How Real Estate Companies Are Using Data Analytics

By Ben Brock, Brian Bader, and Michael Pappas
Contributed by Ross Forman

These are trying times for real estate investors, landlords, and tenants alike. The COVD-19 pandemic has undoubtedly introduced financial stress to all, but from many different perspectives.

Prioritizing a real estate portfolio strategy that addresses a justification for the need of space is a hot button item every company will be facing. If productivity and engagement has been effective in the current state, then this is the time to completely reevaluate the footprint and determine how much space is actually needed. Why make investments in current locations in order to “coronavirus proof” them, if the location or amount of space is truly not needed? Specific actions may include:

Ensure complete transparency and understanding of the organization’s portfolio, including total occupancy costs, size, location, and previous utilization

Scenario plan options to understand impacts if a location is closed or consolidated

Evaluate costs to implement versus total savings

Consider a balance of hub, flex space and work from home strategies

Retail and Commercial Tenants
Commercial and retail landlords alike have tenants struggling or even refusing to pay their rent. Retail giants argue government shut-in mandates prevent them from running a profitable business when deemed non-essential. Small businesses and restaurants have adjusted offering alternatives to standard business models, such as offering curb-side pickup and alternative packaging options.

Restructuring existing leases needs to be a two-way street in order to maintain a working landlord tenant relationship. Negotiating rent abatements, back end lease extensions, or temporary rate reductions can offer relief during a pandemic that could result in unpredictable revenue and expense streams.

Additionally, landlords and tenants must reconsider what the new office/retail store is going to look like. The new office reality, in one sense, could result in less office space as the pandemic has pushed the work from home concept into the forefront. However, certain landlords are of the belief that space requests by tenants might increase as social distancing will force the need of certain commercial and retail tenants to situate their employees and customers over a larger floor plan.

Companies will continue to evaluate space planning more aggressively, downsizing, or seizing opportunities to negotiate on pre-pandemic lease deals.

Some companies are responding to the coronavirus crisis with recognition that they do not need the amount of space or footprint composition in order to maintain productivity and employee engagement. The reduced demand for space is compounded by an unprecedented increase in unemployment and anticipated bankruptcies. All of this equates to an immediate call for action for landlords to:

Plan multiple “what-if” scenarios and relevant actions needed.
Carefully review insurance policies, as well as, existing contractual obligations to lenders to avoid violation of any debt covenants.
Communicate with lenders to determine if a short-term loan modification or debt restructure is needed.
Identify where future demand for space will evolve.
Diversify property portfolio mix.
Reposition asset/portfolio to meet anticipated demands and withstand downturns.
Remain hyper-focused on cost reduction/mitigation in all expense categories.
Reconsider traditional approach to marketing with a more direct outreach strategy.
Reinvent all traditional approaches to leasing (including virtual tours and the historic cost of commissions).

Assessing Property and Portfolio Health with Data Analytics
Organizations with more sophisticated reporting solutions have tenant-health metrics available in near real-time, assuming supporting property data is available. Assessing a tenant’s health helps organizations proactively manage risk and evaluate the overall health of the business as well.

Over 100 reporting capabilities can be considered when evaluating the health of the portfolio, spanning categories such as:

Accounts Receivable (AR) – Reserves, Total AR, Unreserved Receivables, etc.
AR Balance – Amount Outstanding, Amount Past Due, Average Days Outstanding, etc.
AR Transactions – Amount Billed, Amount Applied, Bad Debt Expense, Reserves, etc.
End of Period – Annualized Base Rent, Economic Annualized Base Rent, Lease Square Feet, etc.
Rent – Recoveries, Deferrals, Delinquent, etc.

Re-Entry to Real Estate Following the Pandemic
Taking bold actions and evaluating strategies for tenant re-entry, as well as the assessing the business health of the tenants by landlords and investors is undoubtedly challenging. We have a breadth of services and resources supporting REITs, real estate investors, landlords, and tenants.