Like many industries, commercial real estate is full of terms that can be difficult to understand if you’re not well versed with the industry. (They call them “industry terms” for a reason.) One of the many CRE phrases that can cause confusion is lease amortization.
Lease amortization is all about figuring out the process for paying off a debt over time through regularly scheduled payments. It can be tough, but it’s part of many a CRE professional’s responsibilities. Let’s discuss the intricacies of lease amortization and the best ways to approach managing it.
What Is Lease Amortization?
According to the popular CRE blog CommercialCafe, “amortization is the progressive, gradual method through which a loan is slowly eliminated. Since commercial real estate basically means properties which are only used for business purposes, financing one usually involves receiving help in the form of a loan.” As it applies to commercial leases, amortization is the process of receiving the CRE loan and determining the agreed-upon time for repayment. This can apply to both tangible and intangible assets, but basically is a more feasible way to handle depreciation.
Managing Lease Amortization
Managing lease amortization for your clients starts with determining the right amount based on a variety of factors and metrics, such as:
- Residual value
- Historical cost
- Estimated value over time
- Economic impact
- Amortization method
The hard work is on the front end, determining the appropriate type of assets and all of the value-related data points that will help properly amortize the lease. Once the lease is executed, the only tasks left are related to lease monitoring, renegotiations and renewals. (The latter of which will help with future lease amortizations.)
How CRE Software Can Help
With lease management software like Quarem, hands-on lease management has never been easier. Not only can you easily track all changes, obligations, risks and amortizations involved with your leases, you can easily collaborate on them and organize them securely on the cloud. From producing an accurate master lease list with amortization details to simply organizing your lease accounting details in an easier-to-find location, Quarem can help.
If you’re interested in learning more about how commercial real estate software like Quarem can help you with lease amortization, request a demo today.