The overall vibe among IBS clients and prospective retail real estate customers has become increasingly enthusiastic this year. That carried through to the trade shows we attended this spring. For example, both ICSC's ReCon in May and Realcomm in June saw jumps in attendance, and the folks that we spoke with, though well aware that retail still is facing an uphill battle, are optimistic that things are getting better. These conversations also revealed a number of common themes.
From a technology standpoint, recoveries and billings continue to be a major issue for the retail real estate community. Simply put, the interpretation, calculation, billing and application of lease terms that entitle landlords to recover operating expenses from tenants, present a huge challenge. In a shopping center, a tenant's reimbursement percentage is generally based on a formula. While the numerator of such a formula is straightforward, the formula for the denominator is often quite complex. These denominator formulas will typically contain excluded areas and occupancy factors within the calculations.
With this in mind, a surprising number of real estate professionals still calculate expense recovery billings manually, without a high degree of automation. Many utilize spreadsheet programs - which generally goes strongly against the drive toward efficiency and effectiveness. Employees can spend countless hours shuffling through formulas to accommodate changes through the life of a lease. Worse yet, unavoidable human error can lead to costly omissions and mistakes.
The good news? Technology has evolved to allow for integrated, automated expense recovery systems that not only save extraordinary amounts of time but also provide a proper structure and audit mechanism to minimize or eliminate errors. The IBS system, for example, creates each lease using the core lease information and then inherently adjusts for changes in key factors through its term.
As a result, the personnel requirement becomes more of an audit function than that of a calculation function. Additionally, the existence of a demonstrable, tightly integrated escalation system is highly valuable in resolving tenant disputes and actually may lead to a reduction in disputes based on the customer being more confident in the landlord's administration skill.
INTEGRATED SOLUTIONS AND ACCESSIBILITY
Additionally, we are observing a real push by retail real estate companies toward integrated technology solutions. This is especially true among small and mid-size owner/operators who are running their business with multiple packages. For example, they may be using a generic accounting system with Excel as well as a stand-alone CRM package, and they recognize the value in putting those things together.
As such, management has become increasingly focused on achieving seamless integration of their accounting functions with other applications, such as work order programs, document management programs, etc. Again, technology advances are accommodating this; cutting-edge enterprise accounting software providers today are offering sophisticated software that ties their clients' core systems to leading third-party applications.
Mobile delivery options also are among the "must haves" for retail real estate professionals. As the use of iPads and other tablet computers in the field and in the boardroom gains traction in the retail sector, so do efforts to leverage potential for improved access to information. Apps can push out PDF documents with property-specific information including rent rolls and lease abstracts. Employees can read reports delivered to their tablet computers, with real-time financial and operational data. Documents can be placed on a server and programmed to sync to single or multiple devices daily.
Of course, it is critical to design security models around these applications, to ensure that the data cannot be downloaded to a local PC that can be viewed by unauthorized people. Operating system compatibility can be another sticky spot for software developers. Over time, we expect that user interfaces for mobile devices will change to mesh more effectively with Windows-based programs. At the same time, software developers will work to make their products platform independent.
What's next? We at IBS think that cloud computing is going to be the next "big deal." The ability to lease software, and store, access and share data in the cloud is incredibly cost-effective compared to the traditional in-house server environment. Adoption, however, may be tampered by skepticism. Conversations with retail real estate owners/operators this spring have revealed that many companies still want to house their data within their own four walls or in a secure ASP environment. We expect that, moving forward, the savings promised by this emerging option will win them over.
The only certainty, however, is that technology will continue to evolve. In turn, retail and other real estate organizations will find new opportunities to leverage these advancements to benefit their operations.