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March 12, 2015

Corporate real estate directors are constantly challenged to balance the opportunities in a dynamic capital markets environment with the operational and financial goals of their company.

While certain companies have stayed the course and continued with an ownership or leasing strategy driven by long standing financial policies, others have implemented proactive strategies for selected properties, such as sale-leasebacks of owned assets or acquisitions of short term leased assets, to take advantage of the current capital markets environment that is defined by an asymmetric risk reward relationship between lease term and value.

Many of these financial decisions have historically been driven by chief financial officers and treasurers. Over the last five years, we have seen corporate real estate directors take a more active role in surfacing these opportunities and evaluating the various economic, financial accounting and tax consequences in order to recommend structures that best match up with the company’s operating and financial strategies.

JLL focuses on the spectrum of decision criteria forvevaluating ownership versus lease decisions for both portfolios andvindividual property transactions, and the potential benefits of alternative leasing structures and sale-leaseback transactions in it’s paper,
A tenant’s guide for evaluating ownership versus lease decisions.

It is essential for corporate real estate directors to clearly understand the philosophies and objectives of the senior finance team within the organization, in addition to the operational objectives of the company as a whole and its different business units. Guidelines are commonly established for ownership versus leasing decisions, but operations and finance may have differing viewpoints as to the most critical criteria.

The following are the primary considerations that should be addressed in a collective manner by the organization to establish its guidelines and seek an efficient process for making decisions.

Lower occupancy costs

  • Reduce vacancy
  • Rationalize capital expenditures
  • Maintain efficient facilities
  • Lower P&L “run rate”

Shift long-term residual risks

  • Facilities that may no longer be core to business
  • Facilities at risk of becoming functionally obsolete

Capital needs

  • Opportunistic capital redeployment in growth areas
  • Reinvest in core real estate assets
  • Repurchase company stock

Are you still not sure what’s the best decision for your business? Download the full paper

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