Lauren Covell 0:00
842 changes the game and says all leases regardless of classification should be on the balance sheet in the form of a right of use asset or lease liability. And so what is happening is that historically under 840, the leasing obligation would be just this tiny, tiny, tiny piece of the balance sheet. Now, under 842 financial statement users have way more transparency into the present leasing obligations of that company by bringing everything on the balance sheet in the form of that right of use asset and lease liability. And then there’s an enhanced disclosure requirement as well. So it was a very, very big change in the accounting role, but also very warranted, because most companies besides what payroll is usually the first expense, but besides that, second is usually real estate related expenses.
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J Darrin Gross 1:14
Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.
Today, my guest is Lauren Coville, Lauren is a CPA and the Vice President of Finance at Occupier. occupier is a lease management software solution, empowering real estate teams, finance professionals and tenant rep brokers to collaborate on the entire lease lifecycle, and maintain compliance with lease accounting standards. And in just a minute, we’re gonna speak with Lauren about how new lease accounting standards are impacting organizations and their care processes.
But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you want to see how attractive Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe. With that, I want to welcome my guest, Lauren, welcome to CRE PN Radio.
Lauren Covell 2:44
Thank you so much for having me today.
J Darrin Gross 2:47
Well, I’m looking forward to our conversation. But before we get started, if you could take just a minute and share with the listeners a little bit about your background.
Lauren Covell 2:56
Yeah, of course, I started my career in PwC (PricewaterhouseCoopers LLP) and the audit practice and transitioned into a consulting role. And from PwC, I then went to a more boutique consulting firm where I helped firms with shoring up their monthly closed process, making it more efficient, more scalable. And then while I was there, I had a whole voice of clienteles that we’re transitioning into the lease accounting standard ASC 842. So based on my experience with that the opportunity to come work for occupier then presented itself and it was really a perfect fit for me based on my background, and startups being the head of finance startups and then also my risk accounting background. I have been with Occupier for almost a year.
J Darrin Gross 3:47
Okay? No, that’s, that’s great. And so but you you’ve worked also you’ve made it sound like you’ve been working with startups and in the real estate accounting, the lease. How long did you spend focus on the lease accounting?
Lauren Covell 4:05
Yeah, all in all, so when I was at PwC, we had a ton of clients that were transitioning to the standard, and then also at my consulting firm to and then in the private industry world, I had to transition to 842 and and now of course, we’re gonna occupy around it all the time. So I feel like you know, all in I’ve probably done 20 to 25 842 implementations, which is quite a bit.
J Darrin Gross 4:36
Okay. And for the uninitiated or the the people that aren’t aware, can you explain what the 842 is and what the prior accounting method was? Or there was a what it was before you convert it to the 842?
Lauren Covell 4:51
Yeah, definitely. So historically, only finance or capital leases would be on a company’s financial statement balance sheet 842 changes the game and says all leases, regardless of classification should be on the balance sheet in the form of a right of use asset or lease liability. And so what is happening is that historically, under 840, the leasing obligation would be just this tiny, tiny, tiny piece of the balance sheet. Now, under 842, financial statement, users have way more transparency into the present leasing obligations of that company, by bringing everything on the balance sheet in the form of that right of use asset and lease liability. And then there’s an enhanced disclosure requirement as well. So it was a very, very big change in the accounting role, but also very warranted, because most companies besides what payroll is usually the first expense. But besides that second is usually raw sent right in expenses.
J Darrin Gross 5:57
Okay, got it. And like any kind of a transition, it’s changed. And I’m assuming that it’s disrupting the way businesses have looked at it is is how is this a requirement? Or is this more of a, an opportunity or an option that that firms can take advantage of?
Lauren Covell 6:27
Yeah, so it’s a requirement. But I also think it’s a great opportunity to create more sustainable, scalable processes. Because the current processes under a 40, a lot of our customers are in this very manual, labor intensive, just segregated management of the real estate portfolio, there can be different Excel files that are tracking different lease level details and critical dates, different things that you need in order to manage that lease. And then the finance team is just kind of the end all receptacle of all of this information. And they’re trying to sift through everything that they need to in order to be compliant with this new standard. And so because the State of the Union for most people are living in this Excel file world, that even though it is a requirement, I think it’s also a great opportunity to start looking at your processes and enhancing what you currently have.
J Darrin Gross 7:34
Makes complete sense. So let’s talk about occupier is occupier a, a one stop solution for this. How does it? Is it an application? Is it a subscription? Is it an accounting software?
Lauren Covell 7:53
Yeah, so Occupier is a web based application. And it’s just like a normal software application that you would run for other parts of your business. And it totally is a one stop shop. And my favorite thing about occupier is regardless of your role in the lease lifecycle. Because lease is one of those areas that touch so many people can touch it touch legal real estate, HR, finance, of course, but financial planning and analysis, internal audit. So there’s so many people that need to be involved in leases. So my favorite thing about Octa is it allows everyone to collaborate under one solution. And so we have three main modules on our tenant. So we have a site selection. So a lot of customers that are high growth that they’re planning to expand from five to 10 to 20. You know, whatever expansion plans, I have the leverage occupied to manage that site selection process. Once they’ve signed that lease, it then feeds into our lease administration tool, which will summarize everything that you need to know for that lease not only rent schedules, critical dates, but also clauses too. It does it on a macro level too. So for instance, if you wanted to, for instance, with some snow that happened on the east coast a couple weeks ago, a lot of our customers were going through occupied sand. Okay, snow removal clauses, which locations do I have to physically shovel the snow versus the landlord is required to do that. So we’ll summarize everything in a very friendly way. And then the last piece of it is taking all the information within lease administration feeds into lease accounting, so that your transition from 840 to 842. If that hasn’t happened yet, can be extremely seamless. And then even if you have transition, we can still generate all of your monthly journal entries and your financial statement disclosure reports and Everything that you need to be compliant with ACA 42.
J Darrin Gross 10:04
Got it. So then it the end of the day, the end of the quarter end of the year are all of the is the information that occupier contains then migrate? Does it migrate on to the the accounting of the the the owner or whoever it? Is that needs that further owner? Or does this? Does the occupier platform provide an opportunity for accounting? You know, in total?
Lauren Covell 10:35
Yeah. So basically, how we have is we have based on monthly reports. And so if you wanted to pull your journal entries for the month of February, you could do that, and pull everything and then do with that within your ERP, or your QuickBooks, NetSuite, whatever you’re doing to manage your financial transactions, you can be exported from Akbar and import it into that software. Okay. And goal is really to automate a lot of the accounting side of that,
J Darrin Gross 11:08
Yeah, no, I can appreciate the anything automated with accounting to me as a
Lauren Covell 11:14
Right, oh, my gosh.
J Darrin Gross 11:16
The brain cells lost trying to figure out how the stuff to make it work.
Lauren Covell 11:20
Gosh, the number of tabs that I’ve seen from our customers, I mean, it’s basic, massive Excel files come over to us. And just the risk of manual error is just so apparent, even if you think you reviewed this data month over month, there’s still always a high likelihood of something, something being buried in there, some sort of formula or human error, or whatever it is,
J Darrin Gross 11:49
I was gonna ask you so that the your clients when they come over, and you mentioned these spreadsheets, or most of these spreadsheets? You know, one off that they’ve created for their own use? Or Is anybody following the same?
Lauren Covell 12:02
No, everyone has their own template that they’re using. And what’s interesting is that sometimes the real estate team, like different parts of the organization will have different spreadsheets. And then what happens is, when we bring everyone together, you realize that some of those details were inconsistent. And then it gets to be into a very lovely conversation. Well, which one’s right? And you kind of have to duke it out, but not really, but you know, and so definitely inconsistent and maybe not updated that timely. And everyone’s walk into the beat of their own drum.
J Darrin Gross 12:44
Yeah, no, I can see that. I’ve created my own misery many times with custom spreadsheets that don’t add up, even though it’s in the in the moment. They were right on, but explain it later. Up here, but don’t blink. So it’s an app and is it to annual subscription? Or how is it? How do you guys
Lauren Covell 13:13
usually an annual subscription, of course, we’re open to the idea of having longer term subscriptions as well. But most of our customers are on an annual subscription.
J Darrin Gross 13:24
And then, as far as the the platform? Do you guys help with the migration of the data? Or do you basically introduce the Okay,
Lauren Covell 13:35
we do I think that that’s one of our biggest differentiators actually, that, from my experience, I’ve used other lease management software providers, and we had to do a lot of the legwork. And to be honest, accountants are not the best at reading leases. Because just that’s just not what we do every day. And our customer success team is absolutely wonderful, very hands on that. As soon as you provide all the leases to us, we will go through the data extraction process, where we basically extract all of your clauses, and then start to build your rent schedules. Of course, it’s a more of a collaborative process to because there’s going to be things that we just don’t know, like, Hey, when did you gain access to x, y, and z space? So very collaborative, but we’re also taking a massive step forwards and handling that implementation for our customers.
J Darrin Gross 14:33
Got it? So if you were to summarize this specific problem you guys solve is it? Basically one one stop? Is it all of that leasing stuff in one?
Lauren Covell 14:45
Yeah. Yeah, our company motto is kind of like where real estate happens online. So ditching the spreadsheets and making sure that everyone is collaborating over one solution so that everyone’s on the same page. She, even one of the things that I’ve had troubles with too is the finance team sometimes is the last person to know. Excuse me. My allergies are so terrible around this, I’m here. So the finance team is oftentimes the last person to know. But now, they’re in the know. So whenever there’s a new lease or modification, they’re getting updated in real time.
J Darrin Gross 15:35
Got it? Is it really the adoption of the standard? The 842? That’s really kind of made, occupier you know, more of a need or, you know, previously, prior to 842 was occupier was her need for Occupier?
Lauren Covell 15:56
Occupier was definitely a need before this, because the state of the union, again, is so bad. Even some customers, I read that 60% of lease agreements are stuck in a drawer somewhere, they’re not even scanned in anywhere. So you can imagine the pain that these people were going through during COVID when they’re trying to negotiate their rental agreements, that if you don’t have that digitized, that’s gonna be a very painful process to sit there. So the need for occupier or always existed, but I think the push of the transition 842 just really enhanced the need for that.
J Darrin Gross 16:40
Got it. And as far as the the clientele that occupier serves, obviously anything to do with leasing? Is it primarily the brokers and the landlords that you’re the investors that you guys find that are most interested in? Or are you more of a prospect or the property managers and in the tenants themselves? Also?
Lauren Covell 17:11
Yeah, we have two main modules, we have a tool for brokers to help them manage all of their clients, basically, more of the site selection piece, then we also appeal to tenants as well. And so these could be retail companies or companies with a lot of office spaces that need to get their leases under control.
J Darrin Gross 17:40
So it as far as the, the the field here, is there a lot of competition in your space?
Lauren Covell 17:50
There is in different segments? And so there’s no great solution that truly does it end to end, like we’re trying to do, we’re trying to make the best product for each role in the lease.
And lifecycle versus you may really, really good at least administration, but is not great for the other sides of that least lifecycle. So we’re trying to be the best for every single person and involves.
J Darrin Gross 18:26
Got it? And and going back to the who you serve? Is it more of the or what’s what’s like a standard or not a standard? What’s your sweet spot as far as like a client size? I mean, if it goes got one location, I’m assuming that may not necessarily be as good a fit as if they’ve got 100 locations?
Lauren Covell 18:46
Yeah, no, I think our sweet spot has definitely changed. But the one consistent read that I found it in our customers is that they are high growth, that they may only have two or three leases right now. But they have really big expansion plans over the next two years. And they’re trying to establish a robust lease process right now before it gets way out of hand. Or maybe on the other end of the spectrum, they have 300 leases, and they definitely need a way to be tracking all of these things in a much better manner versus our Excel file. But a lot of our customers are high growth.
J Darrin Gross 19:30
And even with that, I mean, you know, I’m constantly seeing like these drugstores come to mind from a standpoint of just there’s a new one on every corner and they’re constantly you know, the lease in the deal flow. There’s always a one for sale for, you know, a triple net lease kind of thing. You Is there a you know, obviously you said high growth, but I’m just thinking like, if it’s not high growth, is it something that you could work with from or a prospect that has a lot of locations would be, you know, what would be? I mean, obviously, high growth, I get that. But if I didn’t if I’m a mature business that’s growing, what would be like an ideal number? Yeah.
Lauren Covell 20:13
So, you know, to answer that, I think, from a company’s perspective, you want to evaluate if your company has the necessary resources from a capacity perspective, and also an expertise perspective. So even if you have 10 ways we serve 10 leases, we certainly have customers with 10 leases. But when you’re looking at the capacity as far as time do you really want your team focused on being ingrained in these Excel spreadsheets? Versus Do you want to save that time and utilize Akbaruddin to streamline those processes, and then from an expertise, to be quite honest, now a lot of finance people want to be experts in ACA, according to and they usually don’t have the time to do that either. And so you can also leverage an accounting software to kind of pick up some of those missing expertise gaps, too. So depending on you know, really the need in my mind to think that the value of accounting software, or at least administration software is going to come to fruition is like 1015 leases, you really start thinking about it?
J Darrin Gross 21:27
And is there any industry that you find is more? You no more desirous or that’s more of an early adopter?
Lauren Covell 21:39
No, no industry? You know, we’re, we’re kind of agnostic on industries where our software is so flexible, that you can create a lot of custom configuration that suits a lot of different industries.
J Darrin Gross 22:00
And are you limited to the US are you worldwide are
Lauren Covell 22:05
No, we are worldwide. So we do support. ASC 842 is the US standard. We also support IFRS 16, which is the international accounting standard as well. They had to adopt a few years back,
J Darrin Gross 22:24
I was going to say that you see everything you’ve talked about from accounting, I’m currently working on my own taxes with my accountant and stuff. And it’s just like, just an aggravation, it feels like I mean, I said all its stuff made sense to me, it’s like not make it sounds like you’re trying to make sense of it. But to have one format, where you could easily pull it out and and regurgitate it or provided whoever needed it. I think they just it streamlines a lot of I mean, removes the friction makes the the or takes away the frustration, and makes it more user friendly. I would think that’d be a win for everybody involved.
Lauren Covell 23:02
So yeah, you know, I loved we had an onboarding call with one of our customers this week, and our customer success associate said to our customer, hey, my job here is just to make your life a little bit better. And that’s why I come to work at occupier because I know I’m making your life just a little bit better, just by maybe removing some of the burden that you have, or saving you five hours a week or month, whatever it is, I’m helping you in some capacities. So I thought that was pretty cool.
J Darrin Gross 23:35
No, I’m sure and also that employee that, you know, that’s their, their mission is to, you know, make your life a little bit better, as opposed to you
Lauren Covell 23:50
know, our customer success team is wonderful.
J Darrin Gross 23:53
That’s awesome. Hey, Lauren, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And I like to work with my clients where I try and work with my clients to assess risk and determine what to do with risk. And there’s three strategies we typically consider. The first is we look to see if there’s a way we can avoid the risk. If we can’t avoid it, we look to see if there’s a way we can minimize it. And when we can neither avoid nor minimize and we look to see if there’s a way we can transfer the risk. And that’s what a an insurance policy is. It’s a risk transfer vehicle. And I like to ask my guests if they can look at their own situation. Could be clients, the market, political situation, you know, COVID however, whatever that might be that that you’d like to to take a look at and frame. The question is with regards to risk. And I like to ask my guests if they can do that and consider what they can or identify what they consider to be the biggest risk And for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so with that, if you’re willing, I’d like to ask you, Lauren Covell, what is the BIGGEST RISK?
Lauren Covell 25:19
The biggest risk in my mind is understating the level of effort required to maintain compliance with ASC 842, a lot of people are just rushing to get implemented under a 842. But really, in my mind, it’s a race to the start, that where the going gets tough is maintaining that compliance. And if you don’t have those processes established, or if you’re not leveraging software, you know, you’re going to open yourself up to a lot of risk. And so without, if you can, maybe give the standard a little bit more credit, then you can think about, okay, where do I need to improve my processes? What people do I need, what resources do I need in order to maintain compliance with ASC 842. Because what got you to comply with the old standard is not going to get you where you need to be, as we talked about, there’s massive risk in manual error, even if you are certain that everything is accurate, there could be a fat finger, that will be a formula reference error, there are so many things that can go wrong in these massive XML files. And then you have the risk of not interpreting ASC 842 correctly, that if you don’t have the technical expertise in house, that’s also going to be a pretty big risk. And I think, you know, of course, when you think about the insurance policies, you’re never going to absolutely move that risk to someone else besides the finance team or transfer it right. But there are ways that you can mitigate that. And I think the biggest way that you can mitigate is start thinking through your processes. And whether or not you should be leveraging software to help you from a capacity standpoint, really helps you like leaps, make leaps and bounds in your transition to 842. And also, obviously, make sure that you’re compliant with everything.
J Darrin Gross 27:27
Anybody that’s, that’s a not a fan of easy to counting, and I don’t know what to say, but, but yeah, makes a lot of sense to me.
Lauren Covell 27:40
Yeah, yeah. The, I think it’s one of the most underestimated standards. But once you get into the nitty gritty, you start to realize, Wow, this is extremely complex. And it’s going to take my team double the amount of time than I had originally had a lot into this. So that’s why I say that’s my biggest risk is understanding the level of effort because if you give it the proper treatment, then some of this can be mitigated. A little bit easier than waiting until the last minute to do all this.
J Darrin Gross 28:17
Ya know? Hey, Lauren, where can listeners go? If they’d like to learn more connect with you?
Lauren Covell 28:25
Yes, so you can reach out to me directly at Bourne occupier.com. You can also go to Occupier.com. We have a wonderful lease accounting resource hub, they’ll find an ASC 842 checklist, a Lease Acounting memo template that will help you think through your transition. I also teach webinars pretty frequently, like two to four times a week, I go through a basics, 842 course and also an advanced course. And the feedback from those webinars has been overwhelmingly positive because we go through examples and you really start to learn the standards a little bit more. I like to teach by doing so. Those are really fun to be a part of as well.
J Darrin Gross 29:09
Oh, that’s great.
Lauren Covell 29:11
Yes, we also have a YouTube channel as well. That I break down every nitty gritty part of 842 in bite sized increments.
J Darrin Gross 29:23
I gotta tell you, God love YouTube and the instructional video it’s amazing what a resource it is. And, and I’m sure anybody listening looking for help on 842 would be wise to check out your channel there and and learn some more. Hey, Lauren, I want to say thanks for taking the time today to talk. I’ve enjoyed it. I’ve learned a lot and really the whole kind of the 842 sounds something that I necessarily in that familiar with, and you really did a great job of explaining it and Uh, I can see how Occupier would be a great help for anybody. And with that I we can do it again soon.
Lauren Covell 30:08
Yes, I hope so.
J Darrin Gross 30:11
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