While a corporate real estate portfolio is part of your company's asset base, for many companies it operates like an expense. However, outstanding companies are able to turn their CRE portfolio from an expensive necessity into a strategic asset and long-term contributor to profitability.
A Cutting-Edge CRE Portfolio
While companies turn over their computer equipment like clockwork every three to five years, real estate assets are frequently held for longer periods of time. This strategy can be expensive over the long term since it fails to take into account the fact that real estate can become obsolete just like any other business asset.
One source of obsolescence comes from the nature of the building. For instance, 24 to 26-foot clear height warehouses and distribution centers were once the industry standard. However, the advent of 32, 36 and even 40-foot clear height warehouses made those buildings obsolete. Taller warehouses don't just allow for greater storage densities, but also faster pick-up, easier inventory management and greater efficiency. As the transition to the new building standard occurred, the savviest owners purchased replacement buildings, letting other parties take the risk of obsolescence.
Locations can also become obsolete. While company history can play a role in maintaining certain locations, being the last business out of a given part of town or region of the country can also lead to the inability to sell those parts of your CRE portfolio for anything more than their land value. Strategically transitioning so that you always stay where there is demand from other buyers can help to increase the disposition value of your real estate assets.
What might once have started out as a fad has clearly established itself as a new standard in building commercial real estate. LEED certification and the broader green building movement carries real benefits that accrue whether you're building a property from the ground up or retrofitting an existing one. For more on the benefits of LEED certified real estate, click here.
You've probably seen vacant corporate headquarters or regional office buildings on the market. In many cases, they're unsuitable for anything but the original company that built them in their present conditions. Some aren't assets - they're white elephants.
The key to keeping your CRE portfolio economically productive is to maintain an exit strategy. Because it can be challenging to sell vacant commercial real estate properties, the best exit strategy is to choose a building that can either serve a readily-available single user, or has a clear path to be turned into multi-tenant space. If you can occupy buildings that are already multi-tenant, you may be in the best position of all.
An existing multi-tenant building gives you the most flexibility with the least risk. It lets you buy a building that is large enough to meet your expansion needs while having other parties pay the cost of keeping the extra space ready for you. If your business needs to contract, you can easily rent out its smaller spaces rather than finding a whole-building tenant.
A CRE portfolio doesn't have to lock your company into a fixed set of buildings. Instead, it can be part of a fluid mix of flexible properties that represent the best your markets have to offer. Flexibility within your CRE portfolio will allow you to have better control of your assets and can prevent you from restricting your company's needs.