May 14, 2014

How to Optimize Your CRE Portfolio For Now and the Future

By Don Catalano



Corporate real estate optimization is a multi-disciplinary process. It can span from changing light bulbs to restructuring your company's finances. Optimization also happens on both the daily level and on a big-picture level that can span years or decades. Here are four ways you can optimize your company's real estate for better performance in the near, middle and long-term.

Relocate Company Data Centers for Lower Costs

With the growing importance of Big Data and other technology initiatives coupled with the security and performance benefits of private clouds, the corporate data center is becoming more relevant. What is becoming less important, is where they are located. Thanks to an increasingly skilled workforce and to the ability to engage in remote monitoring, data centers no longer need to be in a location that is convenient to headquarters.

Instead, data centers can be in areas where electricity is inexpensive, allowing for corporate real estate optimization. The National Security Agency located its data center in rural Utah where it could benefit from low-cost electricity from the Bonneville Power Authority. Google's data centers benefit from Iowa's overall-low electric rates of well under 9 cents per kilowatt-hour - just about half the average rate of 15.8 cents in California or 16.4 cents in New York, according to the EIA.


Corporate Real Estate Optimization Through Retrofits

Some green technology retrofits frequently provide fast ROIs. Photovoltaic solar panels can take anywhere from three to 15 years to pay back, depending on the area's solar insolation, the cost of power and the tax credits, rebates and incentives available. However, less visible retrofits can offer much faster payback periods than solar power. Changes like adjusting flush levels in restrooms, adding motion sensor lights to stairways, storage rooms and hallways and using a heat-blocking window film can all generate one or two year payback periods. This provides both a greener footprint and an attractive bottom line.


Optimizing Operations Through Better Technology

W. Edwards Deming's aphorism that "you can inspect what you expect" holds true when it comes to corporate real estate optimization. Constantly looking at your site's operations both on an individual basis and on a portfolio-wide basis helps to see where your operations are efficient and where they aren't. This allows you to focus your efforts on sites that aren't meeting your company's performance standards so that you can audit them, fix their performance or weed them out of your portfolio.

You can use your time optimally by automating this process as much as possible. Corporate real estate optimization and management software allows you to do more with less effort.


Refinance, Reconsider, Renegotiate

Your company can also optimize the way it controls real estate. While the looming changes to the FASB 13 standard are removing some of the accounting benefits of leasing space, the lease vs. buy equation still remains a core part of corporate real estate optimization. While the general principle is that leasing is more flexible while owning real estate can offer lower costs over a very long period of time, any optimization process looks at each site separately and chooses from strategies such as these:

  • Restructuring owned-site financing or obtaining new debt to pull out capital.

  • Purchasing highly desirable leased locations and transitioning to leased space in markets that have less certain long-term prospects.

  • Considering build-to-suit sale-leaseback opportunities for new construction.

  • Renegotiating existing leases to swap lower occupancy costs for a longer term and greater security for the landlord.

This type of big picture corporate real estate optimization can be complicated, but can also reap significant long-term savings.


View some other great articles:

6 Ways to Reduce Occupancy Costs

Four Tactical Commercial Real Estate Must-Dos

Protecting Yourself from Signing the Wrong Office Lease


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Don Catalano

Don Catalano