Opportunity springs eternal! Commercial real estate values have dropped precipitously over the last year or two. Many experts believe that values have not yet stabilized and that it may take years before they recover and again begin their upward ascent. So, where's the opportunity in that?

Many commercial landlords are in jeopardy and are facing a myriad of extreme challenges. Leasing demand is at its lowest point in years; many existing tenants, whose businesses are experiencing their own challenges, are seeking to reduce their current rental obligations by renegotiating their leases; other tenants are offering space for sublease at discounted rents; still others are going bankrupt and ceasing rental payments; the short-term commercial mortgages that financed so many buildings in the last decade are expiring; replacement debt may be unavailable, expensive, restrictive, and / or insufficient to equal existing debt levels; additional equity may be unavailable...the story goes on and on.

Financial executives at every well-run company, tenants and landlords alike, are seeking opportunities to uncover hidden profits and create long-term operating sustainability by reducing cost, and creating predictable costs going forward. Purchasing real estate may provide a real opportunity for many companies. For those companies that have access to cost-effective capital, that seek greater control over their occupancy costs, that seek long-term occupancy strategies, and that may wish to lock-in future returns for when commercial real estate values stabilize and grow again, real estate ownership may prove very profitable.

Companies positioned to own real estate may consider relocating to a facility that is offered for sale. Or, those companies may be better off pursuing their current landlord, irrespective of whether their building is being actively marketed for sale, to ascertain whether they could purchase that building on favorable terms.

Landlords experiencing financial challenges don't often publicize those issues. By contacting the landlord, or in the case of a building that is publicly challenged, the lender, your company may uncover a hidden opportunity and achieve more than mere short-term cost reduction.

Real estate ownership could work for some companies as a long-term occupancy and investment strategy. For others, it could provide profitability as a short-term strategy designed only to lower current costs and capture future profits from eventual rising values. Either way, the opportunity may exist, but only based on a carefully planned and expertly executed approach.

Note that this strategy may not work for some publicly held companies, those who wish to avoid having to record depreciation expense, and those seeking to increase return on assets. Although, if and when GAAP is replaced by IFRS, that could all change.

So, basically the opportunity may be directly in front of you. However, you may need to adjust your sights a bit to realize it.

Instant Insights /

Tenants: Want to Reduce Your Occupancy Costs? Buy the Building Your Company Leases!

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