Key Takeaways:
- Offboarding a portfolio property involves removing the asset from active management while maintaining key data for historical and operational purposes.
- The offboarding function is most commonly used when a property is sold or transferred to a different management company.
- Offboarding and tenant move-out processes serve distinct purposes in property management software, and sponsors and property managers should understand the different use cases for each.
What Does It Mean to Offboard a Portfolio Property?
In commercial real estate, offboarding a portfolio property means transitioning the property out of active management. This process typically occurs when the property is sold, the property manager changes, or the asset is removed from the portfolio for strategic reasons. Unlike tenant move-outs, offboarding a property is a broader exercise that impacts asset-level operations, financial reporting, and portfolio analytics.
When using property management software, offboarding ensures that all property-related data is archived appropriately when operational responsibilities conclude. This includes financial records, lease documentation, and maintenance logs. A sound offboarding process prevents data loss and ensures that the property’s historical information is available for tax purposes and performance reporting.
When to Use an Offboarding Function
The offboarding function in property management software is a valuable tool for property managers and real estate sponsors with in-house management teams. Knowing when to use the function can streamline operations and reduce potential risks. Here are the key scenarios when the offboarding function is most applicable:
1. Property Sale
When a property is sold, the offboarding function helps finalize operational and financial activities within the software. It establishes important journal entries to remove security deposit liabilities and ensures that other charges, such as property management fees, are settled. Additionally, the tenant’s portal with the seller is inactivated, and this ensures a seamless transition to the new management group by preventing in-place tenants from submitting rent payments to the previous ownership group.
2. Transfer to Another Property Management Company
When transferring a property to another management company, offboarding ensures a smooth transition of operational and financial data. It establishes a clear record of all outstanding tenant obligations, reconciles financial transactions, and removes liabilities such as security deposits. This process helps maintain continuity in tenant relationships and ensures that property management fees and other charges are properly accounted for during the handover.
What is the Difference Between an Offboarding Function and a Tenant Move-Out Function?
While both the offboarding function and the tenant move-out function are integral to property management workflows, the scope of offboarding a property is much broader than moving out a tenant. While tenant move-outs occur regularly and affect unit-level operations, offboarding addresses asset-level transitions with far-reaching implications for portfolio management and financial reporting. Offboarding a property includes a variety of subtasks designed to ensure a seamless financial and operational transition to the new property manager.
The offboarding process involves ending recurring charges associated with the property, zeroing out tenant ledger balances, and checking for any unpaid management fees. Additionally, it ensures that all outstanding bills and open work orders are resolved before property management responsibilities are handed over. A critical aspect of offboarding is the release of security deposit monies, which are transferred to the new property management company in accordance with contractual stipulations, regulations, and to maintain continuity in tenant-manager relationships.
Another key step is hiding the property within the property management system once the offboarding process is complete. This prevents any accidental entries or transactions being booked against the property after it has been offboarded. Together, these steps ensure the property’s financial and operational records are accurately finalized.
In contrast, the tenant move-out function focuses narrowly on individual tenant accounts. This includes reconciling security deposits and determining whether holdbacks are necessary. The property manager will also work to collect final rent payments and any charges specific to the tenant.
Final Thoughts
Offboarding a portfolio property is an essential step in commercial real estate operations, involving a range of financial, operational, and administrative tasks. By using property management software, firms can streamline this complex process, ensure accurate financial reconciliation, and maintain clean data records for future reference. A comprehensive understanding of offboarding and its broader scope compared to tenant move-outs enables property managers and stakeholders to transition properties smoothly, ensuring both tenant satisfaction and effective portfolio management.
Lexcraft Advisors is a fund administration provider that serves middle market real estate investment funds and syndications, typically with equity under management between $15 million and $150 million. Our team takes pride in providing general partners with reliable fund administration solutions often reserved for large, global investment firms. To learn more about our services, schedule a complimentary meeting with one of our Managing Partners.