Many commercial landlords are in jeopardy and are facing a myriad of extreme challenges. Leasing demand is at its lowest point in years; many existing tenants, whose businesses are experiencing their own challenges, are seeking to reduce their current rental obligations by renegotiating their leases; other tenants are offering space for sublease at discounted rents; still others are going bankrupt and ceasing rental payments; the short-term commercial mortgages that financed so many buildings in the last decade are expiring; replacement debt may be unavailable, expensive, restrictive, and / or insufficient to equal existing debt levels; additional equity may be unavailable…the story goes on and on.
Financial executives at every well-run company, tenants and landlords alike, are seeking opportunities to uncover hidden profits and create long-term operating sustainability by reducing cost, and creating predictable costs going forward. Purchasing real estate may provide a real opportunity for many companies. For those companies that have access to cost-effective capital, that seek greater control over their occupancy costs, that seek long-term occupancy strategies, and that may wish to lock-in future returns for when commercial real estate values stabilize and grow again, real estate ownership may prove very profitable.
Companies positioned to own real estate may consider relocating to a facility that is offered for sale. Or, those companies may be better off pursuing their current landlord, irrespective of whether their building is being actively marketed for sale, to ascertain whether they could purchase that building on favorable terms.
Landlords experiencing financial challenges don’t often publicize those issues. By contacting the landlord, or in the case of a building that is publicly challenged, the lender, your company may uncover a hidden opportunity and achieve more than mere short-term cost reduction.
Real estate ownership could work for some companies as a long-term occupancy and investment strategy. For others, it could provide profitability as a short-term strategy designed only to lower current costs and capture future profits from eventual rising values. Either way, the opportunity may exist, but only based on a carefully planned and expertly executed approach.
Note that this strategy may not work for some publicly held companies, those who wish to avoid having to record depreciation expense, and those seeking to increase return on assets. Although, if and when GAAP is replaced by IFRS, that could all change.
So, basically the opportunity may be directly in front of you. However, you may need to adjust your sights a bit to realize it.
About CFO Studio
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About Real Estate Strategies Corporation
Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to finance and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations. Under the leadership of its award-winning CEO, Andrew Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America. By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.
In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate. The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery. Visit www.RealStrat.com. Follow CFO Studio at http://www.Twitter.com/CFOstudio.
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