The ROI on Corporate Real Estate ~via @EvergreenTradng's Jonathan Sorkenn
With the real estate market in a continual state of flux, Jonathan Sorkenn SVP, Client Partnerships and Head of Real Estate at Evergreen Trading lends some guidance into how companies can find the ROI of real estate even in the most difficult of situations. By reimagining the space, rationalizing holdings, or Evergreen Trading's specialty, corporate trade... there are many creative ways to ensure real estate commitments pay off in every instance. /Ted
The real estate market is in flux. From brick-and-mortar retail falling out of favor, to the future of offices up in the air, many companies have had a hard time pinpointing smart commitments in physical spaces. Whether a company is in the restaurant game, the retail business or any other space occupier, many are locked into physical spaces that are no longer serving them efficiently. These financial commitments in real estate can be daunting when they’re not paying off. Yet, with a little creativity, companies can find the ROI of real estate in even the hardest of situations.
Reimagine The Space
For companies with extra space on their hands, the first step is to think differently about how that space can be used. Originally, you may have purchased or rented a property for one purpose, but spaces are canvases for all types of opportunities. Think about the square footage differently and how it could benefit the company in other ways you may not have intended. For example, converting property into showrooms helps showcase innovation and engages consumers in new ways. Retailers can create mini-distribution facilities within their store fleet to help enhance omnichannel efforts. When it comes to offices, there are many ways to transform them. Be open to different ways of collaboration and creating high-value employee interactions as part of a hybrid work strategy, rather than sticking to traditional office layouts. The pre-pandemic office workplace strategy has gone the way of the dinosaur.
Rationalize Holdings
With so much fluctuation in the marketplace now, there’s a possibility of renegotiating lease terms to reduce operational costs, though the success of this tactic is largely dictated by the quality/desirability of the real estate as well as the scale and credit quality of the occupant. When leased real estate can in no way work for the business, traditional options such as subleasing is frequently pursued, though success is also largely dictated by the desirability of the real estate. As a last option, companies can always choose to terminate obligations and cut their losses. While this does create balance-sheet relief, it can come at a significant cost, often at little or no discount to the present value of the remaining obligation. In the case of surplus owned properties, traditional marketing efforts and auctions are the primary initial disposition tactics employed, though vacant properties in non-core markets can present a challenge. On the flip side, a company looking for new space and/or expansion options can benefit by opportunistically acquiring surplus properties for their own use. Basically benefiting from another’s real estate misfortune.
Corporate Trade
One route many companies don’t know of is corporate trade. This is a strategy employed by forward-thinking businesses, effectively transferring ownership of unwanted locations and/or leaseholds at full original cost/exposure to a third party in exchange for future media purchasing activity. There’s often opportunities to trade in real estate, freeing you up from the financial burden. For example, one large national pet retailer had purchased a 170,000 -square foot distribution center and traded ownership to Evergreen Trading due to an operational consolidation.This move allowed the retailer to gain instant liquidity, unburden their over-burdened supply chain and gain the certainty of sale of the real estate at their desired asking price.
As consumer retail consumption patterns and workplace strategies continue to evolve, the impact on the real estate market will be uneven, leading to winners and losers.
While there are some shifts we can predict, there will inevitably be surprises and companies will need to find new ways of creating ROI for their physical spaces. By staying creative and looking at the bigger picture, companies with real estate challenges can ensure their real estate commitments pay off in every instance.
Written by Jonathan Sorkenn
Senior Vice President
Jonathan joined Evergreen Trading in late 2012 following 10 years of corporate trading transactional experience. His responsibilities at Evergreen include originating, executing and managing corporate trade partnerships, creating customized programs that deliver maximum value and ease of use.
