Today's software companies continue to tweak their products to provide clients with user-friendly, comprehensive lease analysis software.
While doing one's own lease analysis is not necessarily a brand new idea, using a lease analysis software tool that makes the job easy is. "Anyone can do their own lease analysis today," says Alan Bushell, president of ProCalc, Old Westbury, N.Y. "Advanced software makes it simple; it's virtually impossible to make a mistake."
That is exactly what has made ProCalc's lease analysis software so popular, according to Bushell. "The single greatest feature of ProCalc is its built-in error trapping," he says. "You can't mess up."
This "smart" software, according to Bushell, is geared toward people who negotiate individual office or industrial leases or purchase options. With more than 600 clients worldwide, ProCalc, which was written by a broker for the brokerage community, has as its typical clientele brokerage firms, landlords and Fortune 500 real estate executives, among others. "Anyone involved in a lease is the perfect user," Bushell says.
What does ProCalc do for the user? It is a series of Microsoft Excel templates that allow the user to analyze and compare the economics of commercial real estate transactions from either the tenant's, landlord's, sublessor's or buyer's perspective. "This is not an investment sales program, not a property management program and not a lease administration database," he says. "It is a tool for creating and comparing cashflows by people who negotiate individual leasing transactions," he says. ProCalc's four packages include a tenant representative package, a landlord package, a buy analysis package and a sublease package.
Being user-friendly is a very important software feature. ProCalc has menu-driven data entry forms to make the program easy to use, according to Bushell. "Computer novices can run analysis in minutes," he says. The user also can analyze new deals, calculate remaining liability of a current lease obligation, recast leases prior to the expiration date from the landlord's or tenant's perspective or calculate lease takeover costs.
The program also can provide true monthly present value and amortization calculations and give beginning- or end-of-period payment choices for both present value and amortization. And the program shows costs on any fiscal year without changing the data entry.
Other features of ProCalc include the ability to manually change any cost in any month of the lease and provide complete control to manipulate the monthly payment stream (free rent at the end of the year vs. the beginning of the year, abate a few months worth of taxes or operating costs, etc.). And ProCalc automatically calculates the following totals for each deal: aggregate rent, present value, annuity and cost per rentable and usable sq. ft.
"And regardless of commencement date, programs automatically prorate every cost exactly to the month, to give the most accurate projections possible," Bushell says.
These features, and many more, add up to software that is user-friendly and improves the way users do business, says Bushell. "Six years ago, fewer than 10% of our clients had computers; now they all want to do their own lease analysis. This is a trend that we're witnessing."
And deals were structured differently than they are today. "Today's real estate investors have different lease needs," Bushell says. "There are so many different types of analysis to be done.
"It's like learning to play golf," Bushell continues. "When you start playing, you only use a couple of clubs, but as you improve and become more familiar with the game, you begin to use every club in the bag. The same goes for our software. It's simple enough to be used effectively by the novice, but has the ability to become as complex as the user desires."
Doing one's own lease analysis is a smart choice, he says. "The knowledge you get from doing your own lease analysis teaches so much more than just generating spreadsheets," Bushell says. "It's amazing how much better my clients are as real estate professionals after they begin using ProCalc. Knowledge is power."
Making lease analysis simple Landware Systems Corp., Vancouver, B.C., also provides software to make lease analysis simple for the user. Landware's product, Leaseworks, is a lease-by-lease, month-by-month projection system for valuation and budgeting of office buildings, industrials, shopping centers and mixed-use properties. "Leaseworks combines user-defined market forecasts with tenant data to produce fast, accurate financial projections," says David F. Atwater, president.
Leaseworks' interface is simple and direct and gives real-time feedback with embedded tenant cashflow graphics, context-sensitive help and complete on-line documentation. While easy to use initially, the program has real depth for handling complex lease and valuation issues, according to Atwater. "The user can get client-ready reports with Windows fonts, lines, boxes and shading," he says. "Reports are easily editable as to format, text and calculations -- virtually without limitation."
For portfolio analysis, Leaseworks combines full or partial cashflow projections from any number of properties with discrete line items available for each property, according to Atwater. The user also may do diversification analysis, for example, to show anticipated lease costs for the next five years by property type or location.
Revest Power Lease is a stand-alone software program that facilitates complex commercial real estate lease negotiations for both landlords and tenants. According to Jack P. Webster, chief executive officer of San Diego-based Revest Financial Software, which authors the product, the program performs both present value and actual dollar analysis, then displays financial differences using both parties' specific financial objectives.
Additionally, complex lease variables are expressed mathematically in present value, according to Webster. "Negotiating parties can continually see where they stand relative to their objectives and easily evaluate 'what if' scenarios," Webster says. "Users can truly add value by correctly using the right software packages."
Adding value is a necessity Adding value is pertinent to real estate information systems, according to Ken England of REsource Partners Ltd., Watkinsville, Ga. "By improving decision making, preventing missed deadlines, providing reports to share information and improving staff productivity, the user is adding value," he says.
REsource's software tools, which are designed for proactive management of CRE portfolios, include REsource:Standard, which the firm calls the industry standard for strategic lease administration and asset management software, tracking and reporting key real estate information; REsource:Retail, an enhanced version of the REsource:Standard application designed to meet the specific needs of the retail industry; and REsource:Custom, a software application jointly designed by the client and REsource Partners to meet the client's unique business requirements for real estate information.
That flexibility in software is what makes these products so user-friendly, England says. "REsource Partners has the flexibility to adapt with changing needs," he says. "The company has a wealth of experience in the total development of custom systems and in the modification of our REsource:Standard or REsource:Retail product to meet a client's specific needs." The philosophy of REsource Partners is that customization is an inevitable part of corporate real estate (CRE) information systems, England adds.
"Because our software and client services are designed around this philosophy, companies worldwide continue to contact REsource Partners for assistance in satisfying their CRE information needs. In fact, most clients have ordered modifications to enhance their original system," he says. In addition to customizations, REsource software offers each user the flexibility to change the display and structure of information to match their own needs, he adds.
Good lease analysis software, too, should improve the availability of information, England says. "REsource software products provide CRE managers with the relevant information they need to make important portfolio decisions," he says.
Immediate access to current information is critical to long-term corporate plans and to the efficient management and control of real estate costs, England says. Some of the criteria real estate professionals can track with REsource software include location information, surplus and listing information, capital improvements and depreciation, business units and cost allocation, property taxes and insurance, operating expense and reconciliation, forecasting rent costs, deed and building information, unlimited contract management, lease terms, lease options and renewal information, facility description, subleases and present value of lease commitment, to name a few.
Versatility is hugely important in lease analysis software, agrees Ronnie Dean, managing director, strategic development for Argus Financial Software, Houston. "There are programs that just do single lease analysis," Dean says. "But flexible, versatile software is a much better choice. When you can run numbers, keep an eye on cashflow and get the best lease analysis possible, that's versatility."
Argus' lease-based program allows users to analyze data "their own way," according to Dean. The Argus portfolio has features that allow roll-up of tenants, not just buildings, he says. "The software allows risk analysis and shows the impact of the tenant on the whole portfolio," he says. "That's important throughout commercial real estate, but especially in the retail market." These features are especially significant when the user is dealing with individual lease analysis.
Argus Lease by Lease for Windows is a cashflow analysis and investment modeling software application that provides flexibility and user-friendly features, according to Dean. "It is comprised of a compact group of intuitively designed, well-organized and easy-to-follow input screens, comprehensive graphs, concise assumption reports, supporting schedules and clear audit trials," Dean says, adding that Lease by Lease handles virtually any property type in any stage of the development or investment life cycle.
Office, retail, mixed-use, industrial, hotel, apartment and portfolios all are available in one program from Argus. These components detail existing lease and property revenue and expense information, proposed lease-up of vacant space, as well as current and future market assumptions for roll-overs and renewals of existing leases, Dean says.
Argus also offers an easy-to-use construction/development budgeting section complete with draw note and equity financing features. "This allows the user to automatically fund cash requirements associated with the development or capital improvement budget, including tenant improvements, leasing commissions and operating deficits," Dean says.
A new module called OpenArgus has been added to Lease by Lease, which is "the ultimate solution to open database connectivity," says Dean. "It allows both import and export of all lease and property data as well as calculated results down to the tenant detail level from and to systems that are ODBC compliant, such as Microsoft Access and SQL Server."
"We're constantly working on improving our products and are developing additional applications that will define the next generation of software programs for the real estate industry," Dean says. This tweaking is paying off with a successful product that satisfies its users. "Our product shines when it comes to lease analysis, because it performs not just lease analysis, but also building and portfolio analysis, and much more."
"The bottom line is providing a product that is user-friendly while performing all the lease-related duties required by the client," says B. Alan Whitson, RPA with B. Alan Whitson Co. Inc., Newport Beach, Calif. And the bottom line it is. His company's product, Bottom Line, is a very powerful lease analysis tool that can be used by anyone working in commercial real estate, Whitson says. "It allows the user to quickly analyze and compare up to five lease options and gives the user an extraordinary advantage when negotiating a lease," he says. "Because knowledge is power."
Very often a lease that looks good on the surface may not be the best deal, Whitson says. Operating expense pass-throughs, landlord allowances and timing of certain lease provisions can have a major impact on the real costs of a lease, according to Whitson. "Bottom Line performs thousands of complex and tedious calculations in just seconds and gives results in a readable and professional format," Whitson says. "That's information you can use to decide which option gives the greatest economic benefit."
Bottom Line operates as a template to Lotus 1-2-3 version 4 or Excel 4.0 spreadsheet software. "You don't need to be a software wizard to use it," Whitson says. "Just fill in the blanks and produce a complete report in minutes." If you are a software wizard, he says, you can take advantage of a useful benefit: Every formula and label in Bottom Line is accessible, so the user can easily customize the reports.
Bottom Line has several attractive features, according to Whitson. "The ability to produce a graphical comparison is a unique feature of Bottom Line," he says. Still, three other features are equally important. The first is on the detail report: GAAP basis accounting. "The real estate business is about cashflow, yet many businesses must account for their real estate transactions according to Generally Accepted Accounting Principles [GAAP]," he says. Failure to understand GAAP's impact can seriously affect a company's financial dealings, Whitson says.
Second, Bottom Line gives several analytical measures. "A very useful one for comparing leases of different terms is net effective rent," Whitson says. This is the amount that would have to be paid during each year to create a fund to cover the monthly rental payments. "The third is very difficult to see," Whitson says. "While Bottom Line presents its analysis on an annual basis, companies pay their rent monthly and in advance." When Bottom Line does any discounted cashflow analysis, this is accounted for in the formulas, he says.
Product becomes more comprehensive Lease analysis tools obviously are very beneficial, if not crucial, to the operation of commercial real estate. Another product, Pro-Ject for Windows, by Quantra Corp., Northbrook, Ill., is a comprehensive lease by lease analysis tool for the valuation of income-producing real estate. According to Quantra's Steve Casner, senior vice president of product marketing, Pro-Ject allows developers, brokers, appraisers, lenders, property managers and investors to estimate real estate values through sophisticated cashflow models. The standard templates, he says, accelerate the valuation of most office, retail and mixed-use properties and can be modified to impose corporate standards.
"This full-function application adds all the benefits of operating in the Windows environment," Casner says. "Intuitive, easy-to-use interface with spreadsheet style input for property assumptions, easy access to multiple windows, icon and drop-down lists and fast editing are just a few of those benefits," he says. Windows standard printing features and on-line help also add to the versatility of the product.
Existing Pro-Ject users can quickly migrate to the Windows version for two reasons, according to Casner. "Their knowledge and training in Pro-Ject remains intact, and the data model is identical to Pro-Ject+," he says. Pro-Ject for Windows provides a low-risk, simple transition into a Windows environment while still maintaining complete and seamless compatibility with all other industry Pro-Ject+ users, he says.
Casner maintains Pro-Ject's position as an industry standard for cashflow projections, too. "Users can model any combination of office, industrial, retail, apartment and mixed-use property types," he says. The software generates a full range of reports, from present value and consolidated cashflows all the way down to tenant-by-tenant, item-by-item reports. General debt and participations also may be added to a project and a yield analysis may be prepared from the perspective of either the lender, participant or equity investor.
Other powerful features of Pro-Ject for Windows include detailed reporting, sophisticated sensitivity analysis and integration of other software. "A wide variety of reports and presentation options provide the user with flexibility and promote well-informed investment decisions," Casner says.
A leasing program from Newstar also offers the flexibility users are snapping up. "Our leasing program provides both a technological and financial solution for equipment and software needs," says Jamie Opalchuk, vice president of marketing for the Thornhill, Ontario-based company. "Our one-stop shopping approach eliminates the confusion and complexities of equipment acquisition."
The Newstar Real Estate Management System automates the administration of commercial and retail property management, including lease management and rent control, according to Opalchuk. "With Newstar, the user can analyze and compare lease expiration, tenant roster, vacancy, security deposit processing, monthly changes, automated billings and accounts receivable across companies, active projects or lots and share this information with property managers electronically via the Internet in a graphically appealing format," he says.
Time savings is a direct effect on the bottom line, most agree. Newstar's software lets the user automatically decrease the number of hours spent on repetitive functions and tasks and save on administration and operating costs while gaining time to devote to the real business. "The bottom line is increasing property values and net income, and the right software can do that for you," Opalchuk says.
"There is a trend toward doing one's own lease analysis," adds Argus' Dean, and choosing the right software product can make the job a snap. Slowly but surely, he says, corporations and institutions are moving toward software products like Argus. "Clients want a standard format that they know others in the field are using," he says.
WinStack, a product of Real Pro-Jections Inc., Carlsbad, Calif., can help make sense of the data collected with lease-by-lease systems such as Pro-Ject, Argus, Dynalease or Office/2.
This Windows-based product can automatically import tenant data files for a multi-floor office building or shopping center from lease-by-lease systems, as well as property management programs such as Management Reports and Timberline, then turn them into a chart that "stacks" the leases for easier interpretation.
WinStack allows users to present information normally only seen in tabular format in highly visual chart form. Relationships and facts that might not be easily understood in a table stand out clearly in a WinStack chart.
Tenants are represented as boxes "stacked" on top of each other in layers. Within a chart, the size of each tenant "box" can be the same, or the size of each box is automatically adjusted to represent the space/tenant square footage relative to total square footage on the floor.
"When you manage your data better, you are better able to manage your properties," says Ted Stearns of Real Pro-Jections. "Better management means higher profits."
Lisa Pritchard Mayfield is a Macon, Ga.-based writer who contributes frequently to NREI and our sister publication Commercial Real Estate South.
Commercial real estate technology has been experiencing a coming of age with the release of a variety of software applications designed to perform specific tasks. In addition to lease analysis products, there are a number of applications that are used for lease administrative, lease abstracting, critical date notification and other related functions. While it is easy to be dazzled by feature-rich, "push-button" technology, it is important to remember that a building, project or portfolio is simply a collection of leases with transactional and operating parameters applied.
It is important to retain a focus on lease level data, component budgeting and "what if" scenario sensitivity testing while empowering products to quickly and easily handle the most complex "dirt to disposition" deal structuring and portfolio consolidation of properties, tenants and partnerships/joint ventures. These features combine with an Open Database functionality to directly connect our software with all major property management/asset management systems. This program allows the user to import/export data, generate customized reports, feed executive information systems, build comparative analytics and perform portfolio "slicing & dicing" as defined by the user's requirements.
In addition to the many features providing total input and structuring flexibility, calculation speed and data modification power for all types of property and portfolio level modeling, at the core of the product that is the new industry standard, the lease is still the governing control and is the element upon which all other data depends.
The ideal software enables the user to easily input detailed lease level income, complex expense reimbursement clauses and formulations, tenant improvements, commissions and market re-leasing assumptions, all in an interface that was designed to replicate an actual rent roll. What further distinguishes this software is the "Calc" feature built into the rent roll data entry interface. This feature allows the user to quickly drill down to the underlying assumptions and to immediately calculate, view, print or expert individual lease analysis data while in the initial data entry mode.
Even experienced analysts can incorrectly model properties with complex leases, and the mistakes are usually related to the tenant's lease level data. With software that has the ability to instantly analyze and view the tenant cash flows, the expense reimbursements and the present value of each line item component, one can check for errors and correct mistakes before wasting all of the time required to complete the model only to then discover errors.
Sophisticated calculation and reporting features are now available to provide Net Effective, FASB 13 Straight Lining and Intelligent Renewal/% of Market options. These features, combined with the new ability to store, report and utilize historical and year to date actual data "side by side" with budgeted data enable the user to track building specific and general market trends as they relate to lease level budgeting and analysis.
With ideal lease analysis capabilities, the user can immediately test the impact on value that the proposed lease structure would create if imposed on the property.
Ronnie Dean is managing director with Argus Financial Software, Houston, which provides Argus Lease by Lease for Windows and OpenArgus.