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Lease Abstraction In Commercial Real Estate: Is There A Better Way?

Docugami
August 18, 2022 at 11:55 AM

Commercial real estate leases are often long, detailed, and complex. If you own, lease, or manage multiple properties, you may have thousands of pages of lease documents, making it virtually impossible to keep track of every term, every obligation, every due date, and every task.

This is where lease abstraction comes in.

Lease abstraction is a process in which the key elements, clauses, and details of a lease are extracted and consolidated or summarized into a concise, easy-to-read document called a lease abstract. There can be a single lease summary required, or a bulk report of lease information. Lease abstraction can involve either.

How are lease abstracts useful?

Lease abstracts are essential when dealing with real estate at scale, because many different people may need to understand the core terms of a lease, or the negotiated terms and variations. Doing so by manually reviewing each document every time would take exorbitant and unnecessary amounts of time for each of the participants.

How does lease abstraction work in commercial real estate?

Historically, this process has involved a team of human analysts manually reviewing each lease and extracting the key information that can be compiled into an abstract. This service is still offered today, and while some companies claim to have streamlined the process to make it much more efficient than an in-house manual review, there can be no doubt that the fully manual nature of this process makes it quite expensive. Human reviewers need to be experienced in the types of leases they’re analyzing, and often bigger teams of analysts are used in order to minimize the risk of error. This can add up quite quickly.

How lease abstraction affects the bottom line.

Just as with authoring and updating leases, getting the abstract right is hugely important. In a way, the terms and clauses of a lease can be thought of as a set of variables that all affect the profitability of the investment – everything from applicable real estate taxes to when late fees can or can’t be affected. And in cases where some tenant rights are concerned, getting the details wrong could lead to litigation, an expensive prospect that can introduce plenty of new headaches for owners and investors alike.

In short, proper and accurate lease abstraction is crucial to minimize risk for commercial real estate investors. The more confident an investor can be that a portfolio of leases has been abstracted correctly, the less risk they face in taking on that investment. That means any lease abstraction service needs to have a strong reputation for accuracy, which in the case of manual or even partially manual review, will always add more time and thus expense.

Can lease abstraction be done with automation?

The good news: there are a lot of software tools on the market that say they can do lease abstraction for commercial real estate. The bad news: most of them only do one – or, at most, a few – things well.

Lease abstraction tools often run into limitations when these scenarios arise:

  1. You need to customize an abstract for specific legal terms that concern you.
  2. You need to extract and analyze a variety of terms related to mixed use, retail, industrial space, residential multi-family, or single-family.
  3. You need to represent a landlord’s interests one day, and a tenant’s interests for another building the next.
  4. The legal team needs to know all the sublet options in a portfolio.
  5. Legal want to know the company's exposure to maintenance options and costs.
  6. You need to determine how your leases are affected by a new tax law.
  7. You must abstract a lot of lease information for buyers / investors / funds, to represent what they are investing in.
  8. There is a portfolio of varied properties involved in an M&A transaction.

All of these potential scenarios involve a number of variables that complicate the programming challenge faced by most automated software. Just as in other data extraction solutions, the easiest way to reduce this burden – and therefore the end cost to the customer – is to focus on certain types of leases and customer types, limiting the usefulness of a given tool either by its possible applications or the complexity of its algorithm.

This is where a new type of AI-driven solution can help. You guessed it: Docugami.

Download More Information

See how Docugami differs from legacy lease abstraction software and tools with our slide deck overview.

 

 

 

Document Engineering for Commercial Real Estate Lease Abstraction

Docugami’s one-of-a-kind technology, harnessing the power of breakthrough artificial intelligence techniques, can help automate the vast majority of the lease abstraction process for commercial real estate portfolios with a degree of speed, flexibility, and end-user usability that is unrivaled by any other solution available on the market today. Remember: manual review simply takes time, and that means costs for any human-driven or even partially automated service will scale with the size of a portfolio, continuing to cut into profitability even when some aspects of the process can be streamlined. 

Before Docugami, that expense was simply the cost of doing business in commercial real estate. But now, it doesn’t have to be.

How Docugami Differs From Other Automated Data Extraction Tools

At Docugami, we use a wide range of artificial intelligence, and powerful document technologies like XML and Declarative Markup, to automatically turn entire documents – any document, including all types of leases – into a data representation that can be used to create reports, analyze risks and opportunities, and power all your familiar business tools and processes.

Upload a stack of lease documents, and Docugami’s Document Engineering will automatically turn those unstructured documents into data and generate whatever abstracts you need.

Docugami’s document engineering approach doesn’t fully hand over the process of lease abstraction to software – it just takes over for your team of analysts, using cutting-edge AI-driven technology, and puts you in the driver’s seat to guide the information extraction process. This gives you the best of both worlds: a high degree of control over how your lease abstracts are designed and put together, with AI assistance to reduce the labor involved. This means any quality control issues can be addressed rapidly, and the entire timeline to create abstracts for a portfolio can be compressed significantly as a result.

In addition to its abstracting features, Docugami also helps commercial real estate professionals quickly and easily create new leases using your customers’ favored terms from previous leases. Docugami increases the efficiency, precision, and consistency of creating new documents, and improves business accountability and regulatory compliance.

The Benefits of Using a Universal Lease Abstraction and Analysis Tool

With a universal tool that operates by classifying ALL the underlying data in every document, not just a few obvious terms, there is no limit to the analysis or insight available. Business users who need information about certain properties, or the existing leases, or specific negotiations can get started immediately. There is no AI training, setup, or delays in modeling, programming and processing the information. Docugami delivers value on Day One, for your frontline business users. Then, if you do have deep analytics requirements, your IT group will be happy with the output they can get.

You can use it for other types of documents you work with as well: listing agreements, purchase agreements, employment agreements, NDAs, supplier agreements and more.

In short, Docugami’s artificial intelligence is like a digital Swiss Army Knife for your people. It can handle any lease or any document type, big or small, simple or complex. It takes away the tedium and amplifies your insight. It makes lease review and summaries easier, faster, and more to the point. You get the data you need, automatically, so you can focus on the business.

Try It Yourself!

Learn how Docugami’s AI solutions save time and money for growing commercial real estate firms.

Schedule a demo today.

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