“Synergy” is the effect where two or more elements combine to have an outcome greater than the sum of the parts. In commercial real estate, you hear the word applied most often to how pieces of a development can have a mutually strengthening effect, such as the way the different enterprises in a shopping mall create a social space ideal for commerce.
Real estate managers can profit from looking beyond this basic stage of the synergy concept to study how commercial sites interact with one another.
A 2010 article in the Counselors of Real Estate web site explores this idea and offers a five-stage approach to synergy in strategic commercial real estate evaluation. The authors are Nicholas Ordway, a business professor at the University of Hawaii, and Jack Friedman who heads a Dallas real estate appraisal and consulting firm.
Their approach urges owners of multiple properties to look at ways related assets can enhance each other. Careful strategic management of separate properties can enhance RE value.
Ordway and Friedman define real estate synergy as “A process of recombining, adding, subtracting or otherwise affecting relationships of internal or external factors associated with a real estate asset that results in increased overall value at a specific point in time.”
The first level of strategic commercial real estate is to see that each site is developed to its maximum potential value.
Second, they urge stronger valuation of how activities at a site affect overall value. A shopping center must incorporate recreation complexes and restaurants in a way that does not draw traffic away from the commercial activity. It’s not just enough to put all the pieces in the same place.
Third, they urge managers to recognize the value of what they create for a development package. Management systems, brand identity and customer loyalty associated with your real estate location is part of its value.
Ordway and Friedman also stress that financing packages for related properties can also enhance value. Finally, they point out that architectural designs, public artworks, business models and other forms of intellectual property are increasingly recognized and protected assets in law and business management.
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