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Keystone Strategies—Understanding the credit crisis, its impact on your real estate, and ways to create opportunity

By: Donald M. Hause
Managing Director
dhause@keystonenewengland.com

The crisis on wall street is affecting every business and every individual. Companies now more than ever need to increase flexibility while decreasing expenses in order to maintain profitability. Real estate expenses can greatly affect a company’s performance and given they are typically fixed, how can a company actually take advantage of this unstable global economy?

Understand, qualify, and quantify the value of your tenancy
The credit value that any company brings to the real estate it occupies is one of the most important factors when negotiating a new lease, selling a business, or selling owned real estate. Yet, in most instances companies and their advisors do not understand their positions in the capital markets and how to appropriately leverage that position. Today, where the global economy continues to shift dramatically, your company’s financial position and value change in parallel.

Restructuring your lease
The owner’s debt and equity position in a building will determine how flexible they can be in terms of restructuring your lease. If the owner has lower leverage (i.e. more “cash” in a property), flexible loan covenants, or the ability to refinance, then you may be able to restructure your lease, lower your expenses, and extend your term. However, if the owner is not in a position to alter the cash flow on a building by changing the terms of your lease, the key will be to find a new source of capital that can readjust your terms. Again the first step in the process is to understand how much value your company brings to the building and then determine your current owner’s financial objectives or constraints. With those pieces of the puzzle in hand, an opportunity to restructure a lease that will actually benefit all parties can be created.

Selling your owned real estate
If you are considering a sale-leaseback of your facility, again the first step is to understand how your credit will affect a new buyers ability to finance the property. This will undamentally
affect the value, and number of potential buyers that can actually acquire the property. In addition, the terms of the lease itself including many nuances such as lease security, will absolutely determine the value of the asset. It is also critical in these instances to structure a lease which is as “credit worthy” as possible, but that also matches the business objectives of your company. You need to perform a cost benefit analysis which weighs the impact of the sale with the impact on the business and your objectives for the future.

Click HERE to download the PDF.