Making Sense of Lease Process Automation
The commercial leasing process has long been ripe for technological innovation. And until recently, most of the industry was still operating in much the same way as it did 25 years ago. But with the recent influx of investment in the CRE tech space, things are changing; the industry has seen a veritable explosion of automation solutions built to streamline leasing workflows. While this new and expanding marketplace is long-overdue and a welcome change, it’s also brought a fair share of growing pains as the industry scrambles to make sense of how best to test and implement these new tools into legacy workflows.
Unsurprisingly, this was a major topic at Realcomm this year, where a panel of executives from some of the industry’s most innovative CRE companies joined in a panel discussion on the topic. In case you missed it, we’ve put together a comprehensive recap that distills the major takeaways from the panel discussion. There’s a lot of depth here, so you may want to take this one section at a time. Here’s a handy list of the major topics to help you navigate:
- How to cut through the noise and find the right automation solutions for your company’s workflow
- How to identify the parts of your workflow most ripe for automation
- When to buy software off the shelf and when to build custom solutions
- The risks and rewards of early adoption
- Strategies to get organizational buy-in when proposing and implementing new automation solutions
Cutting through the noise
It’s a good time to be a technologist in commercial real estate. Investment in the sector has exploded, with total investment in 2018 nearly 3x higher than 2016 ($11.2B in 2018 vs $4.2B in 2016) . But there’s a flip-side: all of this investment has led to an overwhelming number of new companies and solutions to choose from. Case in point: 2018 alone saw over 300 CRE tech startups receive seed or Series A funding[source]. That’s a lot of new options to sort through. Here’s how to approach it:
Assess how the software will contribute to solving the core business problem
In other words, will this software get leases signed faster? At the end of the day, that’s the #1 goal of the leasing and legal teams. Colin Joynt, SVP of IT for Kite Realty Group, suggests a good starting point: “Spend time with your leasing team to understand what their pain points are. For us, the biggest pain point was actually getting tenant signatures. Once we got to the point of pen to paper, things would stall. Even overnighting a final lease didn’t seem to speed things along. So we implemented electronic signatures with DocuSign and we’ve cut two weeks out of the cycle. It was a simple win, but a huge one nonetheless.”
Know your organization’s appetite for change
Suppose you find the proverbial Holy Grail of lease process automation software. It checks every box. Your transaction costs will be drastically reduced, it’ll get your leases signed faster, and the cost is so inexpensive that it’ll pay for itself within a few months. It seems like a no-brainer. But all of those advantages are predicated on one important assumption: that people actually use the thing.
With the tech in our everyday lives, we’re all accustomed to getting products and services with a click of a button. But in real estate, you still can’t always do things very quickly. In many respects we still do things the same as we did 25 years ago.
In terms of technology adoption, CRE is a relative late bloomer. Technologists in the field need to be highly sensitive to the organizational inertia they face and temper their plans accordingly. Even if the processes you’re trying to improve seem comically inefficient, it’s important to remember that they were developed for a reason and at one time (probably) made a lot of sense.
“Ask yourself,” says Sam Schaefer, Managing Director at Tishman Speyer, “why do you do things the way you’re doing them? Why can’t you do them faster and more efficiently? With the tech in our everyday lives, we’re all accustomed to getting products and services with a click of a button. But in real estate, you still can’t always do things very quickly. In many respects we still do things the same as we did 25 years ago.”
Depending on the appetite for change at your organization, you may be facing an uphill battle at the institutional level, the group level, or both (we’ll come back to this point again later and discuss strategies for combating organizational resistance to change). The last thing you want to do is waste valuable time and resources on solutions that won’t ever be used. “Don’t implement tech because it’s the latest and greatest.” adds Cecelia Li, SVP of IT at Urban Edge Properties. “Implement it because it works for the business.”
Identify areas in your workflow that are most ripe for automation
Because every organization operates differently, there’s no ‘silver bullet’ solution that can be universally recommended. Areas that are ripe in one organization may not be in another, so it comes down to knowing your business operations. Chances are you’re already aware of a few areas that are ripe for improvement.
For Brookfield Properties, a major point of inefficiency was communication during the lease negotiation. Talia Fine, Senior Director of Leasing and Finance, elaborates: “Our lawyers had a very manual process where they take all the back and forth between the tenant and landlord— and not only was keeping track of all the emails, document comments, etc difficult—by the end of it the deal could be very different from what was in the LOI. So we decided to automate all of that—take it out of email, take it out of paper—and build a system where all of that can be tracked. If it speeds up the process for the lawyers, the end result is that rent gets in our pocket sooner.
Don’t implement tech because it’s the latest and greatest. Implement it because it works for the business.
While some of the inefficiencies are obvious, it’s likely that there are other inefficiencies that haven’t yet been identified. The panel also shared some of their strategies for finding the less-obvious areas that need to be addressed.
Focus on analytics
Data always tells a story, so you should be collecting it whenever and wherever possible. Typically, you’ll want to begin your data analysis at the broader workflow level to get a general idea of where your roadblocks are. Once you identify the step(s) in the workflow where things are stalling, the next step is to drill down and study the data at a more granular level.
At Kite, Joynt is tracking analytics at the broad workflow level as well as at the granular process level. “Analytics right now are huge. Two metrics that I’m measured on are, one, how fast can we get a lease through? That one touches every step of the process—it touches Salesforce, it touches LeasePilot, it touches MRI, all the way through DocuSign—and the other one, which is more granular, is that we’re looking at analytics around specific clauses in our leases. [Because we’re doing retail leasing], we’re asking questions like, ‘what are some of the co-tenancy issues that we’re facing and do we see them popping up a lot? What about radius restrictions? Are we seeing more and more clauses and areas in the lease that we need to negotiate?'”
The tenant perspective
If the analytics aren’t painting a clear picture of where your inefficiencies are, Schaefer suggests thinking about your process from the tenant’s perspective. Try to identify the points in the process that frequently cause friction in the relationship, as there’s a high likelihood that those are also the most ripe for automation. “The industry as a whole has a tendency to spend so much time and money beating each other up over specific lease provisions that are maybe unnecessary,” said Schaefer, “It could be expansion options, termination options, security deposits, things like that that. And in the real world the probability of those coming into play are really low, yet we expend so much energy fighting over them, and often end up polluting the relationship with the client.”
Identify fixed costs
Another strategy for identifying areas of the process that would most benefit from automation is to look at your fixed (or nearly-fixed) transaction costs and implement an automation solution there. For example, if you’re using outside counsel to do a lot of your leasing, it’s not uncommon for the legal cost of a 3,000 sq. ft. lease to be about the same as a 30,000 sq. ft. lease. That’s an area where you’ll want to find ways to reduce or eliminate your use of outside counsel, especially for leases with a relatively low lifetime value. LeasePilot customers, for example, have been able to leverage the platform to completely eliminate their need for outside counsel and bring all the legal work in house.
Buy vs. Build
For many institutional landlords with deep pockets, building custom software is a viable alternative to buying it from a vendor partner. The upshot is obvious: you get exactly what you want (in theory, anyway) and can develop the application to compliment your existing processes without fundamentally changing the way your teams operate.
That’s one of the things that’s really making this movement in this industry work: there’s consideration given to how these things are ultimately going to fit together and work off of each other.
But for all of the upsides a custom build may have, there’s a major downside: maintaining it. Before you even consider pursuing a custom build, you have to take stock of your tolerance for managing a custom solution going forward. Keeping a complex software solution current with the latest security updates, bug fixes, and system compatibility takes a team of engineers who know the code base inside and out. If you’re willing to make that long-term commitment, a custom built solution might be the silver bullet you need. But if you’re not, a cloud-based SaaS (Software as a Service) solution shifts the burden of keeping things up to date on the software provider.
In many cases, your final solution may be a hybrid. “[At Urban Edge, we] went with MRI because it’s highly customizable,” says Li. “It has open APIs and we knew we wanted our ERP to integrate with other systems. It was a happy medium for us. We got most of the functionality we needed out-of-the-box, but we were able to tweak it to our needs.”
At the end of the day, Li says that it all comes down to knowing your business needs and having a realistic idea of the resources at your disposal. She cites VTS and Salesforce as an example of two software solutions that companies are using for similar purposes, but have wildly different implementations: Salesforce will require a lot of customization to be useful in CRE, but because it’s so widely used, there’s a lot of support for customization. VTS on the other hand is built specifically for real estate and provides functionality that is difficult or impossible to replicate in Salesforce, but at the expense of extensibility.
Although the last section hinted at software integration, it warrants its own section because integrating software platforms can lead to exponential returns for your business. SaaS providers are well aware of the value an integration can provide, and most of them are building their software around the idea of an open ecosystem. “That’s one of the things that’s really making this movement in this industry work,” says Schaefer, “there’s consideration given to how these things are ultimately going to fit together and work off of each other. For example I know Gabriel and his [LeasePilot] team are working closely with VTS to make sure the integration is seamless. I love the fact that they’re thinking about how those two different platforms can work together. ”
When I’m considering new tech, I want partnerships. I want to get really embedded with the culture of the organization who I’m going to do business with, just like I want them to get embedded with my group.
While most SaaS solutions are built with open APIs, some providers (Yardi, for example) have taken the opposite approach, instead opting to take a ‘walled garden’ approach by offering a suite of software that, in theory, provides automation tools at every stage of the leasing workflow. The primary advantage of a closed ecosystem is that all of the software is tightly integrated, meaning that every platform in the suite should be able to communicate with the other platforms without any special customization. Provided that each of the software platforms in the suite are a good fit for your organization, an all-in-one closed system can make for an easy one-stop shop.
LeasePilot is built to work in an open ecosystem, so our thoughts on open vs. closed ecosystems shouldn’t be a surprise: open ecosystems all the way. Being locked in to one software provider for your entire leasing workflow can be severely limiting as your business and the industry landscape changes.
The risks and rewards of early adoption
Probably the #1 reason why most institutional landlords are hesitant to invest in automation is that early adoption is seen as too risky. This fear isn’t entirely unfounded, either. After all, tech companies don’t have the best track-record when it comes to longevity. But for Schaefer, the potential upside far outweighs what is in reality a relatively small risk. “There’s more of a risk in not trying things than in trying them,” he says. “The CRE industry has historically been slow to embrace innovative solutions, but that’s changing, and those that dive in and are willing to experiment are the ones who will succeed.”
If the solution(s) you’re considering require a substantial investment or would require fundamentally changing your workflows to accommodate them, Joynt offers guidance on the best way to mitigate that risk and assuage your fears. “You have to change your mindset,” he says, “I don’t have any ‘vendors.’ To me, a vendor is just a company that is selling widgets. If I can find the widget for a dollar cheaper from someone else, I’ll do it. When I’m considering new tech, I want partnerships. I want to get really embedded with the culture of the organization who I’m going to do business with, just like I want them to get embedded with my group. For example, Gabriel [Safar] and his team, they know my business as well as my own team knows my business. They know our needs inside and out, and because of it and we’re expanding [our use of LeasePilot] at a frenetic pace.”
Another benefit of treating your relationship with early-stage tech companies like a partnership is that, in many cases, you’re able to influence how the product grows and evolves. As an early user, your input will be invaluable to the development team as they decide on and prioritize new features and functionality.
Mitigate risk by talking to your peers
When you’re buying a car do you just research it alone and go buy? Probably not. You’re going to ask friends and family for their input. The research you do on your own is important, but the opinions of the people you know play just as much of a role in your purchase decision, if not more. The same should hold true when it comes to investing in real estate software. As an ever-increasing number of CRE companies bring automation solutions into the fold, your chances are good that some of them have used or are using the specific solution you’re considering (or they know another company that has).
The CRE industry has historically been slow to embrace innovative solutions, but that’s changing, and those that dive in and are willing to experiment are the ones who will succeed.
In talking to your peers about software you’re considering, you’ll probably find a few others that are also interested. As Fine notes, this can work to your advantage. “You gain a lot of power and leverage,” she says, “when you go talk to vendors as a group of two, three, or four companies as opposed to going by yourself.”
The opinion of the panel was unanimous: you generally shouldn’t be concerned about being an early adopter. Tech is maturing and evolving so quickly that it’s not useful to think about where it will be in 5 years. “If it solves a problem today,” says Joynt, “go for it. We’ll cross the bridge about solving tomorrow’s problem tomorrow. The way you do business—the way the industry does business—is going to change in ways we just can’t anticipate anyway, so you’re going to have to be flexible and agile to stay competitive.”
Getting organizational buy-in
An obvious and ongoing theme in the panel discussion was CRE’s relative “late-bloomer” status when it comes to tech adoption. It’s no surprise, then, that perhaps the biggest battle you’ll face isn’t finding the right tech, but getting your organization on board with changing the way things are done. In many cases, you’re solving a political problem as much as you are a business problem.
Schaefer describes his strategy at Tishman Speyer: “I find I have to be the champion for [new tech]. A lot of times people will say, ‘Here comes Sam with another tech initiative. Leave us alone, Sam, we’re still trying to get those two or three other things from your last initiative digested.’ You really have to build consensus. One of the tricks I’ve learned is that you really need to get different functional heads to buy in, then that creates some downward pressure for some other groups that might not be so willing to adopt.”
At times, you may experience the opposite problem: an executive or department head who is really excited about a particular solution that might be several steps ahead of where your organization is now. This is particularly difficult when you’re working at the enterprise level and juggling the need to maintain legacy systems that are reliable and battle-tested with the pressure to stay current with the latest and greatest. Getting from where you are now to where you want to be is rarely achievable in a single step. In many cases, getting to the so-called ‘bleeding edge’ is only possible if you’re already operating at the cutting edge.
We need to be the ones to explain, “We understand your problems and we’re going to solve them, but here’s the order that we need to solve them in.”
At Brookfield, Fine has tackled this challenge by communicating a clear road map for tech adoption. “It’s a partnership that has two sides,” she says, “From the business side they’re talking about the problems that they have and talking about tech solutions they may have heard about, but they may not necessarily know the strategy or the roadmap of what comes first and what comes second on the IT side in order to get there. So that’s our role in IT: showing them the roadmap.”
So for example if the business problem is lead prioritization and you’re using Salesforce, the Einstein AI product can help to resolve problems with lead prioritization. But Einstein AI is only available for accounts that are using the company’s latest Lightning framework. “So,” Fine says, “it’s our job to tell them that we need to upgrade to Lightning for Salesforce before we can implement something cool and sexy like Einstein AI. We need to have the building blocks and the foundation in place first. That’s where our voice is important. We need to be the ones to explain to them, ‘We understand your problems and we’re going to solve them, but here’s the order that we need to solve them in.'”
Leverage a (friendly) intra-departmental rivalry
An institutional landlord’s overall willingness to embrace or resist adopting new tech is rarely binary. In reality, you’ll probably face a mixed bag. Some teams might be breaking down your door to talk about new tech, some might mysteriously go out to lunch when they hear you’re coming, and others could take it or leave it. In short, you have to know the internal dynamics of your organization (sensing a theme yet?).
Folks in real estate are insanely competitive, so use that to your advantage. We love the strategy that Li has used to great effect at Urban Edge: “You’ll have some departments that are very into technology . . . and you’ll have other departments who want nothing to do with tech. They’re almost allergic to tech. So start doing it with the departments that are excited about it; make them successful. Other departments start talking, ‘Oh my god, this department just implemented X, Y, and Z and their numbers skyrocketed…’ and all of a sudden I’ll start to get phone calls and emails, ‘Hey Cecelia, what do you think about this or that solution?'”
The lesson here is that success breeds success. It’s unlikely that you’ll be able to make sweeping, organization-wide changes, so focus your effort in places that have a high probability of success. With a few wins under your belt, you’ll start to create a healthy atmosphere of competition and peer pressure. Before you know it, people start coming on board. You may even find that the folks who were your biggest critics become your most enthusiastic supporters.