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Part 1: Understanding the finer points of real estate disposition
In the second installment of our Q&A series with Savills Head of Dispositions for North America, Gerard Staudt explains the key drivers of a successful corporate real estate disposition strategy. All companies should evaluate their real estate portfolio at regular intervals and conduct in-depth analyses to ensure that the space they occupy or own is still supporting business operations and growth. In addition to looking at the current state of their real estate needs, companies should conduct forward-looking forecasts, to ensure that their portfolio will not lead to any unforeseen cost run-ups. When it comes time to shed some space, it will pay to have on hand a well-formulated acquisition and disposition strategy that can respond quickly in a dynamic market. (click here to read Part 1: The basics) Q. Why is it so important that dispositions move quickly? Gerard Staudt: The cost of holding onto surplus property is higher than the cost of letting it go for less. It’s not that hard to get to the right answer in a week, as opposed to a year, if you approach it differently from a normal long-term lease transaction. More than anything, it’s about setting realistic expectations. Then, it’s about being creative so as not to lose a deal while continuing to market the property, instead of getting entrenched in closing a particular deal, in a series of exclusive negotiations. Keep marketing and bringing in alternatives. It’s not a deal until the check is cashed. If you work with a broker who doesn’t focus uniquely on dispositions, you’re likely find the broker’s focus is diluted. Most will do both acquisitions and dispositions, and those brokers naturally focus on the more lucrative area of acquisitions. Most of the time, they set a price for dispositions that is too high. The client’s expectations are thus set too high, so they wind up sitting on excess property for too long. If a property is priced wrong or not consistently marketed, a transaction can take a year to three years, instead of two months to a year. I never want a client to sit on anything for 12 months. And I do whatever it takes to keep the transaction moving. For one client, the purchasers’ appraiser called and asked to see the building the next day. So, I cleared my calendar, got on a plane, and met the appraiser there to make sure it went well. Sometimes, working on a disposition in a tight time frame can be so detailed it’s painful. It takes relentless, direct, consistent, friendly persistence. And, an uncanny ability to pull information out of people. Earning trust is the key. Q. What is your secret to accelerating a disposition transaction? A: We plan on bringing in additional buyers/sublessors. We focus on the details – we interview the local brokers and select the one that we feel were best-suited to the deal. If necessary, we will figure out an alternative broker compensation model to even out the incentive. It takes an incredibly detailed analysis of the market and creative approaches to closing the deal. Then, we manage the listing very closely to accelerate the sale. If one potential deal isn’t likely to happen, we ask “What’s the next plan?” By keeping alternatives coming in until the deal closes and check clears, we accelerate the closing, which is the best way to maximize a company’s return on a disposition. We keep on marketing, and don’t take it off the market without a solid nonrefundable deposit. Also, we anticipate problems, which for me, comes from 30 years’ experience, from mistakes as well as successes. The way you speed up the process is to approach marketing a disposition by thinking like a purchaser – if they will want to see inspection reports, as the seller, you need to do the inspection in advance and be prepared to share it with serious buyers, rather than the normal sequence of waiting until near the end of the negotiations and allow the purchaser do it. If we know of a problem, we don’t hide it, we put it on the flyer up front. Just remember, if we had three bids on a property and we picked the best offer, and then the purchaser discovers something negative, we have just given that party the leverage to negotiate down the price -- after the other purchasers have gone away. My motto is, No surprises. Q. How important is due diligence in a disposition? A. As a former in-house broker within big corporations, I’ve had the good fortune to have been surrounded by lawyers whose job it was to keep me safe. One thing I make sure to do is to get input from a client’s human resources, security, legal, finance and other departments, in addition to real estate. I like to create an approval team of all stakeholders so no one is surprised or raises objections at the last minute. I like to keep communication lines open. Q. How much information do you share with the properties’ landlords? A. We like to involve the landlord up front. This helps gain trust from the landlord , and you’re transparent, you’re likely to secure faster approval of a new subtenant or replacement client. An effective disposition process is not just about focus and marketing, it’s also about creating approval team, doing due diligence, building trust within the market – the landlord, the potential customers, contractors, etc. We even pull title reports in advance, and disclose any issues with the building or mechanicals that needs addressing. We build that right into the marketing. Q. What are some common pitfalls in handling dispositions? A. It’s important to know both the worst and best possible terms and price that the market has accepted for similar properties. Often, those surveying and valuing the property aren’t given the context behind the disposal lease or sale by the vendor/client. If a company wants to lease or sell a property quickly, the price may be very different than if they were prepared to wait for the long-term. Not doing all the upfront homework research, not keeping stakeholders in the loop, not thinking like a purchaser – if any of these goes awry, it can eat up valuable time. It costs a little more upfront to do the due diligence, but it saves money in the end.Not doing all the upfront homework research, not keeping stakeholders in the loop, not thinking like a purchaser – if any of these goes awry, it can eat up valuable time. It costs a little more upfront to do the due diligen
• Sales leaseback
• Equity participation
• Control in real estate
• Acquisition and disposition
• Excess real estate Part 2: Are real estate dispositions part of your annual business strategy? In the third installment of our Q&A series with Savills Head of Dispositions for North America, Gerard Staudt talks about incorporating real estate dispositions as part of a company’s overall business strategy. All companies should evaluate their real estate portfolio at regular intervals and conduct in-depth analyses to ensure that the space they occupy or own is still supporting business operations and growth. Businesses with real estate portfolios should always have dispositions as part of their business strategy, aligning real estate planning with the mid- to long-term business planning. A good real estate plan will balance acquisition and disposition in order to control the amount of P&L assets tied to surplus real estate that doesn’t support the company’s growth plans. Q. What are the key steps in real estate disposition planning? 1. Provide detailed review of local and global objectives, and each site’s assets and issues
2. Deliver market data from all qualified resources and brokers
3. Analyze and prioritize direct real estate comps on location and property condition
4. Establish expectations of timing, price, cost, and financial outcomes
5. Develop creative strategies to meet corporate and field objectives
6. Identify targeted principals, buyers and users
7. Execute strategic marketing campaign
8. Facilitate negotiations between the principals
9. Complete project documentation
10. Quantify hard savings results.
