The Leader - November/December 2008 - (Page 35)

CR EA TIN G RE AL ES TATE V ALUE : RE S P O ND STRATE G I CALLY TO FI NANC IAL R E P O RT ING C HANG E S ES S TRATE RE services ﬁrms can provide expertise in idena call center operation there was prohibiprovider knew that its portfolio included tifying strategies for efﬁcient portfolio plantively expensive. many surplus properties, but at book values ning. Beyond mitigating risk, the following When a current valuation was conducted, that likely exceeded their market value. actions can uncover opportunities for value the company understood that the call center The company’s real estate leaders held these NMCOR_Sept24_biker_Leader.ai 9/24/08 2:31:49 PM creation within a real estate portfolio. operation made little sense in the downnon-revenue generating properties idle at Steps to creating value: town location. Selling the building and the book value so as to prevent recognizing ‡ Perform adjustment proa potential loss in event of a jections by examining lease sale. There was ample oppordatabases line by line and work tunity to increase the value of with lease accounting software these properties through develto make adjusted projections opment, but the historic book The unique ability to quickly ‡ Evaluate performance value prevented such decisions improve the performance of metrics and management from being made. Though midsized companies through reporting opportunity existed, book value real estate. ‡ Revisit renegotiation kept the company from taking or reconciliation clauses for advantage of it. existing facilities At another large industrial [nimbility] ‡ Reconsider the appropriate- ness of each asset’s use, and identify surplus property Real estate-focused advisors can evaluate the collected data and identify opportunities in light of this evolving reporting environment. Thinking strategically calls for tools that let you know where you stand. Despite the challenges surrounding mandated ﬁnancial changes, the best companies will be strategic in their actions. This will lead to better business decisions through more efﬁcient real estate handlings. Questions such as, “What is this asset worth to me?” Corporate Solutions will be replaced with, “What is this asset worth to the market?” For example, one ﬁnancial services client had northmarq com northmarq.com northmarq.com created a call center in a fully depreciated downtown ofﬁce building, because its low book History Lessons value made it appear inexpensive when relocating the call center to a superior labor Uncovering opportunity may prove to be compared to a new suburban facility. Sales market would improve the bottom line in a key survival strategy as these changes and rents in surrounding buildings showed both the year of the sale and operationally unfold. Unlike the metric system, IAS that the property was worth much more for foreseeable future. adoption is not something that the US can than its depreciation-based book value, so In another case, a Fortune 200 service C M Y CM MY CY CMY K ﬁrm, management took the opposite approach. It was aware of the value of its surplus property and sought to transfer it to a new investment-focused business unit. Business unit leaders were reluctant to surrender low-basis property to the program, since the effect was minimized by low book values. Corporate leaders told business units that identiﬁed surplus property, would be removed from capital calculations based on its market value. This created a strong incentive, leading to hundreds of millions in identiﬁed property. Proposed accounting changes may, in fact, spur better business decisions through more efﬁcient real estate handlings, thoughtful placement of property, and incentive to examine underused properties. 2 0 0 8 TH E LE ADE R 35 NOVEMBER / DECEMBER http://northmarq.com http://northmarq.com

Table of Contents Feed for the Digital Edition of The Leader - November/December 2008

The Leader - November/December 2008 Leadership Contents Message from the CEO Real Estate in the News Leveraging Business Geography My Work @ Bank of America Blending the Old with the New A Tool for Growth Creating Real Estate Value Nokia-Siemens Networks’ Peter Doran DTZ’s James Maddock Annual Economic Development Directory The Georgia Report Location Profile: Magdeburg, Germany Linking Corporate Real Estate to the Enterprise 3rd Quarter 2008 Adding Value in Challenging Times Australia and New York Shell’s Paul Huston Economic Development in the News A Look Ahead In our Next Issue Calendar of Seminars Index of Advertisers Chapter Learning: The Global Perspective

The Leader - November/December 2008

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