristic of companies.

Landlords aren’t doing it

Landlords, for the most part, have been slow to adopt structured data out of their real estate and lease contracts – at least slower than their tenant counterparts. And because of that, tenant rep brokers are realizing the power is in the tenant’s hands now to negotiate better terms and conditions. As the majority of landlords fail to evolve with the times, tenants are more than happy to run a victory lap of lower cost leases or more flexible conditions, given that they have rarely been in this position over the past few decades.

The numbers simply do not lie. The number of tenants utilizing structured data out of real estate contracts, by our estimate, is 10:1 and that disparity will continue to grow. If you’re a landlord, don’t be surprised to see a much savvier tenant come for this next round of renewals and negotiations. But all is not in despair…

Landlords still have time to structure their databases and while tenants can only see their own properties, landlords have the benefit of seeing a larger snippet of the overall market. In addition, landlords can start to make the investment now in their properties to sustain and develop that supplier and customer relationship. The more communication and technologies landlords can bring to their tenants, the better off they will be for the long-term. With tenants having a lot of the power and choice, landlords need to balance the equation if they are to continue to thrive in the traditional corporate and commercial real estate markets. If you’re a property owner or landlord, no matter how big or small, you want to get the data edge before your tenants do and make better negotiation decisions.

To find out more how LEVERTON can help you structure your data from real estate leases and other real estate contracts before it’s too late, please visit www.leverton.ai or e-mail us at info@leverton.ai.

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