3 Things Every Leader Should Know about Real Estate
“Real estate is not only a business necessity but also a part of the company’s strategy. However, I’ve seen repeatedly that senior managers don’t care about it.”
– Lee Roberts, SharpeVue Capital
Tell me if this sounds familiar…
Most leaders would rather avoid dealing with the complexity that real estate projects bring.
Real estate decisions are the stuff that derails careers because everyone has an opinion, and unlike many other decisions you make, real estate gets people emotional and passionate.
Not only that, it results in a huge long-term fixed cost for the company, and that impacts everyone—from customers to employees, investors, and neighbors.
But when you don’t tackle real estate issues, you ignore all kinds of problems that dramatically impact a company’s bottom line.
Warehouses aren’t as efficient and well-run as they should be. It’s harder to recruit good employees. There’s customer churn.
All these things add up to lost revenue per customer… and ultimately leads to board-level frustration.
Believe it or not, there’s a fix for all this. And it’s fairly simple.
It’s something we call The Deal Canvas™, and it distills real estate maxims so that busy leaders and company stakeholders can meet the challenges that real estate brings and stay out of real estate quagmires.
Basically, The Deal Canvas™ allows leaders to create a strategy, collaborate with stakeholders, develop common nomenclature, and visualize exciting results. It’s fun to use, and it works.
It’s also incredibly eye-opening.
Here are three things that Cardinal clients have learned while using The Deal Canvas™:
Insight number one: Do not buy real estate; instead, rent it.
Savvy leaders lease real estate much like you lease a car. You get a base price, and then you start adding on options, like paying a premium to get something you really want, such as an early termination option in year three; an expansion option for the adjacent space; a right of first refusal to lease additional space or to purchase the building. And more.
Even if you are not a fast-growing company that requires the agility provided by the options listed above, do not purchase real estate. Unless you are a manufacturer or have some other critical need, leave commercial real estate to the professionals and concentrate on your core business. Avoid the temptation to speculate on real estate with large amounts of capital that will impact your business decisions for years or decades to come.
Now, there are exceptions to this rule. If you are a manufacturer, you should own your manufacturing facility; otherwise, seek flexibility through leasing.
We’ve worked with large occupiers like Bank of America, Ryder Logistics, Verizon, and the US General Services Administration. They all prefer to rent space over purchase. These companies build flexibility into lease terminations, expansion options, and lease renewals.
Insight number two: Embrace sustainability.
It will have a positive impact on your culture and your bottom line.
Be careful, though—there is a culture war brewing on this topic.
The Wall Street Journal reported this week that many executives had been grilled by Congress about their green investments. Sustainability and ESG have come a long way over the past two decades, and they can no longer be ignored. However, be aware of what the WSJ is predicting..going “green” is increasingly an anti-wokeism hot potato.
Never mind that US commercial real estate accounts for 40% of all carbon emissions; many Republicans in Congress see this as a topic to rally their bases. There is still a place for green initiatives in commercial real estate. Still, you’ll have to find a balance between aspirational goals and strategic, measurable practices if you want to stay out of the political ditch.
Insight number three: Team up with professionals.
While I was at Trammell Crow, the company was managing the world’s largest commercial real estate services account for Bank of America.
The bank was deep into Six Sigma and measuring everything. It saw the benefits of collaborating with a trusted partner, and as a result, reduced nearly 15% of its occupancy costs.
It’s important that leaders understand they need partners that focus not only on transactions, but are also invested in long-term satisfaction and have an understanding of the company’s strategic initiatives, employee satisfaction, and novel ideas for reducing occupancy costs.
For example, at Cardinal, we approach all assignments first as consulting assignments, and if a broker is needed, we either perform the brokerage assignment ourselves or team up with another firm. As a result, we serve as an in-house interim real estate director for both small and large companies. In instances where Cardinal earns fees, it rebates a portion of these fees to substantially offset any consulting fees performed at the front end of the assignment. This type of alignment of interests is important to us and creates significant value beyond traditional brokers for our clients.
To sum up:
Commercial real estate is usually high stakes, tricky, and complicated, but it doesn’t have to be.
Which is why we help our clients create and execute successful real estate strategies using frameworks like The Deal Canvas™.