The Art of Abstracting – Rights to Reimbursement

Lease abstracts are an integral part of the commercial real estate (CRE) cycle. Developing and maintaining the integrity of lease data on a timely basis is essential to providing a solid foundation for due diligence purposes, property ownership/investment and management. If the provisions in a lease are not abstracted accurately, there can be significant negative consequences for all parties involved in the CRE cycle; however, fast, accurate lease abstracting is not always readily available. Mining through numerous pages of complex lease documents and deciphering legal terms into a digestible summary is an art form which requires lease abstract specialists and demands hundreds of man-hours – something most lenders, owners/investors and managers either do not have or cannot afford.

The level of detail and number of provisions needed in an abstract can vary depending on the end-user. For example, clients on the due diligence side generally need an accurate and concise snapshot of just the financial provisions of a lease, whereas owners/investors and managers may need more detailed information in addition to the financial terms to properly manage and administer their lease portfolio. In order to receive quick and accurate lease abstracts, all parties in the CRE cycle should look for an abstracting partner that utilizes CRE subject matter specialists with legal expertise, have vast abstracting knowledge and robust data management and integration capabilities.

Issues
While lenders, owners/investors and managers may have different abstracting needs, the financial terms of a lease are at the core of every real estate transaction. Below are some of the most important elements to keep in mind to abstract accurately regardless of the ultimate end-user:

  • Rights to Reimbursements Can Be Diminished Due to Poor Abstracts
    Accurately capturing items that are to be reimbursed by tenants to the landlord, and those that are to be excluded from reimbursement, is important for all parties. A full understanding of the recoveries structure in a lease is essential for accurate due diligence and underwriting in order to give a full picture of the revenue stream of the property. For owners/investors and managers, not fully capturing what the landlord is able to recover could lead to the landlord not receiving the full amount of recoveries to which he or she is entitled under a lease. If the landlord fails to charge a tenant the full reimbursement amount, it is very difficult for a landlord to then recapture the funds. Additionally, it is essential for owners/investors and managers to understand recoveries so not to overcharge the tenants and risk costly litigation initiated by the tenant when the overcharges are discovered.

There are many nuanced elements of which a lender, property owner/investor or manager needs to be aware when entering into a real estate deal or managing a property. With the increasing amount of data tied to lease contracts, it is ideal to have a combination of legal and real estate expertise for lease abstracting. Firms should be looking for the real estate subject matter experts with legal expertise who can provide accurate and timely lease abstracts they can trust to lean on during the transaction process.

About Situs Lease Abstracting Offering
As a leading provider of commercial real estate advisory services and innovative solutions to the global financial services industry, Situs is uniquely positioned to provide the accurate and timely lease abstracts for owners/investors, property managers and lenders. We understand how a property operates and what the key issues are when managing, leasing or selling a property. Our extensive work in the real estate market provides with us subject matter expertise needed to understand how a lease will impact the performance of a property.

Situs does not abstract in a vacuum. As a real estate advisory company, we have a deep understanding of property leases and the impact abstract information has on due diligence, ownership and management, and therefore, we are able to capture the data in a way that is useful.

In addition to capturing the data from the leases, Situs creates an issues list highlighting any discrepancies a client might have in their rent roll as compared to the leases. Situs produces abstracts in a template that allows the extracted data to be seamlessly integrated into clients’ operating systems.

We are a real estate company with an experienced team dedicated to providing lease abstracting services – our experts have a thorough understanding of a lease from a real estate perspective and how potential issues in the document can impact the performance of a property.

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For more information, contact:

Zenobia Tambuvala
+1 713 328 4411
zenobia.tambuvala@situs.com

Cheryl Clark, Esq.
+1 713 328 4493
cheryl.clark@situs.com