Corporate real estate directors face the constant challenge ofbalancing opportunities with the operational and financial goals oftheir companies. While certain firms have stayed the course andcontinued with an ownership strategy, leasing remains thetransaction of choice for corporate space users. And with a glut ofnet-leased assets for sale, demand by prospective buyers is alsopicking up steam.

“The buy-lease decision boils down to the cost of capital and howyou see your capital stack,” says Jonathan Hipp, president and CEOof Calkain Cos. Inc. in Reston, VA. “Are you better off puttingthat money into the real estate or your business?” He adds thatmost corporate space users opt to funnel funds into their corebusiness, which ideally is generating higher returns than assetownership.

Whether this is the right strategy depends on the weighted averagecost of capital, a calculation that blends the cost ofequity—generally 10% or higher—and the cost of debt. As a result,companies that are growing organically or through acquisitions, andthose with lower investment grade or sub-investment grade debtratings, often lean toward leasing. So do higher-rated companieswith liquidity that have better investment opportunities availablewithin their core operations—think retailers who reserve theirrolls for inventory.


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