Although corporate real estate and facilities represent a very significant portion of the balance sheet and operating expenses, they often do not receive the attention they deserve despite the huge potential for creating competitive advantages, reducing costs and improving operating efficiency. Corporate real estate must be viewed as a strategic asset, not a liability or cost center. Likewise, the real estate plan must closely align with the overall business plan.
The first mistake most companies make is not allowing their real estate team to participate early enough in strategic discussions and to work on a “direct report” basis with senior management, preferably in finance.
Strategies for cash flow improvement, asset redeployment, synergy improvement and consolidation must be developed early on if opportunities are to be fully realized.
The following are common examples of opportunities to enhance a company’s value and performance through real estate initiatives:
- Attract and retain a desirable and affordable work force.
- Disposition or re-engineering of inefficient and functionally obsolete properties.
- Renegotiation of above market leases.
- Proper valuations for specialized facilities.
- Allowances for expansion / contraction plans and overall flexibility.
- Ability to align real estate occupancy with corporate cultures and business plans.
- Mitigation of potential legal liabilities.
- Evaluation of book value vs. market value of owned properties.
- Recapitalization opportunities via sale/leasebacks, etc. for owned facilities.
- Creative disposition strategies that include tax implications and improve key financial ratios.
- Analyze strategic market gaps and overlaps integrating portfolios and people.
- Eliminate duplicate locations and support functions (mail security, maintenance, etc.).
- Establish new benchmarking programs and unified corporate standards.
- Leverage opportunities from suppliers and vendors via unified standards and scales.
- Establish accountable performance measures.
- Perform detailed, annual portfolio review for opportunities, forecasts and planning.
- Periodically audit leases to ensure conformity and prevent errors and inconsistencies.
The bottom line is that effective real estate plans focused on operational effectiveness including space, labor costs and operational efficiency can generate very significant cost savings for the corporate space user.