REoptimizer^® Blog

Lease audits are a necessary part of lease administration. Just as running a corporate real estate portfolio is complicated for you, running a building is complicated for your landlord. Sometimes landlords make mistakes, and frequently, those mistakes are in his favor. Auditing is the best way to ensure that you're not only paying what you should relative to your lease, but that your expenses are in-line with the market and other properties you occupy. Here are five rules to follow to make lease administration and auditing easier for you:

Many corporate real estate optimization strategies focus on the property. If you can find a space that does more with fewer square feet, low rent and low operating expenses, you'll come out ahead. There's a lot of truth to this strategy. However, it isn't the only part of corporate real estate optimization. Frequently, the key to optimizing a corporate relocation has nothing to do with real estate metrics. Sometimes, the incentives that you can get from a community provides the best deal.

The Basics of Incentives

Incentives come in two broad forms. Some are automatic incentives that are on a given area's lawbooks. For instance, South Carolina allows counties to abate property taxes for five years to new facilities costing $50,000 or more. Others are negotiated. When a community really wants to attract (or retain) a company, it can take executive action or, pass a law to allow it to grant a special incentive package. Since getting a company to move into a given community can result in new jobs and tax revenues from employees, shoppers and vendors, governments can be very aggressive in recruiting new businesses.

Typical Incentives

Incentives come in all shapes and sizes. Some of the incentives that a state, county, city or region may offer to help you with corporate real estate optimization include:

• Property Tax Abatements: A business either pays reduced or no property taxes for a period of time, lowering its operating expenses.

• Income Tax Credits: Income tax credits reduce the amount of state tax that a company pays on local profits.

• Withholding Credits: Some states allow companies to keep a portion of the tax that they withhold from their employees as a way of compensating the company for employing people there.

• Sales Tax Exemptions: Companies can be exempt from having to pay sales taxes on corporate purchases or receive a portion of the sales tax they generate on their sales rebated to them.

• Tax Increment Financing: Some communities can issue bonds from future property taxes to provide immediate low-rate financing for new developments.

• Distressed Property Financing and Grants: Money is also available to incentivize companies to develop in areas that need environmental remediation or areas that are blighted or in need of new jobs, both in the form of loans and grants.

Achieving Relocation Benefits

Getting relocation benefits can be a very complicated process. Here are some ways to simplify it:

• Get a national coordinator that will look at multiple locations to see which offer the best incentives. Being limited to only one location in the beginning of your process will limit you.

• Keep an open mind. The best locations might have high rents or higher construction costs, but your bottom line cost is the most important factor.

• Go to state economic development or business development offices. While the names vary, every state has an office that can help you cut through red tape and identify both state and local programs to help lower the cost of your relocation.

• Hire boots on the ground. Once you've chosen a location or two, find a local representative (or have your national coordinator find someone) that can help you deal with community requirements.

• Don't forget about home. Unless you're relocating for corporate real estate optimization purposes that go beyond simple cost, you might be pleasantly surprised by what your current community will do to keep you.

Other great Commercial Real Estate Optimization articles:

What is Commercial Real Estate Optimization?

Commercial Real Estate Utilization Optimization and the C-Suite

See how REoptimizer® can optimize your Commercial Real Estate portfolio!

A sale-leaseback may be one of the best forms of alternative real estate financing available to building owners. Commercial real estate investors typically snap up sale-leaseback properties at attractive prices, letting real estate-using companies free up capital for other uses. Major companies including Walgreens, FedEx, Home Depot, Microsoft and Disney have all used sale-leaseback financing to improve returns on investment.

In a sale-leaseback, you agree to sell your property to a commercial real estate investor and lease it back for a set period of time, usually at least ten years. While you occupy the building, you pay rent and operating expenses under the triple net structure. This gives you control over the building. When the lease expires, you have options to renew at pre-negotiated terms, letting you stay longer. Or, if you're done leasing the property, you can walk away and leave it with the commercial real estate investor. Sale-leasebacks have three key features:

Your company's commercial real estate software isn't only a tool to help manage your portfolio. Many of the cost containment tools that are built in can also be used to help reduce your company's environmental impact. Controlling operating costs, maximizing density and reducing employee drive times and distances can all help you achieve sustainability goals while reducing operating expenses.

For companies that have in-house logistics, one of the most complicated parts of corporate real estate strategy is devising a plan that serves distribution needs. Without a fully-optimized warehouse strategy, a company could fail distribution processes and significantly harm revenue. Finding the right distribution facilities is a four-step process, starting with diligent site selection:

Site Selection

Luckily, changing attitudes towards sales tax makes finding locations that are potentially tax-free to customers less of a factor. However, finding the right site is still challenging. A corporate real estate strategy has to balance many factors:

• Multiple locations that are close to retail locations or customers, OR fewer, larger locations for greater efficiency and economies of scale.

• Proximity to ports for accepting shipments, or proximity to geographically central locations.

• Location near major shipping resources or location that's central for retail distribution.

• Number of intermediate steps, if any.
  
  

All of these concerns determine which markets your company will include in its distribution and corporate real estate strategy. Once you've made these big-picture decisions, you can start looking at more traditional site selection factors like the availability of labor, adequate road networks and access to alternate transportation such as rail, water or air.

Property Amenities 

The property's amenities are also an important part of selecting a location. Warehouses that are affiliated with 3PL companies can offer a range of additional services to support your company's supply chain. Properties that you will operate that are located in supportive developments can also benefit from the development's amenities. Services like access to fiber-optic data lines can help you integrate the warehouse into your company's IT system while highly visible building signage can help you build visibility for your brand. At the same time, finding a property with the right management and security can also be an important part of your strategy.

Configuration and Utilization

The configuration of your warehouse space will also have a significant impact on cost of occupancy. Factors like the number of doors and the warehouse's column spacing can impact how effectively you can use the space as much as the clear height or square footage. Most warehouses achieve utilization rates in the teens. While a higher utilization rate is possible, it frequently comes at the cost of significantly reducing employee productivity.

Try REoptimizer^®'s Free Warehouse Optimization Calculator

Energy and Operating Costs

Along with the space's efficiency from a utilization perspective, its energy efficiency is also a major factor. Other than property taxes, lighting and climate control are frequently the most expensive operating expenses for distribution facilities. To this end, some companies are turning to LEED-certified buildings that use additional insulation or advanced HVAC systems to reduce climate control costs and have additional windows or skylights to reduce the cost of electric lighting. High-efficiency lighting fixtures, including LED units, can also significantly reduce operating costs.

Finding the right warehouse corporate real estate strategy to achieve your company's distribution goals is challenging. In addition to the many factors that come into any site selection process, the combination of technical aspects of the physical space as well as the need to integrate the space into a larger logistics strategy create a quantum leap in complexity. Creating a corporate real estate strategy that achieves distribution goals requires a vision, dedicated research and years of corporate real estate experience. Together we can find a solution that meets the demands of your company's revenue and logistics goals.

Commercial Warehouse articles:

Top Markets for Commercial Warehouse Space in 2015

Warehouse Space Occupancy Cost Factors

5 Ways to Improve Warehouse Occupancy Costs

With the right supporting data, an occupancy cost analysis is one of the most powerful decision making tools in corporate real estate. Whether your company is trying to determine which sites to keep, how to size spaces in the future, or whether a site needs additional capital expenditure, analyzing occupancy costs is a key part of the calculus. Comparing a site's performance both to other sites in your company's portfolio as well as to competing sites in the market can help you make these five key decisions:

Corporate Real Estate Directors have dutiful responsibility when setting corporate real estate strategy. They must possess understanding of proper execution with necessary tactics. Doing this requires a unique blend of skills. Here are five skills that shape an extraordinary CRE director:

1. Market Insight

Managing a portfolio and devising corporate real estate strategy requires deep knowledge of the markets in which your company is located. It's hard to make sound business decisions if you don't understand both your current assets and the conditions of the surrounding market. Having insight into every market can help project where you should be signing leases, understand the competitiveness of offers that you receive and track how your portfolio compares to the competition as time goes on.

2. Understanding Metrics

To really understand their portfolio, extraordinary CRE directors go back to the numbers. Spaces and costs can vary greatly from market to market, but using proper metrics provides understanding of how any given location is actually performing. For instance, a retail location in New York City that has $150 per square foot rent could actually be less expensive than one in Wichita with $17 rent. The question is what the sales-per-square-foot and rent-to-sales ratios show. As another example, an office location in San Francisco that holds fewer employees per square foot than one in Albuquerque could also be a red flag indicating space that isn't being used efficiently.Given the advanced corporate real estate portfolio optimization, property management and workplace management system software that is available, data is more available than ever to CRE directors. The challenge is selecting which data will help formulate an optimized corporate real estate strategy.

3. Technology Expertise

While a CRE director doesn't have to outshine the IT department, a high degree of tech savvy is a necessary part of the job for three reasons:

• Corporate real estate management tools are increasingly moving into the technological sphere, so a director that doesn't understand software risks being left behind. Learn how CRE software can help move business forward.

• As IT becomes more integrated into every aspect of your company's operations, your corporate real estate strategy needs to take the availability of IT services into account. For instance, if your company runs on cloud-based applications and uses VOIP technology, you will need to identify locations that offer adequate Internet bandwidth for good performance. When you need to have on-site IT infrastructure, you may need to identify sites with the right connections, physical security and configuration.

• Most CRE directors either spend a large portion of their time on the road or should be spending that time on the road. Without proficiency in using mobile communications, video conferencing and leveraging cloud-based storage, they become less productive and less effective for their company.

4. Execution

The best CRE directors are also able to use all of these skills together to not just formulate corporate real estate strategy, but execute it. Executing requires a panoply of additional skills including the ability to build consensus, overcome objections and influence decision-makers both above and below you on the corporate chain.

5. Delegation Skills

Finally, to be successful in building and acting on corporate real estate strategy, you're going to need to accept help. Every core skill for a CRE director is based on someone else's role. You will need to get market information from your tenant rep, work with your accounting staff to get corporate data for your metrics and work with IT to get the right tools. Without delegation, these tasks may become impossible.

See how REoptimizer® can help CRE Directors

Before signing a lease, it's a good idea to think about the future. With many tenancy agreements, the rent you pay on day one bears little resemblance to what you'll pay for your first annual reconciliation, and after the rent escalations start. Even if you clearly define those escalations, you can end up at your landlord's mercy when it comes to paying for operating expenses that he controls. Following a three step process can help you plan for what could happen and manage escalation expenses.