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    Surplus property strategies course2 p96 Surplus property strategies course2 p96 Presentation Transcript

    • Surplus Property Strategies David R. Worrell Managing Director Cambridge Consulting Group Inc.
    • Course Outline
      • In this course you will learn:
        • How to develop the surplus property plan
        • How to analyze the situation
        • How to evaluate disposition alternatives
        • How to market surplus properties
        • How to close the transaction
        • How to communicate the plan to management
      © 2011 Cambridge Consulting Group Inc.
    • Developing the Surplus Property Plan
      • Facts: Corporate dispositions will never stop
        • The business cycle
        • Business metamorphosis
        • The “dual agenda” of corporate real estate
        • How can you create value for your corporation?
        • How does your senior management determine value?
        • Can you translate your work into measurable ($) results?
        • From zero-sum game to value-add
        • The contingency mindset: you are paid for results
      © 2011 Cambridge Consulting Group Inc.
    • Developing the Surplus Property Plan
      • The goal is to achieve the best possible return
        • The properties should be managed for maximum income
        • The properties represent significant capital investments
        • Thorough due diligence is essential
        • You are the “control valve” in the process
      • Understand that value is a “perception”
        • You create value
        • Service providers save your time - therefore value
        • Communicating the value is only as good as the information you send
      © 2011 Cambridge Consulting Group Inc.
    • Hidden Costs of Vacating Leaseholds
      • A disposition will trigger the write-down of unamortized capital expenditures from previous projects. Do you have this information?
      • Subleases establish legal and financial liability for security deposits
      • FASB 13 and “Materiality”:
        • Subject to interpretation, there is a point when a leasehold space is sufficiently vacated to force a trigger the write-down of the remaining obligation associated with that space. Different companies may have different standards for materiality
      • Trigger of ADA requirements
      • Scrutiny of lease and past improvements by landlord
      © 2011 Cambridge Consulting Group Inc.
    • Prioritizing Surplus Properties
      • Criteria for Prioritizing:
        • The degree of negative cash flow
        • The book value
        • Potential for stemming losses
        • Potential for generating cash
        • Transaction ease
        • Transaction speed
        • Transaction cost
        • Accounting Issues
        • Intangibles: Image, PR, and Politics
      © 2011 Cambridge Consulting Group Inc.
    • Prioritizing Surplus Properties
      • Weighted Rating Method
        • Immediate, short-term, long-term prioritization
          • Marketable and will turn over quickly
          • Offer the greatest financial return
          • Uncomplicated, inexpensive to dispose of
          • Have significant impact on the balance sheet or income statement
        • (Weighted rating matrix)
      © 2011 Cambridge Consulting Group Inc.
    • Developing Disposition Goals
      • Financial Goals for Leased Properties
      • Financial Goals for Owned Properties
      • Facilities Management Goals
      • Process Goals
        • Understanding the “ psychology of the disposition process ”
      © 2011 Cambridge Consulting Group Inc.
    • Financial Goals for Leased Properties
      • Generate X dollars (present value) through sublease or assignment of Y properties
      • Achieve X cents on the dollar for Y lease termination costs
      © 2011 Cambridge Consulting Group Inc.
    • Financial Goals for Owned Properties
      • Generate X dollars of liquidated equity from the sale of Y properties
      • Generate X dollars cash over net book value from the sale of Y properties
      • Generate X dollars cash-flow through leasing Y owned properties (including sale-leaseback's)
      • Save X dollars (present value) through other transactions (gifting, exchanges, etc.)
      © 2011 Cambridge Consulting Group Inc.
    • Facilities Management Goals
      • Increase net income (return) from the portfolio by:
        • Increase occupancy
        • Tighten collection policies
        • Decrease operating expenses through improved management
        • Decrease debt service through re-financing:
          • private - institutional
      © 2011 Cambridge Consulting Group Inc.
    • Process Goals
      • Secure your “empowerment” or authority to operate
      • Institutionalize the process and procedure
        • develop a policy and procedures manual
      • Develop effective communication channels with legal, finance, accounting and senior management
      • Standardize service provider requirements and reporting formats
      • Develop exceptional marketing materials and graphics
      © 2011 Cambridge Consulting Group Inc.
    • Developing the Plan: Summary
      • Create and clarify your disposition philosophy:
        • Top priority will be given to reduce the amount of time needed to free the corporation’s capital from surplus property to redirect it to the core business of the corporation
        • However, in the effort to reduce the amount of time needed, no short-circuiting of planning, research and due diligence will occur in order to save money or get to market
        • You are the corporation’s real estate advisor : Be committed to infusing the disposition strategy and philosophy and process with your corporate knowledge. Communicate confidence in dealing with “Monday morning quarterbacks”
      © 2011 Cambridge Consulting Group Inc.
    • Developing the Plan: Summary
      • Set priorities based on a complete research analysis of the entire portfolio
        • Be results and bottom-line oriented
        • Every property is unique - do not institutionalize strategy
        • Give priority to properties where the best financial results can be achieved in the shortest period of time (80/20 rule)
        • Set your priorities in context of their effect on the entire portfolio (don’t miss the forest for the trees)
        • Communicate your goals regularly and effectively
      © 2011 Cambridge Consulting Group Inc.
    • Part II: Analyzing the Situation
      • To initiate any surplus property plan, it is necessary to complete a situation analysis. This analysis should minimally contain:
        • Understanding the strategic concerns of the corporation
        • Finance department input on the properties and their goals
        • Local market conditions and historical values
        • Physical aspects of the surplus properties
        • Environmental issues and regulations
        • Needs and circumstances of the operating unit
        • If leased, the Landlord’s circumstances and lease provisions
        • If owned, existing tenant circumstances and leases
      © 2011 Cambridge Consulting Group Inc.
    • Financial Goal Analysis
      • The goals you develop in your surplus portfolio disposition plan provide a context for analyzing the situation - property by property. Begin your situation analysis by reviewing the major goals including:
        • Cash to be generated
        • Occupancy costs to be saved or avoided
        • Tax benefits to be realized
        • Other balance sheet or income statement impacts realized
      © 2011 Cambridge Consulting Group Inc.
    • Discounted Cash Flow Analysis
      • The most important decision in any disposition analysis is the financial impact of a course of action
        • All decisions regarding inflows and outflows of cash must be brought into a present value analysis which is based on the time value of money
      • Principle:
        • A dollar received today is worth more than a dollar received in the future because of the interest you can earn in the interim
      • The “Best Approach” is a function of corporate objectives
        • Either maximize the cash inflows at a given hurdle rate
        • Or, minimize cash outflows and do all positive deals
      © 2011 Cambridge Consulting Group Inc.
    • Landlord Situation Analysis
      • Determine the Landlord type:
        • Their motivations - Risk level - Direct requirements
          • Entrepreneur
          • Entrepreneur with public money
          • Traditional institution
          • Aggressive institution
          • REIT
          • Foreign
      • Determine the owners investment type, cap rate, and ROI
      © 2011 Cambridge Consulting Group Inc.
    • Due Diligence
      • What is required?
        • All properties:
          • General
          • Accounting information
          • Environmental issues
          • Compliance issues
          • ADA
          • Title/Zoning Issues
      © 2011 Cambridge Consulting Group Inc.
    • Due Diligence
      • Leased Properties:
        • Lease information
        • Capital or Operating
        • Accounting treatment of free rent/allowances, etc..
        • Landlord consents
        • Use restrictions
        • Subtenant rights
        • Amendments, side letters, paper trail
      © 2011 Cambridge Consulting Group Inc.
    • Owned Property Goal Analysis
      • Possible transactions:
        • Convey the property as a whole
        • Lease the property
        • Conduct a sale-leaseback
        • Create a tax-deferred exchange
        • Donate the property
      © 2011 Cambridge Consulting Group Inc.
    • Owned Property Analysis
      • Goals of the Sale:
        • Closing target date: July 15
        • Net proceeds: $2,000,000
        • Net gain over book value: $200,000
      • Goals of the lease-back:
        • Closing target date: August 29
        • Cash from sale: $2,000,000
        • Change in occupancy cost: +$50,000
        • ($275,000 new lease costs - $225,000 old lease costs)
      © 2011 Cambridge Consulting Group Inc.
    • Leased Property Analysis
      • Possible transactions:
        • Re-negotiate the original lease to reduce size and expenses
        • Sublease the property
        • Assign the property
        • Negotiate a lease buy-out
        • Do nothing
        • “ Go dark”
        • Pay the entire remaining amount
      • Possible shortcomings of each alternative
      © 2011 Cambridge Consulting Group Inc.
    • Leased Property Analysis
      • Remaining lease obligation: 5 years
      • Remaining annual payments: $300,000
      • Sublease goal: $200,000 annual income
      • Termination goal: $1,000,000 payment
        • (Discount rate = 8%)
      © 2011 Cambridge Consulting Group Inc.
    • Surplus Property Analysis
      • Corporate Strategy/Priorities
        • The corporation’s priorities may include:
          • Financial vs. operational impact
          • Short-term vs. long-term impact
          • Negotiable vs. non-negotiable requirements
      © 2011 Cambridge Consulting Group Inc.
    • Owned Property with Outside Tenants
      • Some corporate properties have outside tenants in the same facility with the corporation under separate lease or ownership situations
      • Possible Transactions:
        • Sell the property
        • Move and lease the operating units space to a third party
        • Sell the property & lease back space for the operating unit
      © 2011 Cambridge Consulting Group Inc.
    • Building Situation Analysis
      • Determine if the building is profitable
      • Determine the vacancy ratio
      • Determine the velocity and turn-over in the building
      • Get a list of every tenant and determine financial strength
      • Is the tenant supply ample or poor
      • Does the building have is own brokerage
      • How much money was spent on tenant improvements
      • What deals are presently being offered by the building
      • How is the buildings competition - what are they offering
      © 2011 Cambridge Consulting Group Inc.
    • Physical Aspects Analysis
      • The property, the improvements, the characteristics and especially the location must be assessed to determine:
        • the property’s salability, leasability, or subleasability
        • necessary physical improvements or repairs that will be required to bring the property to disposition standards
        • incurable economic obsolescence - and its value effects
        • possible title defects affecting marketability
      © 2011 Cambridge Consulting Group Inc.
    • Market Evaluation
      • Local market conditions and trends will determine the financial results and timetable of each disposition. The key is to have the most accurate data to use along side the disposition specialist.
        • The primary objectives of the market evaluation are to:
          • Ascertain and validate the property’s value for the purpose of establishing asking prices and rents
            • Market rents, sublease rents, leasing terms, and improvement allowances guide the terms of a leasehold disposition
            • Appraised market value and market capitalization rates guide the terms of a fee disposition
      © 2011 Cambridge Consulting Group Inc.
    • Market Evaluation
          • Confirm or challenge targeted (or guessed) closing dates and the time period envisioned for marketing a property
            • Surplus portfolio disposition plans are strongly impacted by variations in local supply/demand conditions
          • Educate corporate management as to the economic realities surrounding the surplus disposition plan, and what results they should expect (managed expectations)
      © 2011 Cambridge Consulting Group Inc.
    • Balance Sheet and Shareholder Data
      • Tax Implications:
        • Since the disposition of surplus property can create a major tax event which your corporation may want to avoid or delay, the potential capital gain or loss which would be realized must be calculated and communicated
        • Taxable capital gain or loss is calculated by subtracting the net book value from the net proceeds of the sale
      • Price Earnings Ratio (P/E):
        • Expresses the perceived relationship between a company’s value and its earnings, as indicated by the price of the stock and the company’s earnings per share
      © 2011 Cambridge Consulting Group Inc.
      • IAS 17 – The Capitalization of All Leases
      Balance Sheet and Shareholder Data (c) 2011 Cambridge Consulting Group Inc.
    • Balance Sheet and Shareholder Data
      • Example:
        • At many companies, it is an accepted practice to apply the P/E ratio to occupancy costs eliminated by the disposal of surplus properties in order to determine the true overall financial impact to the corporation. The theory is that every dollar of savings equals a dollar of after-tax earnings.
      © 2011 Cambridge Consulting Group Inc.
    • Situation Analysis: Summary
      • Your analysis of the entire situation will provide you with the framework and the information necessary to develop alternative (as opposed to standard) transaction scenarios.
      • All portfolio and single property alternatives must be considered within the context provided by a thorough understanding of the strategic goals and financial concerns of the corporation.
      • The needs and goals of senior management must be completely understood as well as the tactical needs of each affected business unit.
      © 2011 Cambridge Consulting Group Inc.
    • Part III: Evaluating Alternatives
      • After analyzing the situation, you are in a position to evaluate and compare alternative disposition scenarios. The evaluation of alternatives requires:
        • Knowledge of the mechanics of all alternatives
        • Ability to analyze the financial aspects of all alternatives
        • Ability to assess how the time value of money affects the financial results of the alternatives
        • Ability to apply relevant decision-making criteria to alternatives in order to identify the optimum strategy
      © 2011 Cambridge Consulting Group Inc.
    • Decision Modeling
      • Focusing on obtaining the optimal financial outcome does not necessarily mean getting the highest price for the property, but rather achieving the best results in terms of earnings and balance sheet effects
      • Financial evaluation of dispositions can be reduced to the “Three T’s”:
        • Timing : of the closing
        • Terms : of the transaction
        • Type : of transaction
      © 2011 Cambridge Consulting Group Inc.
    • Disposition Decision Model SITUATION ANALYSIS CIRCUMSTANCES FINANCIAL EVALUATION OF ALTERNATIVES Timing Terms Type Financial model for transaction type Best financial scenario NON-FINANCIAL EVALUATION OF ALTERNATIVES Feasibility Strategic compatibility Risk SELECTION OF ALTERNATIVES © 2011 Cambridge Consulting Group Inc.
    • Disposition Decision Model
      • As the decision model suggests, conclusions drawn from the situation analysis provide the context for strategy development. The next step is to “crunch the numbers” for various combinations of the “Three T’s” using a financial model appropriate to the transaction.
      • At this point, the alternatives must be compared with respect to:
        • Risk involved
        • Likelihood that events will happen as planned
        • The corporation’s priorities
      © 2011 Cambridge Consulting Group Inc.
    • Financial Modeling
      • Financial models enable the disposition manager to estimate the financial impacts of various transactions.
      • To identify the financial effects of a possible disposition, measurable consideration must be given to:
        • Earnings saved by elimination of lease or owning costs
        • Capital gain or loss incurred on the disposition of the property
        • One-time costs required to complete the disposition
        • The combined impact of the above
      © 2011 Cambridge Consulting Group Inc.
    • Financial Impact Models for Dispositions
      • Case Illustration
      • Operating Expense Elimination
      • Capital Gain/Loss from Disposition
      • Cost of Disposition
      • Net Impact on Earnings
      • Summary
      © 2011 Cambridge Consulting Group Inc.
    • Financial Impact Model
      • A corporation owns a building that has become surplus.
        • The current corporate tenants will be relocated for $50,000
        • The building has a net book value of $700,000
        • Annual carrying costs are $125,000
      • The corporation leases additional parking next to the building.
        • The lease has 5 years remaining on the term
        • The annual rental payments are $ 25,000
      • The building is sold for $1,000,000.
        • Commissions and closing costs are $75,000
      • The CRE manager negotiates a buyout of the lease for $100,000.
        • The brokerage commission is $25,000
      • The corporate tax rate is 35%.
      © 2011 Cambridge Consulting Group Inc.
    • Financial Impact Model
      • Section 1: Operating Expense Elimination
      • 1. Discount rate: 7%
      • 2. Net Lease/own expense eliminated by year:
      • Year 1: ________________
      • Year 2: ________________
      • Year 3: ________________
      • Year 4: ________________
      • Year 5: ________________
      • 3. PV total @ 7%: ________________
      • 4. Total pre-tax lease/own exp. eliminated: ________________
      • 5. Tax effect (35%): ________________
      • 6. After-tax lease/own expense eliminated:
      © 2011 Cambridge Consulting Group Inc.
    • Financial Impact Model
      • Section 2: Capital Gain/Loss from Disposition
      • 1. Sale price: __________
      • 2. Sale expenses: __________
      • 3. Net proceeds: __________
      • 4. Net book value of asset: __________
      • 5. Pre-tax gain/loss: __________
      • 6. Tax effect: __________
      • 7. After-tax capital gain/loss: __________
      © 2011 Cambridge Consulting Group Inc.
    • Financial Impact Model
      • Section 3: Cost of Disposition
      • 1. Applicable relocation costs: __________
      • 2. Lease buyout: __________
      • 3. Closing costs & commission: __________
      • 4. Marketing expense: __________
      • 5. Other: __________
      • 6. Total cost of disposition: __________
      • 7. Tax effect: __________
      • 8. After-tax cost of disposition: __________
      © 2011 Cambridge Consulting Group Inc.
    • Financial Impact Model
      • Section 4: Net Impact on Earnings
      • 1. Operating expense eliminated: __________
      • 2. Capital gain/loss on disposition: __________
      • 3. Cost of disposition: __________
      • 4. Net impact on corporate earnings: __________
      • 5. Shares outstanding: 5,000,000
      • 6. Earnings impact per share: __________
      © 2011 Cambridge Consulting Group Inc.
    • Lease Dispositions
      • Sublease
        • Remain as obligor
        • Middleman effect
          • Alterations
          • Repairs
          • Consents
          • Removal at end of term
          • Holdover
          • Insurance
          • Continuos operation
        • Approval process
        • Profit potential
        • Ramifications of each
      © 2011 Cambridge Consulting Group Inc.
    • Lease Dispositions
      • What are Favorable Conditions to Sublease?
        • Very positive market conditions
        • “ Sandwich Lease” possible
        • Space is marketable (conforming use)
        • Quality subtenants available
        • Corporation is willing and has capacity to manage space
        • Remaining lease term is long enough to recover improvement and transaction costs
      © 2011 Cambridge Consulting Group Inc.
    • Lease Dispositions
      • Assignment:
        • In an assignment, the tenant (assignor) transfers the entirety of their leasehold obligations to a replacement tenant (assignee)
        • The assignee becomes primarily responsible for the rental obligation
        • The assignor is STILL secondarily responsible
        • The assignor does not make income from a “sandwich lease”
        • Ramifications of each
      © 2011 Cambridge Consulting Group Inc.
    • Lease Dispositions
      • What are favorable conditions for Assignment?
        • Very positive market conditions
        • Space is marketable (conforming use)
        • Quality subtenants available
        • If qualifies to release financial reserves
      © 2011 Cambridge Consulting Group Inc.
    • Lease Dispositions
      • Lease Terminations
        • Eliminates obligation
        • Highest cost alternative
        • No risk
        • No commission
        • No management time needed
        • No time delay
        • Ramifications of each
      © 2011 Cambridge Consulting Group Inc.
    • Lease Dispositions
      • What are the favorable conditions for a Lease Termination?
        • Remaining term is too short to justify the costs and effort to find a subtenant or assignee
        • Leasing market is strong
        • Market rents are rising above the present contract rent
        • Landlord bases value on cost of re-letting versus rent
        • Corporate finance prefers to recognize (rather than defer) capital gain or loss - materiality
      © 2011 Cambridge Consulting Group Inc.
    • Fee Dispositions
      • As-Is Sale
        • Favorable Conditions:
          • Company : wants immediate disposition
          • Property : marketable condition and location
          • Financial : no compelling reason for capital infusion; expense coverage to retain occupants
          • Market : sufficient demand for type of space
          • Timeframe : immediate and short-term
          • General : no obvious financial return for rehabilitation or re-positioning
      © 2011 Cambridge Consulting Group Inc.
      • Lockdown and Sell
        • Favorable Conditions:
          • Company : stop the support, unload at any cost
          • Property : poor condition; no foreseeable return for added improvement
          • Financial : expenses of operating do not justify rent or continued use
          • Market : poor
          • Timeframe : undeterminable; poor present prospects
      Fee Dispositions © 2011 Cambridge Consulting Group Inc.
    • Fee Dispositions
      • Improve and Sell
        • Favorable Conditions:
          • Company : willing to invest capital; optimize net proceeds
          • Property : competitive property; needs some work, but has obvious potential for increased rents
          • Financial : promising return for investment in terms of rent or tenant type
          • Market : improvement will place property in market conforming use
          • Timeframe : long-term, flexible
      © 2011 Cambridge Consulting Group Inc.
    • Fee Dispositions
      • Lease-Up and Sell
        • Favorable Conditions:
          • Company : desires maximum asset return; willing to invest capital; willing to manage
          • Property : competitive property; strong potential for increases in occupancy and rent rates
          • Financial : capital available for marketing and improvements; existing rents provide good expense coverage - possibly a return
          • Market : favorable leasing conditions
          • Timeframe : long-term
      © 2011 Cambridge Consulting Group Inc.
    • Fee Dispositions
      • Auction
        • Types:
          • Absolute
          • Minimum Bid
          • Minimum Bid with Reserve Price
        • Favorable Conditions:
          • Company : wants out; net proceeds not as critical as deadline; prefer as-is sales to leasing or upgrade
          • Property : similar to other auctioned properties
          • Financial : not a pivotal factor
          • Market : weak leasing and selling conditions
          • Timeframe : near-term
          • General : unpredictability
      © 2011 Cambridge Consulting Group Inc.
    • Exchange (Section 1031)
      • An exchange is a tax-deferrable transaction by which a seller trades one property for another “like-kind” investment. If the transaction is in accordance to IRS rules - capital gain is not realized as a taxable event. Instead, the gain is transferred to the other exchange property.
        • Favorable Conditions:
          • Company : desiring disposition but willing to make a qualifying investment in interim
          • Property : generic use
          • Financial : significant gains tax exposure
          • Market : strong or weak
          • Timeframe : near-term
          • General : unpredictability - complicated
      © 2011 Cambridge Consulting Group Inc.
    • Gifting
        • Favorable Conditions:
          • Company : opportunity to recover tax loss - produce goodwill
          • Property : not easy to dispose of by other means
          • Financial : book values loss not a factor; company desires tax benefit
          • Market : available donee organization
          • Timeframe : near-term
      © 2011 Cambridge Consulting Group Inc.
    • Ground Lease
      • Favorable Conditions:
          • Company : amenable to long-term role as property investor; may need land in future
          • Property : under-utilized and developable; marketable location for future use
          • Financial : provides income stream
          • Market : increasing highest and best use near location; growth area
          • Timeframe : long-term
      © 2011 Cambridge Consulting Group Inc.
    • Sale-Leaseback
      • Favorable Conditions:
          • Company : can use cash; still needs use of property
          • Property : continues to suit company needs
          • Financial : provides cash infusion, realize a capital tax benefit, reduced risk (?), possible leasehold deductions (?)
          • Market : not pivotal
          • Timeframe : long-term
      © 2011 Cambridge Consulting Group Inc.
    • Non-Financial Evaluation
      • It is important to communicate three components of the financial comparison of alternatives to senior management.
      $ Value Saved Gain/Loss Cash Spent © 2011 Cambridge Consulting Group Inc.
    • Non-Financial Evaluation
      • Feasibility
        • Expediency vs. transaction value
      • Strategic compatibility
        • Sublease for income vs. terminate at high cash outlay
      © 2011 Cambridge Consulting Group Inc.
    • Risk
        • Renter’s ability to pay
        • Market Conditions
        • Physical and Environmental Conditions
        • Business Conditions
        • Competitors
        • Adverse Public Relations
      © 2011 Cambridge Consulting Group Inc.
    • Evaluating Alternatives: Summary
      • From the financial perspective, the “Three T’s” need to be seriously considered:
        • Is the timing right taking into consideration the time value of money?
        • Is the type of transaction appropriate for the situation?
        • Are the terms of the transaction appropriate for the situation?
      © 2011 Cambridge Consulting Group Inc.
    • Summary
      • What are the results of the four-part financial analysis?
        • Expenses eliminated
        • After tax capital gain or loss
        • After tax cost of cash outlays to complete the disposition
        • Combined impact of the above
          • Net impact on earnings
          • Earnings impact per share
      © 2011 Cambridge Consulting Group Inc.
    • Summary
      • There are three non-financial factors to be considered in evaluating alternatives:
        • Is it feasible?
        • Is it consistent with the corporation’s strategic priorities and with the overall surplus disposition?
        • What are the risks?
      © 2011 Cambridge Consulting Group Inc.
    • Marketing Surplus Property
      • Marketing Objectives and Forecast
        • It must be consistent with corporate strategy for dispositions
        • It should incorporate understanding of the data you collected and due diligence as part of the situation analysis
        • It should incorporate understanding of the data you collected as part of the financial and non-financial analysis
        • The objectives you develop for a property should state the expectations for financial outcome, closing data, necessary resources and costs, and type of transaction
      © 2011 Cambridge Consulting Group Inc.
    • Developing the Marketing Strategy
      • The marketing strategy answers the following questions
        • What are the benefits and selling points of the property?
        • What type of buyer or tenant will purchase or lease the property?
        • What are their buyer values?
        • How will the segment be reached?
        • How will the selling message be packaged and delivered?
        • Who will do the work?
        • How much will the marketing effort cost?
      © 2011 Cambridge Consulting Group Inc.
    • Property Benefits and Selling Points
      • The situation analysis assessed the property, the tenants, and the market. That assessment should reveal the property’s strengths and weaknesses. These strengths become selling themes of the marketing plan.
      • A selling theme shows how a targeted buyer or lessee can benefit from the property through understanding their buyer values.
      • Can an “artificial market” be created to serve a sense of urgency and greed in the market?
      © 2011 Cambridge Consulting Group Inc.
    • Selling Themes
      • Examples of property strengths that might become selling themes:
        • Virtues of the location
        • Positive trends in the area
        • Quality of the available space
        • Amenities of the facility or area
        • Infrastructure of the market
        • Economics of occupancy
        • Space availability declining
      © 2011 Cambridge Consulting Group Inc.
    • Matching the Property Profile to Buyer Values
      • Developing a profile of the most probable prospects and their buyer values for the surplus property is a critical part of successful marketing.
        • What type of user wants the space?
        • What does this type of user value in their space?
        • Does the user have a sense of urgency?
        • What is the user’s likely business?
        • How large is the company likely to be?
        • Where are the located?
      © 2011 Cambridge Consulting Group Inc.
    • Reaching the Market
      • There are two general methods:
        • Selling Activity:
          • Phone calls
          • Door to door sales
          • Open houses
          • Presentations
          • Special events
          • Entertaining
      © 2011 Cambridge Consulting Group Inc.
    • Reaching the Market
      • Promotional activity:
        • Direct mail
        • Flyering
        • Trade publication ads
        • Classified ads
        • Open houses
        • Property brochure handouts
        • Press releases
        • Signage
      © 2011 Cambridge Consulting Group Inc.
    • Marketing Mix
      • Complex properties
      • Portfolios
      • Specialized usage
      • Broad vs. targeted markets
      • Scheduling
      • Property Promotion Package
      © 2011 Cambridge Consulting Group Inc.
    • Marketing Budget
      • Brokerage commission
      • Promotional fees
      • Payroll allocations for staff time
      • Environmental audits
      • Legal expenses for document review and consultation
      • Physical improvements - cleaning
      • Appraisals
      • Inspections
      • Averages between 10 and 20% including the commission
      © 2011 Cambridge Consulting Group Inc.
    • The Disposition Team
      • Who should do the work? (who should not?)
      • How should the work be divided?
      • How should the players be compensated?
      • Potential Team:
        • Internal
        • Consultant
        • Local Brokerage
        • National Brokerage
      © 2011 Cambridge Consulting Group Inc.
    • The Disposition Team
      • Who should do the work?
        • Prioritizing
        • Developing Financial Goals
        • Developing Process Goals
        • Financial Analysis
        • Due Diligence
        • Market Evaluation
        • Decision Modeling
        • Financial Modeling
        • Management Presentation
      © 2011 Cambridge Consulting Group Inc.
    • The Disposition Team
      • Team member strengths and weaknesses
      • Motivation of each member
      • Qualification of each member
      • Past training and processes
      • What information should be received from each member?
      • What action should be expected from each member?
        • Internal
        • Consultant
        • Local Brokerage
        • National Brokerage
      © 2011 Cambridge Consulting Group Inc.
    • Screening and Selecting a Service Provider
      • The best service provider in a market is the one most likely to satisfy the unique requirements of your situation. How do you find this person and company?
        • Technical expertise of dispositions
        • Track record for dispositions
        • Percent disposition activity to acquisitions
        • Present obligations and accounts
      • Does size matter?
        • Locally, Nationally , previous work, or expertise?
      © 2011 Cambridge Consulting Group Inc.
    • Client-Service Provider Relationship
      • The listing or consulting agreement establishes the legal and financial relationship between client and service provider. A listing agreement specifies:
        • The service provider’s responsibilities
        • The service provider’s fiduciary relationship to the principal
        • The principal party’s authorization
        • The compensation and what constitutes earned compensation
        • The expiration date
      © 2011 Cambridge Consulting Group Inc.
    • Identifying Service Provider Responsibilities
      • Clarification is key:
        • Marketing and direct selling: what will be done, by whom, when?
        • Activity documentation
        • Reporting responsibilities: level of detail, schedule, format
        • Marketing expenses: who pays for what, approvals, monitoring
        • Qualifying authority: can service provider de-select prospects?
        • Negotiations: parameters, service provider authority
        • Performance assessments: who and when
        • Post contract responsibilities: who is responsible for what?
      © 2011 Cambridge Consulting Group Inc.
    • Managing the Marketing Process
      • The corporate real estate executive has the most strategic role in the disposition process. Their actions determine the success or failure of any disposition program.
      • Developing the process flow chart
        • To develop the deadlines - view the process backwards from closing to inception
        • Be prepared to change strategies - several times!
      © 2011 Cambridge Consulting Group Inc.
    • Marketing Surplus Property: Summary
      • The first step in developing a marketing plan is to:
        • Define the objectives and forecast
        • Identify corporate goals with regard to financial outcomes, time frames, transaction types, terms, and the overall budget
        • Set the marketing strategy:
          • Identify the property's benefits
          • Use this analysis to target prospects or buyer types
          • Develop the marketing process for promotional and selling campaigns
      © 2011 Cambridge Consulting Group Inc.
    • Presentations to Senior Management
      • Know what senior management cares about and wants to see
      • At the approval stage, develop your presentation in terms of how your recommendation measures against the corporation’s objectives
      • Don’t waste time and facts or opinions that no one in the room except you may care about - Be Focused!
      © 2011 Cambridge Consulting Group Inc.
    • Presentations to Senior Management
      • Generally, senior management wants to know how the transaction will affect:
        • The reserve
        • Earnings (quarterly and annually)
        • The balance sheet
        • The budget
      © 2011 Cambridge Consulting Group Inc.
    • Presentations to Senior Management
      • Is senior management truly ready for this process?
        • There is a reversal of roles since the acquisition:
          • Strength to weakness
      • Should you as a corporate manager negotiate directly?
        • You represent money to the landlord
        • The landlord is honor bound to refuse ANY offer you make
      • Will local brokerage “fight”a landlord on your behalf?
        • They must remain in the local market with the landlord
        • They will have to continue to attempt to earn commissions from that landlord
      © 2011 Cambridge Consulting Group Inc.
    • Presentations to Senior Management
      • Know the “hot buttons” of senior management.
      • Hot buttons typically include:
        • Reducing occupancy expense from a prior period
        • Get the property completely off the books
        • Maximize sale proceeds to cover some carrying costs of the remaining portfolio
      © 2011 Cambridge Consulting Group Inc.
    • Presentations to Senior Management
      • Use Corporate Language!
        • Covert cost per square foot to total annual dollar costs, or total dollar costs over the lease term (discounted)
        • Be cautious about terms such as “stops”, “pass-through’s”, “TI’s”, or “loss factors”
        • Use common corporate measures such as “percent change”, “favorable variance”, and “dollars as a percent of sales”
        • Discuss book value versus market value of assets
        • Convert proceeds from the disposition into contribution to earnings , earnings per share, and shareholder value (the P/E ratio).
      © 2011 Cambridge Consulting Group Inc.
    • Presentations to Senior Management
      • Present assumptions when forecasting impacts
        • Market conditions and trends
        • methods and numbers used to calculate capitalized figures, after-tax figures, and discounted figures GIVE SENIOR MANAGEMENT THE REPORT - THE WAY THEY WANT IT!
      © 2011 Cambridge Consulting Group Inc.
    • Closing the Transaction: Summary
      • Have a strategy in place for obtaining approvals
        • Make sure you know exactly which approvals are required and how to get them
        • Don’t OVER approve each item
        • In presenting recommendations, provide the information the company cares about in the form the company expects to receive it
      • Communicate thoroughly and clearly with the appropriate people at the right times, both inside and outside the corporation
      © 2011 Cambridge Consulting Group Inc.
    • “ The trouble with the future is that it usually arrives before we are ready for it” Arnold H. Glason © 2011 Cambridge Consulting Group Inc.
    • The True Cost of Subleasing
      • Owners consider the full value of your lease only the contract rent
      • Therefore, 35% of our obligation is overlooked in negotiations
      • A sublease or new tenant costs the Owner up to $35 per square foot to engage
      Owners usually only concern themselves with Contract Rent © 2011 Cambridge Consulting Group Inc.
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    • © 2011 Cambridge Consulting Group Inc.
    • Effect of Over-pricing your Sublease Brokers asking Rent Value of Rent to Market $10 $6 $8 © 2011 Cambridge Consulting Group Inc.
    • Effect of Lower-pricing your Sublease Value of Rent to Market Lower asking Rent Preserved Value $6 © 2011 Cambridge Consulting Group Inc.