CFO Intelligence Magazine – Winter 2024

Tani Fukui

Macroeconomist, Director, MetLife Investement Management 

CFO Intelligence Magazine – Winter 2024

Andrew Zezas

Real Estate Stategies Corporation, Strategist and CEO 

When businesses go through a transformation — reconfiguring their operations for greater growth and efficiency, for a current or potential M&A, or to drive returns for stakeholders — real estate assets often play a significant role, notes Andrew Zezas, Strategist & CEO of Real Estate Strategies Corporation, a New Jersey-based corporate real estate advisory and transaction services firm. During any transformation effort, companies that are advised by expert real estate strategists can better achieve operating and financial efficiencies, and position themselves for greater growth.

“Your company’s opportunities may vary, depending on the status of the assets, so a strategic first step will involve reviewing and categorizing your real estate,” he says. “Outside of bankruptcy, an experienced strategic real estate advisor can assist in determining how owned facilities may be refinanced, sold, leased in total or in part to third parties, or positioned to generate revenue. And in the case of a company that is emerging from bankruptcy, a court-appointed trustee will frequently collaborate with transaction experts to position real estate assets to enhance the company’s operating efficiencies, so the company will emerge as a stronger entity.”

OWNED FACILITIES

According to Zezas, a company that owns its facilities should seek to deploy them in a way that promotes financial efficiency. If your company owns the assets outright, securing corporate financing or commercial mortgage debt may present opportunities to generate cash. However, today’s relatively high interest rates, and the foundational reasons for the company’s transformation, may reduce the attractiveness of that option. In contrast, a sale-leaseback could represent a better opportunity to monetize the assets.”

“Consider though, that such a sale-leaseback will be contingent on securing a purchaser-investor who is comfortable with the cash flow generated by the assets, and the creditworthiness of the tenant-occupants. In the alternative, your company may wish to consider converting the property to a condominium ownership, and selling portions to one or more third parties.”

Some companies may not need to occupy all of their space, and may consider leasing some or all of the vacant portions to third parties. “Once that is accomplished, your company can either capture the rental stream or offer the property for sale to a third party, and then lease back any space that your company may wish to retain,” observes Zezas.

Companies that own and occupy real estate may simply wish to drive operating efficiencies and retain the assets. If they need retain occupancy of all of their current space, “the best course may be to review the real estate assets and determine the ROI gained by modifying them to make the facilities more functionally efficient,” he advises. “Or, if a review demonstrates that is not needed, consider reducing your footprint and leasing the extra space to one or more third parties.”

LEASED FACILITIES

Some corporate executives believe leasing is more flexible then ownership, but Zezas disagrees, “If a company owns real estate, it can modify or sell the real estate,” he notes. “If a company leases real estate, it may have to retain the property until lease expiration and may be limited in its ability to perform lease modifications.