Document automation is nothing new. Microsoft Word has been helping us for decades with features like mail merge, but despite years of technological advancements, the commercial real estate industry has not been able to truly benefit.

Why is that, you ask? The simple answer is because the commercial leasing process is different. And much more complex to automate.

What follows will take take you through the leasing process and demonstrate where the breakdowns in automation often occur. More importantly, it will show you what you can do to combat these challenges and become more efficient.

A note: The next few sections probably won’t say anything that those in the CRE industry don’t already know. But they’re an important read as they lay the groundwork and set the context for the information that follows.

What is a lease?

A broad definition of a lease might be, “A legally-binding document that describes/defines the relationship between a landlord and a tenant.” While that’s true, it’s not very precise. Let’s dig a little deeper.

An executed lease contains various “hard terms” which have objective, often quantifiable meanings. Things like rent, commencement dates, CAM charges, etc. are examples of this. Although all leases will inevitably contain some subjective language, both the tenant and the landlord strive to eliminate these instances whenever possible. As a result, the overwhelming majority of the terms in a typical commercial lease are objective and straightforward.

A lease, then, can be thought of as a means to organize all these terms into a single, legally-binding document in a familiar format.

Negotiation

Once a tenant and leasing rep reach a tentative agreement, the terms are recorded in an LOI. It’s at this point in the process that leasing reps hand things off to the legal department and a first draft is generated.

First drafts are generally straightforward as they’re a re-statement of the LOI in a formal document. Because they’re so predictable, legal teams often use some level of automation to generate initial drafts. In a more traditional workflow, this is usually done by opening a base lease form in Word, referencing the LOI, and copying/pasting the necessary language from an existing library.

By building a platform that reinvents the leasing process, we’ve found that we also need to reinvent the language used to describe what it is we do.

In more modern workflows, document automation and/or contract management software is used to generate a first draft. Usually this means typing tenant and asset info into an MS Word plugin and then selecting relevant language from a searchable library (LeasePilot does this somewhat differently, but we’ll cover that shortly). Form inputs and selections are then automatically assembled and formatted in an MS Word document.

If traditional automation software could speak to the user, it’s at this point that it would say, “Ok, I’ve assembled the first draft. You’re on your own now.” If any custom language is needed, a lawyer will manually add or change the text right in MS Word.

As soon as the tenant’s lawyers get their hands on the first draft and the red pens (real or digital) come out, things start to get messy. With no further automation tools at their disposal, lawyers are left to process 2nd, 3rd, and nth drafts by hand in MS Word.

This brings us to an important question: Why aren’t standard document automation platforms equipped to handle a leasing process with multiple rounds of revision and negotiation? What’s so different about the nth draft that it can’t be automated?

Interconnected terms

A commercial lease is full of what software programmers and product managers would call ‘dependencies.’ As a simple example, consider the commencement date: if the commencement date changes, what other parts of the lease also need to change? In other words, how many other parts of a lease are dependent on the commencement date? Expiration, option notices, free rent schedules and letter of credit burn-downs to name a few.

Further, if landlord work is introduced during negotiation, a “hard” commencement date often becomes a “soft” one, and all the dates in the lease will need to be changed to reflect this (30 days after, 3 days before, etc.).

General-purpose document automation platforms just aren’t built to track the dependencies in a commercial lease. As a result, they aren’t particularly useful after the first draft is generated. Some contract management platforms do offer limited support for revisions by allowing the user to search an existing language library, place his/her cursor in the right place and insert text, but there’s still no underlying structure/logic in the software. It’s fundamentally an MS word document with no built-in logic.

It takes a seasoned lawyer who knows his/her leases inside and out to ensure that the different components of the lease still make sense and “agree” after each and every change. This is typically an incredibly tedious process and mistakes happen far more often than they should.

Simply put, the lease document itself—whether drafted entirely in Word or with the assistance of automation software that outputs a Word document—has no inherent, underlying logical structure. The logic is in the heads of the legal team.

Master of none

If traditional automation software could speak to the user, it’s at this point that it would say, “Ok, I’ve assembled the first draft. You’re on your own now.”

To this point, we’ve focused primarily on the status-quo in leasing workflows and why the complex dependencies in a lease limit the usefulness of general-purpose document automation software to first drafts. In order to overcome this limitation, a document automation platform would need to have a built-in logical framework that can monitor, track, and, most importantly, react appropriately and automatically to every change in a lease, no matter how large or small.

General-purpose document automation software simply isn’t built to handle the complexities of a commercial lease. Doing so would require specialized software built specifically for commercial lease-drafting and negotiation. 

A new standard: Context-aware automation

As anyone who has worked in business operations before can attest, “It’s all in my head!” is one of the most terrifying phrases that a COO can hear. Mission-critical knowledge should never be owned by an individual.

The needs of commercial landlords have become increasingly specialized and their tools must follow suit. They need to handle the inherent complexity of a commercial lease document in a way that was previously not possible.  Not only will this speed up the lease-drafting and revision process, it will also drastically reduce the risk of errors and create ‘quality control’ by standardizing language and processes across the portfolio.

By now you’ve seen the unique challenges of automating the commercial leasing process. LeasePilot was developed to provide the first truly context-aware automation platform and offer commercial real estate organizations a means to institutionalize and operationalize a process that was previously in the heads of a select few individuals.

The elephant in the room

At this point, the lawyers reading this might be getting a bit nervous, so let’s address the elephant in the room: No, this does not replace lawyers or make them expendable.

Rather, LeasePilot liberates lawyers from the tedium of drafting and revising a lease, allowing them to focus their attention on high-level strategic matters that require critical and creative thought well beyond what is possible in software. And isn’t that what the original promise of automation was supposed to be? To free us from banal, robotic, and uninspiring work?

If you’ve ever spilled a glass of milk, congratulations! You’re familiar with what physicists call entropy. And if you’re not a barbarian who leaves spilled milk on the floor, you’re also familiar with the fact that cleaning up the milk is going to take some energy/work. Entropy describes what is essentially a natural tendency for systems to move toward a state of disorder. Re-organizing or maintaining order in a system requires additional energy inputs.

Astute readers who have spent time on the legal side of commercial leasing probably see where we’re going with this entropy introduction: as time goes by, a once-organized library of lease forms and boilerplate language will turn into a mess. Keeping things tidy requires a sustained investment in time and energy.

An all-too-familiar story

Once upon a time at a CRE company far, far away in Cleveland, there was an exceptionally talented general counsel called Nadine (this is totally hypothetical). When she started her GC role, she took the time to draft a fantastic—nay, flawless—lease template that took into consideration the company’s current assets, business goals, etc.

I had neither the time nor the spare budget to get things cleaned up. For most [GC’s], this state of affairs is just the (un)natural order of things. It took me stepping out of my GC bubble to see otherwise.

But it wasn’t just the lease form that was beautiful. Our heroine even took the time to draft and organize a comprehensive library of fall-back language that covered every imaginable contingency that one might encounter during a lease negotiation.

As the years passed, the company grew. New assets were bought, some were sold, some expanded, and some reduced. Tenants came and went, and when disputes arose from time to time, modifications were made to the lease language. Due to the “get it done yesterday” pace of things in Nadine’s company, it wasn’t uncommon for the legal team to take the I’ll-clean-it-up-later-I-swear approach to re-incorporating these modifications back into the base form. But to the surprise of nobody, 95% of the time these modifications weren’t reincorporated back into the base form, leaving them confined to the specific assets for which the changes were made.

What started as a single clean, concise document turned into dozens of disparate, unorganized documents spread across the company’s servers and on various personal computers.

This lack of organization wasn’t necessarily an impediment for the in-house team’s day-to-day operations. After all, Nadine and her team spent most of their days staring at these documents and knew them by heart.

To many, this might not seem like a major problem. If a lack of organization isn’t slowing things down significantly, why bother trying to clean things up? But where some didn’t see an issue, Nadine saw a major risk: her team held the keys to the kingdom. If she left, leasing velocity would slow considerably. The next GC would have to face questions that even Nadine can’t answer:

“Why does the lease for Omni Plaza use ’Lease Premises’ while the form for Corporate Park just uses ‘Premises’?” Nadine wondered. “That happened so long ago I have no idea. And CAM… Why are we charging it back for Omni Plaza but not for Corporate Park? Another excellent question…I really need to spend some time reviewing our base forms, updating them, adding that early termination clause we keep talking about…”

“But first I need to get these three leases out the door, review that financing agreement, draft that purchase and sale agreement, and review those bloody redlines our tenant just sent us. But I swear I’ll have time to get organized after I’m done with all of that…” She was lying to herself and she knew it. But what other options were there?

An ounce of prevention

In theory, every GC knows s/he should take to heart the old adage that says an ounce of prevention is worth a pound of cure. Yet, for most GCs in the industry, my (mostly true) story above is par for the course. Things move so fast that there’s rarely any time or energy left to keep things tidy. A more realistic idiom to describe our approach to document organization might be, “We’ll cross that bridge when we come to it.” In fact, I think that’s what I’ll title my memoir (coming to a bookstore near you in 20never).

While it’s not uncommon for an in-house team to have outside counsel review their base forms and language, it’s an expensive proposition and as we all know, expensive proposition means most likely not going to happen. Unless there’s a clear and emergent need for that kind of service, it’s not likely to make it into the budget (assuming I had a budget). In my case, I had neither the time nor the spare budget to get things cleaned up. I suspect other GCs would feel similarly. For most of us, this state of affairs is just the (un)natural order of things.

It took me stepping out of my GC bubble to see otherwise.

Hidden benefits

When I joined LeasePilot, most of the benefits that the software would provide to legal teams were obvious: it saves drafting time and makes revisions a breeze, and ultimately gets leases out the door faster, thus enabling the business to begin collecting rent sooner.

It took a few weeks before I saw a hidden but hugely significant benefit: the implementation process naturally solves the problem I just spent the last 750-ish words describing: not only does it transform the lease into a living, breathing document, it takes a disorganized mess of forms and language and turns it into an efficient, organized library. In this sense, the value of LeasePilot to the user doesn’t begin when the first lease is drafted in LeasePilot, it starts the minute we get a new customer’s forms.

LeasePilot’s Customer Success team has two primary responsibilities: (1) managing the implementation process for every new customer, and (2) providing the necessary training and ongoing support to ensure that every user is utilizing the platform to its fullest. In my view, our ability to provide the ongoing training and support is highly dependent on how successful we are during implementation. That’s why we take the onboarding process so seriously.

Building Customer Success

It’s highly important that the language in an institutional landlord’s leases is their own. A one-size-fits-all lease agreement won’t cut it. That’s a major reason why, prior to LeasePilot, purpose-built automation for lease drafting and revisions didn’t exist. Automating a commercial lease is really, really difficult, and it’s not just a software challenge. Commercial leases are full of complexities, and understanding the ins and outs requires considerable expertise and years of industry experience. That’s where our Customer Success team really shines.

Between my experience as a former real estate GC and the lawyers and senior leasing paralegals who round out the rest of the crew, we’re doing a lot more than copying and pasting during the onboarding process. We’re thoroughly reviewing a landlord’s documents, running redlines, identifying inconsistencies between forms, and a whole lot more. When we find issues or inconsistencies, we’re flagging them and drawing on past experience to offer advice about best practices. We’re asking the customer how they’d prefer to resolve the issues and giving them the opportunity to strengthen/improve their lease form.

The result is a comprehensive document that embodies predictable changes/language/clauses, is up-to-date, free of inconsistencies, and better than when the process started. Every LeasePilot customer that has been through Implementation reports that they saw significant improvements to their lease and amendment language as a result of the process.

Remember my earlier lament about wanting to clean up a language library but not having the time? Turns out, a LeasePilot implementation would have solved that problem for me.

“How does LeasePilot actually work?”

 

“What’s the difference between LeasePilot and other document automation tools like A, B, and C?”

These are questions we get all the time, and answering them in a way that is clear, concise, and not overly-technical is a challenge. LeasePilot doesn’t quite fit into an existing product category, so descriptors like “document automation” don’t accurately convey what we do or differentiate us from what’s out there already. By building a platform that reinvents the leasing process, we’ve found that we also need to reinvent the language used to describe what it is we do.

A note: The next few sections probably won’t say anything that those in the CRE industry don’t already know. But they’re an important read as they lay the groundwork and set the context for the information that follows.

What is a lease?

A broad definition of a lease might be, “A legally-binding document that describes/defines the relationship between a landlord and a tenant.” While that’s true, it’s not very precise. Let’s dig a little deeper.

An executed lease contains various “hard terms” which have objective, often quantifiable meanings. Things like rent, commencement dates, CAM charges, etc. are examples of this. Although all leases will inevitably contain some subjective language, both the tenant and the landlord strive to eliminate these instances whenever possible. As a result, the overwhelming majority of the terms in a typical commercial lease are objective and straightforward.

A lease, then, can be thought of as a means to organize all these terms into a single, legally-binding document in a familiar format.

Negotiation

Once a tenant and leasing rep reach a tentative agreement, the terms are recorded in an LOI. It’s at this point in the process that leasing reps hand things off to the legal department and a first draft is generated.

First drafts are generally straightforward as they’re a re-statement of the LOI in a formal document. Because they’re so predictable, legal teams often use some level of automation to generate initial drafts. In a more traditional workflow, this is usually done by opening a base lease form in Word, referencing the LOI, and copying/pasting the necessary language from an existing library.

By building a platform that reinvents the leasing process, we’ve found that we also need to reinvent the language used to describe what it is we do.

In more modern workflows, document automation and/or contract management software is used to generate a first draft. Usually this means typing tenant and asset info into an MS Word plugin and then selecting relevant language from a searchable library (LeasePilot does this somewhat differently, but we’ll cover that shortly). Form inputs and selections are then automatically assembled and formatted in an MS Word document.

If traditional automation software could speak to the user, it’s at this point that it would say, “Ok, I’ve assembled the first draft. You’re on your own now.” If any custom language is needed, a lawyer will manually add or change the text right in MS Word.

As soon as the tenant’s lawyers get their hands on the first draft and the red pens (real or digital) come out, things start to get messy. With no further automation tools at their disposal, lawyers are left to process 2nd, 3rd, and nth drafts by hand in MS Word.

This brings us to an important question: Why aren’t standard document automation platforms equipped to handle a leasing process with multiple rounds of revision and negotiation? What’s so different about the nth draft that it can’t be automated?

Interconnected terms

A commercial lease is full of what software programmers and product managers would call ‘dependencies.’ As a simple example, consider the commencement date: if the commencement date changes, what other parts of the lease also need to change? In other words, how many other parts of a lease are dependent on the commencement date? Expiration, option notices, free rent schedules and letter of credit burn-downs to name a few.

Further, if landlord work is introduced during negotiation, a “hard” commencement date often becomes a “soft” one, and all the dates in the lease will need to be changed to reflect this (30 days after, 3 days before, etc.).

General-purpose document automation platforms just aren’t built to track the dependencies in a commercial lease. As a result, they aren’t particularly useful after the first draft is generated. Some contract management platforms do offer limited support for revisions by allowing the user to search an existing language library, place his/her cursor in the right place and insert text, but there’s still no underlying structure/logic in the software. It’s fundamentally an MS word document with no built-in logic.

It takes a seasoned lawyer who knows his/her leases inside and out to ensure that the different components of the lease still make sense and “agree” after each and every change. This is typically an incredibly tedious process and mistakes happen far more often than they should.

Simply put, the lease document itself—whether drafted entirely in Word or with the assistance of automation software that outputs a Word document—has no inherent, underlying logical structure. The logic is in the heads of the legal team.

Master of none

If traditional automation software could speak to the user, it’s at this point that it would say, “Ok, I’ve assembled the first draft. You’re on your own now.”

To this point, we’ve focused primarily on the status-quo in leasing workflows and why the complex dependencies in a lease limit the usefulness of general-purpose document automation software to first drafts. In order to overcome this limitation, a document automation platform would need to have a built-in logical framework that can monitor, track, and, most importantly, react appropriately and automatically to every change in a lease, no matter how large or small.

General-purpose document automation software simply isn’t built to handle the complexities of a commercial lease. Doing so would require specialized software built specifically for commercial lease-drafting and negotiation. As you’ve no doubt already guessed, this is exactly what LeasePilot is built to do.

A new standard: Context-aware automation

As the needs of commercial landlords become increasingly specialized, the tools they use must follow suit. LeasePilot is the first and only software platform built specifically for commercial lease drafting and negotiation, and as such is able to handle the inherent complexity of a commercial lease document in a way that was previously not possible.

Not only does this speed up the lease-drafting and revision process, it also drastically reduces the risk of errors and creates ‘quality control’ by standardizing language and processes across the portfolio.

It’s for all these reasons that we’re not quite happy with the “document automation” moniker. It’s not a classification that accurately describes what we do. Instead, Context-aware Automation more accurately describes and differentiates what LeasePilot was built for.

A familiar feel

Incorporating new software into a business workflow isn’t a decision to make lightly. While there are licensing and setup costs to consider, those are predictable and relatively easy to plan for. What can’t always be predicted is what happens on the user side: Is the software easy to learn? How long will it take to train new users? Will productivity slow while the team acclimates to the new process?

While there will always be a learning curve as users learn the ins and outs of a new software platform, we’ve taken a lot of care to ensure that text-editing, navigation, and overall feel of LeasePilot is immediately familiar to any MS Word user.

Greater than the sum of its parts

Individually, the aforementioned benefits bring substantial efficiencies to what is currently an antiquated process. But combined, these efficiencies do something far more important for a profit-driven enterprise: they institutionalize and operationalize a process that was previously in the heads of a select few individuals. And as anyone who has worked in business operations before can attest, “It’s all in my head!” is one of the most terrifying phrases that a COO can hear. Mission-critical knowledge should never be owned by an individual.

At this point, the lawyers reading this might be getting a bit nervous, so let’s address the elephant in the room: No, this does not replace lawyers or make them expendable.

Rather, LeasePilot liberates lawyers from the tedium of drafting and revising a lease, allowing them to focus their attention on high-level strategic matters that require critical and creative thought well beyond what is possible in software. And isn’t that what the original promise of automation was supposed to be? To free us from banal, robotic, and uninspiring work?

The commercial lease drafting and revision process is a waiting game: The tenant waits for the first draft. Then you wait for the tenant’s lawyers to review. Then you wait for everybody on both sides to find time get on a conference call to negotiate changes. Rinse and repeat for every round of negotiation.

Ask yourself: How much time do you spend waiting compared to actively working on the lease? How much is this wasted time costing you? Most importantly, what can you do about it?

On Friday, October 12th from 12:30pm – 1:30pm (EDT) join LeasePilot co-founder and CEO Gabriel Safar for a webinar to answer these questions and more. Register by filling out the form below and we’ll send you a link to join. Looking forward to seeing you on the call!

Last week, LeasePilot Co-founder and CEO Gabriel Safar joined Chris Rising on “The Real Market” podcast to talk about the intersection of tech and commercial real estate leasing. The two discuss the common roadblocks leasing professionals face and how tech offers solutions.

Listen to the podcast:

iPhone users can use this link to stream the podcast directly.

 

I foresee a time in the not-too-distant future where this technology is where all leases are done. —Chris Rising

During the interview, Gabriel references some LeasePilot blog content, which we’ve linked below.

The Call Center Model

Adopt this clever strategy during the negotiation process and tenants are much more likely to conclude that many of their requests are unnecessary. The best part? They come to this conclusion on their own. Read More »

Get your Outside Counsel on Fixed Fees (and Have them Love it)

Most CRE companies using outside counsel would jump at the chance to pay their lawyers a flat fee for every deal. Law firms, however, aren’t typically so enthusiastic about the idea. So how can you get your outside counsel on board with flat fees? One of our customers came up with a pretty clever solution. Read More »

Few CRE tech buzzwords command more investor interest than Artificial Intelligence (AI). It’s the new hot thing. And while AI is an undeniably exciting technology, does it deserve the hype it gets? For some applications, the answer is unequivocally, “yes.” For others, AI may be more trouble than it’s worth. In the case of lease abstracts, the answer is, “maybe.”

There’s probably nothing more loathsome than finding all the key details buried in a 60+ page lease and formatting them into an abstract. Yet, since a lease abstract is such an integral part of business operations, it’s something that must be done. Tell a lawyer or leasing admin that there’s an easier way to abstract a lease, and there’s a good chance you’ve just won his or her undivided attention.

Artificial Intelligence

In a nutshell, AI approaches the abstracting process by brute-force data extraction and analysis. Armed with programmatic logic and a language algorithm, AI-based lease abstraction software approaches the abstracting process by tirelessly combing through every word, clause, sentence, and section of a lease in order to make sense of it. After some intensive data-crunching, AI software delivers a report of its findings which, hopefully, offer an accurate summary of a lease. It’s important to note that AI still has a ways to go before it can produce abstracts independently; it’s not completely error-proof (and may not ever be). To ensure total accuracy, the results will require some degree of human audit.

A good rule of thumb is that AI will generally suss out 80% of the key info in a lease. The rest still requires manual review by an expert. Despite the ‘babysitting’ AI-based lease abstraction requires, it’s a step in the right direction.

While it may not be perfect, AI as an abstracting solution is well-suited to address the problems companies face in two types of situations:

1. A company that’s just acquired an asset and inherited the existing leases
2. A company that needs to collect and parse data from a library of already-existing but loosely organized leasing agreements

For a CRE company facing one or both of these challenges, AI promises to be a time-saving solution. But when it comes to working with new leases, AI is an unnecessarily complex solution that still requires human oversight. In essence, it’s a band-aid solution to a latent problem inherent in the leasing process. It doesn’t address the root cause of the problem: an antiquated drafting workflow.

A Different Approach

When a lawyer looks at a lease in MS Word, s/he doesn’t need to read from beginning to end to understand it. S/he has the training and experience to see the interconnectedness and dependencies (e.g. if A changes, then B and C must also change) that form the lease’s underlying structure. That’s more or less how AI approaches the lease, too: over time it ‘learns’ the structure of the lease.

But, as we’ve already noted, there’s an inherent logical structure that forms the underpinnings of every lease (it’s not a James Joyce novel with layers upon layers of obfuscated meaning and endless scholarly debates). Leases are more or less straightforward and predictable. If this is the case, does it really make sense to approach the abstracting process with a brute-force learning algorithm?

That’s a rhetorical question. Of course it doesn’t.

Traditional, logic-based software excels at tasks with a high degree of predictability. So rather than try to build a solution for lease abstraction that fits into an inherently broken process, we designed LeasePilot to eliminate the shortcomings in the leasing workflow from the start.

LeasePilot is aware of the interconnectedness of every part of the lease. Simply put, if one part of the lease is modified by the user, LeasePilot will update/add/remove language elsewhere in the document if necessary.

For example, if a landlord isn’t able to complete a credit review of the tenant before sending out the first draft and subsequently determines that guaranty of the lease is needed, adding one would modifications to several different parts of the lease: provisions such as default, notice, and financial reporting would need to be modified, and a completed form of guaranty needs to be added as an exhibit. LeasePilot handles these changes instantly and automatically; all the user has to do is check a box and input guarantor details one time. LeasePilot modifies the lease accordingly.

But sometimes, a lease needs to be changed in a unique way that deviates from the standard terms. In these cases, LeasePilot’s in-browser text editing gives users total control over every sentence, word, and character that appears in the lease while still maintaining the underlying data integrity. It’s this combination of automation and granular control that sets LeasePilot apart from other more generalized document automation solutions.

When a lease is built from this kind of programmatic, structured data, generating an abstract is a trivial task. In many cases, the abstract isn’t even necessary. The important information from the lease can be automatically injected into other software systems like MRI, VTS, and others.

Abstracting: AI vs Smart Automation

At the end of the day, both approaches to lease abstraction are an enormous improvement over the status quo. As noted previously, AI excels in situations where the lease is already executed. On the other hand, software like LeasePilot is built with a different approach in mind; one where data about the deal is tracked and organized throughout the entire process. In other words, AI is a reactive approach to solving the problem of abstracting, and LeasePilot defines a proactive approach. Both options serve different needs.

If reading the words, “turn your in-house legal department into a profit center” makes you raise an eyebrow, you aren’t alone. Short of turning lawyers into part-time salespeople, how could a legal department focusing on leasing generate new revenue for a commercial real estate company? Here’s how one LeasePilot customer did it:

Background

The company, which we’ll call OfficeCo, owns most of its assets as part of a joint venture structure with different equity sources. The in-house legal team drafts and negotiates all leases on behalf of OfficeCo and its JV partners. Each asset has an administrative budget which includes the legal spend for leasing. OfficeCo passes the leasing costs on to the assets by charging the asset back for the in-house legal team’s time.

All told, OfficeCo reduced the cost of an average deal by about 35%. With an average of 90 leases per year, that adds up to a total of $315,000 in new income.

Based on past experience OfficeCo knows that in a typical year, the average lease costs $10,000 in internal legal billing. So as part of its joint-venture agreement, OfficeCo charges a flat $10,000 fee to each asset for every lease. From the perspective of the JV partners, flat-fees are highly desirable for the certainty and predictability they provide.

For OfficeCo, the flat-fee structure presented both a risk and an opportunity. If average costs increased, the company would be on the hook for paying the difference. But, if the company could make its leasing process more efficient and reduce the average legal spend per lease to under $10,000, it could monetize the efficiency gains and capture formerly unrealized income.

Talking about efficiency is one thing. Actually finding it is entirely another. In leasing, the changes with the potential for the largest impact aren’t often straightforward or clearly identifiable (if they were, there’d be no need for this blog post!). Often, finding the most effective ways to cut costs requires a bit of creativity.

OfficeCo, to their credit, have an incredibly creative executive team. All told, the changes that they made reduced the cost of an average deal by about 35%. In real terms, that means that every single lease generated roughly $3,500. With an average of 90 leases per year, that adds up to a total of $315,000 in new income.

How they did it

The primary problem facing OfficeCo was one of predictability. While $10,000 was a safe(ish) average, it was an oversimplification of the reality: from lease to lease, the cost often varied by as much as ±25%. OfficeCo assumed (correctly, it turns out), that designing a reliable leasing workflow with more predictable costs would have the ancillary benefit of reducing costs. It’s a ‘two birds, one stone’ situation: the steps required to reach cost consistency will also reduce overall costs.

In most cases, the requests were predictable. Predictable requests mean predictable responses, and predictable responses are perfect for a software-based solution.

As OfficeCo acquired assets over the years, it inherited a multitude of leasing forms from different JV partners, lenders, and prior owners. Most of these base forms were more or less the same, differing only in small ways. The lack of a single, centralized ‘source of truth’ led to multiple independent templates, each evolving in its own unique and unintended ways. Managing these discrepancies was nearly impossible, and added unnecessary complexity to the process.

So the first thing OfficeCo did was simplify its language library by assessing and consolidating all of its leasing templates. This step took the company roughly 3 months to complete.

Eliminating and/or consolidating redundancies got OfficeCo halfway to where they wanted to be. But without a centralized database and an operationalized procedure for managing updates to the lease forms, it wouldn’t be long before things devolved right back to where they were. OfficeCo needed a reliable way to ensure that its lawyers would always have an up-to-date ‘source of truth’ for the language library going forward.

The company looked at a dozen or so different solutions which ranged from basic, off-the-shelf content management software to custom-engineered solutions built from scratch. When the dust cleared, LeasePilot stood out as the best solution due to its ability to manage a document and language repository, as well as for the automation tools that streamlined drafting, redlining, and revisions made during negotiations.

Results

Recall again OfficeCo’s base assumption about efficiency: reducing the cost variability from one lease to the next would also make the entire leasing process shorter, more efficient, and overall less expensive. Once the consolidated lease forms and asset information were imported into LeasePilot and the lawyers started using the platform, OfficeCo’s hypothesis was proven correct.

What’s more, after crunching more numbers and comparing the new leasing workflow to the old, OfficeCo learned that the bulk of the legal team’s time wasn’t spent on first drafts—it was spent on revisions and changes to the lease. Tenants would often return a bloody redline filled with change requests. Responding to those requests generally took at least four hours of a lawyer’s time. In most cases, the requests were predictable. Predictable requests mean predictable responses, and predictable responses are perfect for a software-based solution.Before using LeasePilot, OfficeCo’s legal team typically spent at least 3.5 hours assembling a first draft based on the LOI. With the automation tools now at their disposal, first drafts were usually turned around in 45-60 minutes. That’s a reduction of nearly 75%!

The Power of Software

In addition to the base forms OfficeCo loaded into LeasePilot, the company added fallback options which could be be inserted into the lease with a few clicks. Unlike other document automation tools, LeasePilot is aware of the interconnectedness of every part of the lease. This is important because much of the language in a commercial lease is dependent on language or provisions that appear elsewhere. Simply put, if one part of the lease was modified by the user, LeasePilot will update/add/remove language elsewhere in the document if necessary.

For example, if OfficeCo was unable to complete its credit review of the tenant before sending out the first draft and subsequently determines that they need a guaranty of the lease, adding one requires modifications in different parts of the lease: provisions such as default, notice, and financial reporting would need to be modified, and a completed form of guaranty needs to be added as an exhibit. LeasePilot handles these changes instantly and automatically; all the user has to do is check a box and input guarantor details one time. LeasePilot modifies the lease is accordingly. 

For the rare requests that deviate from standard terms, LeasePilot’s in-browser text editing gives users the granular control over every sentence, word, and character that appears in the lease. All told, this level of automation ended up saving OfficeCo as much as 4 hours of legal time per revision.

Conclusion

While OfficeCo’s success at turning a profit from their legal team is uncommon, it’s not an anomaly or the result of special circumstance. The reality is most commercial real estate companies using in-house counsel just simply haven’t considered that the legal team could generate revenue. All it took was a shift in thinking and a few smart changes to their workflow.

Where Part 1 of our interview with Boston Properties’ EVP Bryan Koop focused primarily on what FLEX by BXP is and the business case for the experiment, Part 2 focuses on success metrics, the tenant experience, and what happens when you mix the flip-flops and t-shirts of tech culture with the suits and ties of traditional corporate culture.

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Q: The FLEX space here in the Prudential Tower is the first of many others. How do you define success in the short, medium, and long term?

In many ways we’ve already proven out the concept in the short term. The feedback from you and other tenants in the space has been very positive. The speed at which everybody’s been able to move in has proven to us that this can happen quickly. We opened July 1st and we’ve already got five of our nine suites leased.

I think the medium term is really about meeting the customers needs and learning where we can improve on what we’re doing. FLEX is a new product line, so we do expect to see some growing pains here and there. We’re going to be spending a lot of time with the customer asking, “Did we meet your needs? What can we do better?”

10 years ago, we would get calls from clients saying, “We saw a young man wearing flip flops! Flip-flops are not allowed in the building! Please don’t let him wear flip flops. Also, it’s winter and it’s not good for his health.”

For us, one of the neat things about FLEX is that we’re working with clients on a much more personal level. The groups who work in these spaces are small, tight-knit teams, and that makes for much faster feedback cycles. In a traditional long-term lease for a larger space, once we move somebody in, if we want feedback, we need to call ahead, get a meeting set up—jump through a lot of hoops, basically—just to get fresh information. Compare that to FLEX, where I can pop in on a client to say hello, see how everything is going, and they’ll be able to offer us feedback then and there. Just last week I walked into your neighbor’s office and they gave us three ideas within 30 seconds. That’s just totally different from what we’re used to.

In the long-term, success is really about answering the question, “is this something that’s going to prove to be really beneficial for our whole portfolio and our asset base?” FLEX is something that really enhances the whole Boston Properties platform. For every million square foot tower, let’s say, why wouldn’t you have 50,000 square feet of FLEX space? You guys in the tech world talk about scalability of platform all the time, but in the real estate industry, we haven’t really looked at it that way. Well, it’s time to change that. We think that a competitive advantage for Boston Properties is our platform, and FLEX would be a product that can really leverage that platform.

Q: Can you explain that? How do you see real estate as scalable?

The groups who work in these spaces are small, tight-knit teams, and that makes for much faster feedback cycles.

Let me frame it this way: As anyone who has started a business will tell you, recruiting and retaining the best talent is by far the most important part of growing a business. Where traditionally startups had to settle for back-office space in a mediocre location, FLEX offers startups and smaller companies an opportunity to lease space in a Class A building, which is not common in that kind of client. With FLEX they can say, ”Holy Cow, we’re in the Prudential Center! We’ve got Eataly below us, we’ve got health clubs, steakhouses…” and that makes recruiting so much easier.

We think that’s a great value proposition for the future; for us to be exposed to a bunch of great companies. Why? Companies in this sector are poised for growth, and as they grow, FLEX can accommodate them. Eventually, many of these companies will grow out of FLEX and into what we call the ‘long and strong’ sector. That makes FLEX a pipeline for the rest of our business.

To give an example, we had a company called Constant Contact who came to us back in 2000 when they were just coming out of bankruptcy and they only needed a few thousand square feet. That wasn’t something we normally did, but we loved their leadership so much that we said, “You know what? Let’s just roll with these guys a little bit and see how it goes.“

It went pretty well! In a handful of years they grew to occupy 250K square feet with us. Internally, we would call that a “great case study.” But really, it was just a FLEX space, right? At the time we looked at it like, “oh that’s just a highly unusual situation.” But now we see it for what it is—not unusual at all!

So we see FLEX as a more programmable, structured way to do what we’ve done with other companies. And with that comes scalability. Companies can grow with us, and the service we provide them changes according to their needs.

Q: What about other stakeholders?

From the customer and investor angle, FLEX space shows really well. When you’re a smaller company, you have to toe a very fine line in terms of the image you project to the world. If your space is too fancy, customers are going to think they’re being ripped off and investors might think you’re spending irresponsibly. On the flip side, if you’re in a low-end space, that’s going to throw red flags as well. FLEX offers a middle ground where customers and investors are coming into a high-end property like the Prudential Center, but they also see that FLEX is an affordable option. Customers get the message that you’re the real deal—that you’ll be around for a long time—without thinking you’re ripping them off, and investors see that you’re being smart with their money by not signing some expensive, long-term lease.

We see FLEX as a more programmable, structured way to do what we’ve done with other companies. And with that comes scalability. Companies can grow with us, and the service we provide them changes according to their needs.

We think that the number one rule of real estate—and we may be the only people who believe this—is that space and place drive behavior. And if you believe that space and place drive behavior, space and place therefore drive productivity, it drives culture, it drives the performance of an entire company. And if we deliver great space and place for you guys, your probability of being successful goes way up. So we see that as the reason why we’re in this industry, and the FLEX product to us is a great demonstration of that. You guys can build your culture, celebrate your wins, and use your space in the best way possible. That to us is more important than imposing a bunch of strict rules on you guys.

Q: We have a bit of a running joke around the office about the elevator demographics during rush hour here at the Prudential Tower. The building is mostly occupied by very large, traditional companies, and we’re this tech startup with a casual culture. So here we are in our t-shirts and sneakers with a messenger bag over our shoulder getting on the elevator with people wearing suits and carrying briefcases. How does that ‘culture clash’ change the overall dynamic of the building?

This is actually a really great question with an answer that’s more nuanced than what most would expect. Today, what we’re finding is our more traditional clients—law firms, investment banks—are seeing a need to adapt and change their cultures to fit a worker demographic that’s less concerned with formality and tradition. They’re seeing that their talent is acting differently, and is more diverse at every level. So I think the more conservative businesses are coming around and slowly becoming more open to loosening up, and the startups like you guys coming to work in jeans and t-shirts is doing a lot to push them in that direction.

10 years ago, we would get calls from clients saying, “We saw a young man wearing flip flops! Flip-flops are not allowed in the building! Please don’t let him wear flip flops. Also, it’s winter and it’s not good for his health.” Fast-forward to the present and we’re finding almost the opposite: our tech clients feel more uncomfortable being around suits than the suits feel being around flip flops.

That said, it’s important to point out that a casual/conservative culture mix isn’t a good match for every building. At 200 Clarendon—what used to be the John Hancock Tower—we divided that building into two lobbies with separate entrances. One lobby serves the lower floors where most of the tech companies are, and the other serves the upper floors where the traditional companies are leasing space. It’s really something we’re going to be evaluating on a case-by-case basis.

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That wraps things up! Huge thanks to Bryan Koop for taking the time to talk with us and to the entire FLEX team for a genuinely incredible experience so far. You can find more information about FLEX here, or reach out to Boston Properties’ Victoria Paolino at vpaolino@bostonproperties.com