August 14, 2024
If your organization has ever been overwhelmed with lease verification post-acquisition, it's time to start leveraging AI to deal with the surge of data that comes hand-in-hand with portfolio growth.
Photo Courtesy of Rainier Square, Rainier Square Tower, Seattle, WA
Commercial acquisitions require meticulous planning and coordination involving numerous stakeholders. The process starts with a rigorous evaluation of potential investments to align with strategic goals. This is followed by due diligence, competitive bidding, property assessments, and collaboration with local negotiation experts to craft compelling offers.
The acquisition process is complex, involving hundreds of people and often spanning multiple states if not countries. But the challenges don't end there. Post-acquisition, new owners face a deluge of documents: existing leases, amendments, extensions, renewals, and other legal agreements.
Many ownership teams get overwhelmed by this influx of unfamiliar contracts and manually sifting through these documents is as time-consuming and critical as the acquisition process itself. Efficiently managing this transition is essential for maintaining property profitability and tenant satisfaction.
The Sheer Magnitude and Cost of Modern Acquisitions
There are many variables driving up the average cost of commercial property in the United States. Interest rates play a huge role. At the current rate (5-15%), commercial loans are more expensive today than they were in the past.
Supply and demand is yet another factor driving up the price and desirability of certain asset classes. Since showing its resurgence and resiliency to market fluctuations, retail demand has soared. This has driven up the average price of retail property as well as leasing activity and tenant interest.
The average cost per square foot has also increased making commercial property more expensive. Industrial properties are one of the best examples of this increase. In 2014, the average cost per square foot for an industrial property was just $69. Today, the cost/SF has skyrocketed to $154/SF.
However retail and industrial aren’t the only asset classes experiencing higher prices. Turnkey office acquisitions are also putting momentum behind nationwide acquisition activity.
Turnkey Office Acquisitions: Higher Price Tags, Greater Innovation
Palisade Group, a new real estate investment group based out of Seattle, and Prophia partner, recently made a milestone transaction, acquiring two Class A office buildings in Seattle’s South Lake Union neighborhood. The acquisition came in at a hefty $47.5 million, well above the national average office acquisition price today (approximately $2.7M). The price tag on the firm’s recent office acquisition wasn’t the only impressive aspect of the transaction.
There is also more data funneling through DD and post-acquisition than ever before. Charlie Hobey, Palisade Group Principal, quickly realized bringing in a tech practitioner to help through due diligence and post-acquisition was key to achieving this milestone purchase for the firm. "Prophia has been a game-changer for us. During due diligence, where every moment counts, having access to precise, timely data can spell the difference between success and setback."
Hobey isn’t the only industry leader to realize the acquisition landscape is changing. Prophia’s data reveals an average of 683 pages of contract documents for a single commercial property. A single lease can easily reach 50 pages. Imagine the time required for an asset manager or property manager to manually review the terms of just one lease, let alone an entire property. Extrapolate this time-consuming effort by the costs associated with hiring a third-party legal service and it becomes clear that even the post-acquisition procedures of an average transaction are mountainous.
The Benefits of Prophia’s AI for Post-Acquisition Activities and Inheriting Existing Leases
The writing is on the wall: The acquisition landscape is changing thanks to several market factors and today, CRE leaders can stay ahead of changes and challenges with help from AI-powered tools, like Prophia.
Seamless Lease Review & Abstraction
Imagine the daunting task of reviewing a 50-page lease from a midsized acquisition. Now, multiply that by 500 to represent a large tenant in a Manhattan medical office building. This is the reality for many owners and operators in major markets throughout the country.
Onboarding numerous complex leases post-acquisition can significantly hinder strategic planning and even cause key players to miss investment opportunities. To accelerate this process and regain focus on core business objectives after an acquisition, leveraging technology is essential.
Prophia's AI-powered platform instantly analyzes and extracts key data from lease documents, creating a detailed, searchable abstract. With thousands of pages of property and tenant data structured in Prophia, the new owners can quickly validate lease information and start making informed decisions immediately.
Smart Search.
Prophia’s capabilities extend beyond automated lease abstraction. Our AI also embeds every digitized page of every document with a searchable layer that allows users to quickly find critical tenant data and lease terms, accelerating post-acquisition integration.
Why is this so crucial for some ownership teams?
Imagine one of the tenants from our multi-tenant medical office property—a large tenant. Instead of manually reviewing thousands of pages, asset and property managers can leverage Prophia’s smart search to instantly access crucial lease details. This significantly reduces onboarding time and ensures post-acquisition decisions are based on accurate, up-to-date information.
Massive Time Savings, Minimal Exposure
With smart features like portfolio-wide search, automated lease abstraction, custom reports, and the dynamic stacking plan (spoiler alert), Prophia automates dozens of critical tasks and puts important tenant and property information at your fingertips. This translates into time savings across your organization—which is critical when onboarding a new property.
Need a more concrete example?
Prophia’s ability to quickly and efficiently review leases doesn’t just come in handy after a new property is acquired, it’s also incredibly useful during due diligence and time-consuming doc reconciliation tasks such as CAM reconciliation.
With Prophia, acquisition investment teams and property owners can expect a two-week turnaround time to receive their completed due diligence binder. This includes all verified key documents needed to complete due diligence as well as digitized abstracts with key terms, a dynamic stacking plan with real-time insight, critical dates report, and a comprehensive document audit to discover any lingering discrepancies and minimize risk. In a normal world, this takes weeks if not months. With Prophia’s AI, it only takes days.
Insightful Data Visualization.
Prophia’s stacking plan arranges tenant and property information in a colorful, easy-to-digest format that makes understanding critical dates and upcoming vacancies simple. This feature is yet another way Prophia makes data verification simple, even when importing new assets after an acquisition.
What’s more, the stacking plan automatically updates when new lease documents and tenant contracts are uploaded to the platform. This allows the stacking plan to deliver real-time insight throughout the lifecycle of your tenants and make the most informed strategy and operational decisions at every turn.
Don’t Let Inheriting New Leases Slow You Down
Acquiring new assets or expanding a property portfolio is a strategic move designed to drive growth and enhance market position. However, the complexities inherent in integrating new properties can often hinder progress.
To maintain momentum and maximize the value of these acquisitions, forward-thinking companies are turning to AI-powered solutions like Prophia. By rapidly structuring and verifying every inherited lease, these organizations can mitigate risks, streamline operations, and accelerate their strategic initiatives.
In today’s fast-paced real estate market, efficiency and accuracy are paramount, and Prophia delivers on both fronts.