Very few companies view their real estate as a profit center. In the coming year, new FASB rules regarding accounting for leases should highlight your approach to utilizing real estate. Here are three ways companies can potentially profit from properties.
The Flexibility Premium:
Short term leases with short term renewal options give companies flexibility to adjust to changing markets or external forces.
Recent studies have shown that many companies rarely take advantage of the flexibility they value so much.
There is a significant value difference between a short term and long term lease. A corporate tenant can capture some of that value in the form of lower rent or capital improvements by better leveraging the value of its credit.
The Build to Suit Lease:
It’s one of the most effective ways to add new locations.
Developers with credit worthy, long term tenants can flip properties at 25% to 50% gains, to investors (not tenants).
A corporate tenant can execute the lease directly with the investor at the lower cost of capital, saving significant amounts, every year for the life of the lease.
Own vs. Lease:
Pending FASB changes to lease accounting will prompt companies to revisit the lease vs. buy decision.
Companies who sign leases and stay well beyond the initial term are often paying off the Landlord’s mortgage and more.
Under the new FASB rules, companies who routinely sign fifteen year leases on properties may see a significant net income advantage by investigating alternative ownership structures.
Jackson Cross Partners has developed a Corporate Asset Management Platform to help companies focus on making real estate a more profitable part of the bottom line.