Due Diligence Services and Ongoing Property Accounting

Case Studies

Due Diligence Services and Ongoing Property Accounting

| Aug 13 | Case Studies | No Comments

Business Challenge

A regional owner operator of commercial real estate was presented with an opportunity to jointly purchase a mixed use property with another investment company while retaining the post acquisition management responsibilities. Because the property was in receivership there was a very aggressive timeline involved to close the transaction. Due to the nature and requirements of the joint venture, existing accounting systems were not suitable to produce the necessary reporting. As a result the client was challenged to select and configure a new accounting system in a very short timeline, while trying to determine how to perform the ongoing property accounting in compliance with strict reporting requirements.

NOI Strategies Solution

The client chose NOI Strategies to perform the following activities:

  • Select and configure a new accounting system that met the needs of the joint venture.
  • Abstract all of the leases into a new accounting database.
  • Migrate historical financial data into a new accounting system.
  • Produce various financial projections that were used to validate the client’s due diligence analysis
  • Perform the daily accounting for the property post acquisition including but not limited to the following responsibilities:
    • LAP entry and invoicing
    • Cash receipts and application
    • Tenant billing
    • Lease administration
    • General ledger and journal entry responsibilities
    • Monthly and annual reporting packages
    • Annual CAM reconciliations

Results

The transaction went through leveraging NOI’s due diligence support. All data conversion and system configuration activities were completed in less than 45 days, and NOI is currently performing the day to day accounting for the property.

Optimizing a Technology Investment

| Aug 13 | Case Studies | No Comments

Business Challenge

A global investment fund, with a portfolio of more than 100 real estate equity assets and 300 debt investments, planned significant technology improvements. The organization operated with a hybrid set of business processes, resulting in part from equity assets inherited through foreclosure. Functional silos limited communication and collaboration across groups. Management recognized the need to address process before technology—to ensure that new systems did not perpetuate ineffective processes. The timing of technology initiatives required fast action to avoid significant delays.

Initial Technical Environment

Inefficient legacy applications drove existing processes and did not include workflow or other process-based tools. Third-party fee managers provided limited operational data electronically.

NOI Strategies Solution

The client turned to NOI Strategies to optimize key processes and conduct a detailed review of all operational and financial reporting. Recognizing time constraints, the NOI team:

  • Conducted initial discovery sessions to identify processes that needed immediate attention, before the onset of technology initiatives, and processes that could be addressed concurrently.
  • Worked with client leadership to make business model decisions in advance of optimization efforts, to ensure that new processes reflected a strategic business perspective.
  • Created detailed current-state process maps, documented business requirements, and conducted cross-functional visioning sessions to design new processes, including leasing, lease administration, budgeting and forecasting, accounts receivable/accounts payable, variance analysis, and valuation/projection.

Results

The client’s new business processes capitalized on planned technology investments. Technology initiatives moved forward on schedule and delivered maximum benefit.

Streamlining Third-Party Accounting Support

| Aug 13 | Case Studies | No Comments

Business Challenge

A global investment fund, with a portfolio of more than $20 billion in real estate investments, used more than 40 third-party fee managers. A mix of national, regional, and local providers supported property management and accounting functions for the portfolio. Because each fee manager employed its own accounting procedures, property financials lacked consistency, particularly in the areas of capitalization, job cost accounting, and expense accruals. The timing of the fee managers’ monthly close and reporting processes delayed the fund’s financial reporting.

Initial Technical Environment

Third-party managers used the client’s property management system to perform accounting functions. Property-level data was subsequently transferred to a separate application for consolidation and fund accounting. The organization anticipated a near-term migration to an alternative system that would accommodate both property and fund accounting.

NOI Strategies Solution

The client engaged NOI Strategies to conduct a comprehensive review of property accounting policies and procedures and to develop a standardized approach. The NOI team:

  • Conducted detailed discovery workshops with the client and third-party fee managers to understand current processes.
  • Held visioning sessions with the client to document information needs and determine required transaction standards.
  • Developed a detailed set of policies and procedures to guide fee manager accounting activities.
  • Created a standard monthly reporting package to be provided to the client by third-party managers.
  • Conducted hands-on training with fee managers to ensure full adoption and reporting consistency.

Results

Developed business requirements, application and report data mapping, as well as detailed integration documentation for vendors across multiple different systems to successfully integrate with the client accounting system. NOI Strategies worked with over a dozen vendors and their software representatives to design technical solutions that would meet the business requirements providing availability, reliability, stability, manageability, scalability and security of integrations.

Enhancing the Accounts Receivable Process

| Aug 13 | Case Studies | No Comments

Business Challenge

A public office real estate investment trust, with a nationwide portfolio of more than 40 million square feet, had recently centralized its accounting function.  Accounting staff now worked from corporate headquarters, but business processes remained decentralized and disjointed. Standards varied widely across financial operations, and cross-functional interaction had become more difficult.  Ineffective collection processes and limited analytical capabilities contributed to significant increases in delinquent tenant balances.

Initial Technical Environment

The organization had created multiple custom applications to meet property management, accounting, and legal needs.  The primary property management system had dynamic collection features that had not been implemented due to a lack of knowledge about these features.

NOI Strategies Solution

The client asked NOI Strategies to perform a detailed discovery of the current collections process and identify opportunities to optimize the process and integrate business unit functions. The NOI team:

  • Interviewed process participants to document the current process.
  • Performed a detailed statistical analysis of aged account receivables, identifying priority accounts for action and highlighting the costliest process issues, caused primarily by technology and a gross misalignment of roles and responsibilities.
  • Employed Lean Six Sigma design principles to develop an optimum accounts receivable process that removed interdepartmental barriers.

Results

The NOI solution reduced the client’s collection cycle time from greater than 120 days to 60 to 90 days and enabled the implementation of technical improvements without additional technology investment.

Optimizing CAM Recoveries

| Aug 13 | Case Studies | No Comments

Business Challenge

With staff fully engaged by monthly billing and collection activities, a public retail real estate investment trust faced the annual challenge of analyzing and reconciling tenant expense recovery billings for common area maintenance (CAM). The process for retail properties typically involves complex calculations and varying numerators, denominators, base years, caps, gross-ups, and management fees. The trust’s portfolio included 300 properties nationwide. Management sought an approach to maximize revenues under the terms of tenant leases while minimizing the demand on staff, taking advantage of available technology.

Initial Technical Environment

The trust had recently implemented a technology platform with the ability to centrally host CAM data and perform recovery calculations.

NOI Strategies Solution

The client chose NOI Strategies to perform a detailed review of the CAM reconciliation process, including supporting technology, and to identify ways to increase the automation of CAM recovery calculations and billings. The NOI team:

  • Analyzed tenant lease recovery terms to understand the prevalent variations within the portfolio.
  • Identified standardization opportunities that could increase efficiency without undermining lease structure.
  • Audited the results of CAM calculations through a review of relevant leases.
  • Identified and corrected inconsistent interpretations of CAM provisions in the system.
  • Identified and implemented additional automation procedures.

Results

The NOI solution improved the accuracy of CAM billings and reduced the client’s cycle times by an estimated 72%.

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