According to the U.S. Chamber of Commerce, companies have paid out an estimated $70 billion on more than 700,000 asbestos injury claims, making it the most expensive type of litigation in U.S. history. Rife with fraud and abuse, the asbestos litigation system is clogged with questionable lawsuits.
“You may be struck by the tenuous nature of the connection to asbestos, but it may nevertheless be real,” says Timothy Batton, partner at Secrest Wardle. “Size is no deterrent: Fortune 500 companies to mom-andpop hardware stores have been sued.”
Smart Business spoke with Batton about asbestos liability reform, who can be sued due to the presence of asbestos and how to proceed in the event that a claim is filed.
What should businesses know about asbestos liability reform?
It is important to realize that changes have been jurisdictional and incremental. On a national level, all manner of reform has been attempted, including individual non-bankruptcy class settlements. However, the U.S. Supreme Court overturned a class settlement in 1999. This decision made it much more difficult to obtain approvals of such settlements in a nonbankruptcy setting. Before that decision, companies with significant exposure to asbestos cases nationwide had to consider bankruptcy in order to put the cases behind them.
In response to the burden that litigation was perceived to be imposing on businesses, Congress has repeatedly attempted to get involved to find a solution. This has usually involved the establishment of some sort of national trust fund that would be designed to compensate each claimant according to preset criteria. However, the proposed plans have not been passed into law. With the failure of national reform, individual states and jurisdictions have taken center stage.
How has the landscape of asbestos litigation in Michigan changed in recent years?
Within the last several years, there has been an attempt to convince the Michigan Supreme Court to impose so-called inactive dockets. Asbestos cases can be divided into two categories: asbestotic and those involving cancer. Under these inactive dockets the asbestotic cases, which are typically the least injured plaintiffs and account for nearly 95 percent of the docket, would be rendered inactive. They would remain so until the more serious cancer cases have been resolved. Such a plan shifts the risk of bankruptcy and exhaustion of funds to the less injured plaintiffs. Although some states have adopted this approach, it has not been approved in Michigan.
More recently, the Michigan Supreme Court has imposed an ‘anti-bundling’ rule, which prevents trial judges from ordering more than one case to trial simultaneously. Previously, several cases could be tried at once, which translated to increased costs and risk for defendants.
Who can be sued due to the presence of asbestos?
The types of companies who find themselves sued by asbestos claimants have broadened considerably since the litigation’s inception. At first, the defendants were the major asbestos insulation manufacturers. With bankruptcies and global settlements, those have gone away. This has caused plaintiff attorneys to be very creative in finding and targeting new classes of defendants. They can now include manufacturers of all types of asbestos insulation or parts, including valves, pumps, floor tiles, ceiling tiles, fans, automobile parts and all types of construction materials. Any type of contractor who worked with asbestos can be sued, whether the contractor was involved in construction, repair or maintenance. If your premises contained asbestos, nonemployees who worked or visited there may sue you.
In the event that a claim is filed, how should one proceed?
If your company receives an asbestos personal injury lawsuit, it is important that you retain an attorney skilled in this area of the law. It is vital that you select someone with experience in the jurisdiction in which you are sued and who is familiar with local plaintiff counsel. The complaint will probably not have much information and may not even notify you of what products your firm is allegedly associated with or the form of the alleged liability. It will be important to perform a full review of company history, operations and records to determine what, if any, historical relationship to asbestos existed. Your attorney should be closely involved in this review and be adept at identifying paths of asbestos exposures of which you may not be aware.
It is usually not desirable to seek an early settlement. For individual cases, the possible settlement amounts can be deceivingly low. However, entering into those types of settlements can mark you as willing to settle, motivating plaintiff attorneys to sue you in many more cases, leading to an exponential increase in costs and making it more difficult to extricate you later. Attention then should be paid to retaining and developing records that will support a defense to the claim(s), while your attorney seeks methods of curtailing the filing of new cases.
TIMOTHY BATTON is a partner at Secrest Wardle. Reach him at (248) 539-2823 or firstname.lastname@example.org.
The U.S. dollar has surged as investors, wary of the stock market’s extreme volatility, have flocked to the relative safety of U.S. Treasuries. In some respects, a strong dollar adversely impacts the U.S. economy: It increases the trade deficit while weakening exports and eroding the competitiveness of American-made goods.
However, some entities stand to benefit from the strengthening dollar.
“American importers, consumers buying foreign goods, corporations making capital investment in overseas ventures and American vacationers traveling overseas can all benefit from a stronger dollar,” says Gary Loe, vice president, foreign exchange at Comerica Bank.
Smart Business spoke with Loe about the dollar’s rise, its implications on the global economy and his prediction for how the dollar will fare in 2009.
Why has the dollar strengthened against major currencies?
This past summer, beginning with the global credit/financial crisis, we experienced a ‘flight to quality’ effect. As equity markets around the world have been battered, many investors sought the safety of U.S. Treasuries to protect their money. As investors from around the world reevaluate their risk tolerance, they buy dollars in order to purchase U.S. Treasuries, which are very liquid and have low default risk, backed by the power of the U.S. government.
The world started a global economic race to the bottom in 2008. The world economy has been heading toward a global recession with the U.S. in the lead. The first to reach the bottom should be the first to bounce back. Problems are not just contained within the U.S., as evidenced in Germany. Europe’s largest economy is at a 15-year low in consumer confidence, and the spillover in the credit crunch has already reached Asia. Many believe that the U.S. government has helped steer us away from a deep depression. The U.S. can act quicker to get to an eventual recovery as opposed to Europe where many countries are needed to come together for action.
How has the stock market’s recent volatility affected foreign exchange?
The market has experienced extreme volatility with a downside trend. We have had thousand-point swings in a day in the Dow. We have had 10 percent swings in a day in the dollar against hard currencies like the euro, British pound and Australian dollar. It’s not just the U.S. stock markets that are volatile and weak, as seen in the S&P 500, currently down about 45 percent this year. London’s FTSE index and Tokyo’s Nikkei 300 index are down about the same. The biggest effect the volatility has had in foreign exchange is the increased bid/ask spreads and diminished liquidity with tighter credit standards.
Is a strong dollar good for the United States?
Usually, the word ‘strong’ is perceived as a positive feature, but when it comes to a country’s economy, it may not be in its best interest. Some say a strong dollar helps accelerate growth. Growth will attract foreign capital and boost our stock market. This leads to increased production, consumer spending and an expanding economy. However, there are many negative ramifications. It tends to widen the trade deficit as we purchase more imported goods. This increase has its detriments as it erodes overall growth, hurts GDP and weakens the economy. It will also hurt corporate profits of global companies as foreigners will have to pay more for U.S. goods. The dollar should act as a self-correcting mechanism as a stronger dollar leads to a weaker one and vice versa.
How do foreign central banks tend to react when the dollar rises?
Central bankers in export-driven economies, such as Japan, would tend to do nothing as it would allow growth in the export sectors. However, if I am a central banker where my currency is devaluing at a pace that needs defending, I would raise my interest rates to defend it. This should attract flows into my currency, therefore stopping the depreciation. Malaysia’s central bank froze its currency in the 1997 Asian financial crisis when facing steep depreciation by cutting off all market players.
Where do you see the dollar heading over the course of 2009?
Through the beginning, we will still be watching for weak global equity markets and weak commodity prices and bracing for possibly the biggest economic slowdown since World War I. As investors flee from chancier bets and more deleveraging takes place in the credit world, this will give further room for boosts in the U.S. dollar. Take advantage of any further dollar strength at the beginning of 2009. Once our government’s actions in stimulating the economy and getting our credit situation back in check take effect, look for the dollar to start weakening again, which I predict will happen later in 2009. Fundamentals are bound to return. At the forefront will be renewed talk about America’s huge ‘twin deficits,’ budget and trade. In addition, all the printing of money that has, and will, occur to help us out of our current financial and economic crisis will turn inflationary, which will erode the value of the dollar.
GARY LOE is vice president, foreign exchange at Comerica Bank. Reach him at (800) 318-9062 or email@example.com.
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that provides protection against the loss of insured deposits. On Oct. 3, President Bush signed the Emergency Economic Stabilization Act of 2008. This legislation temporarily increases FDIC deposit insurance from $100,000 to $250,000 per depositor through Dec. 31, 2009.
“Businesses will enjoy the same coverage that individuals enjoy: $250,000 coverage and possibly unlimited non-interest bearing DDA (demand deposit account) coverage,” says Susan Lepore, first vice president of Compliance of MB Financial Bank in Chicago.
Smart Business spoke with Lepore about the recent financial crisis, what changes have been made to FDIC insurance coverage and how these modifications affect businesses.
In what ways has the recent financial crisis impacted the banking system?
In the liquidity area, there has been greater competition for deposits, which has made retail consumer and business deposits much more expensive. The reason there has been more competition is that large money center banks that had other sources of funding have experienced disruption in access to those sources. As a result they have moved a higher percentage of their funding to consumer and commercial deposits as opposed to wholesale funds once more readily available from institutional investors.
What specific changes have been made to the FDIC insurance coverage?
Very early in the crisis the FDIC expanded coverage to $250,000 per depositor and may cover even more than $250,000 at one insured bank if you own deposit accounts in different ownership categories. In mid-October, the FDIC announced a temporary liquidity program that extends unlimited coverage for non-interest bearing DDAs. The way this works is all banks were in the program through December 5th. If banks chose to opt out of the program, they had to send notice to the FDIC by December 5th. If banks did not opt out, they are in the program through December 2009, and their customers have unlimited DDA coverage through that date. There will be a list maintained, and banks will have to prominently display whether or not they are in the program. This will make it easy for customers to determine if they have unlimited non-interest bearing DDA insurance coverage at a particular bank.
What does the expanded FDIC insurance coverage mean for businesses?
The expanded coverage might cause businesses to rethink how they structure their bank accounts. In the past, many companies maintained a certain amount of balances in a DDA. Balances above a target level were swept into a customer repurchase liability account, which was collateralized — much like a deposit account that pays interest — by either investment securities or loans. This enabled a business to earn interest on excess balances. With the enhanced DDA coverage and the current very low interest rate environment, some companies are keeping much higher balances in their DDA since they can be fully insured under the temporary program until Dec. 31, 2009.
Do rules governing the accounts of businesses differ from those of personal accounts?
The most significant difference is that corporations cannot have deposits in interest-bearing DDAs. Companies, as well as consumers, are permitted to hold interest bearing money market accounts, although they are limited in the number of transactions they can have on a monthly basis.
What strategies should companies who maintain more than $250,000 on deposit use to minimize the risk of losing money?
There are three things companies can do. First, if a business is extremely risk averse, it can keep all of its balances in a non-interest bearing DDA at an FDIC insured institution that is participating in the Transaction Account Guarantee Program, which would provide unlimited FDIC insurance coverage at a participating bank. If the business wants to earn some interest, it can sweep excess balances over a certain level to a customer repurchase liability account, which would be collateralized with either investments or loans.
Finally, companies can participate in the Certificate of Deposit Account Registry System (CDARS) program. This program allows member banks with certificates of deposit customers to extend FDIC insurance coverage to as much as $50 million. Basically, you can put very large balances in this type of account and the coverage gets aggregated among several banks, which allows customers to have much higher FDIC insurance coverage limits. This program is also available for consumers.
SUSAN LEPORE is the first vice president of Compliance of MB Financial Bank in Chicago. She can be reached at (847) 653-1771 or firstname.lastname@example.org.
One of the biggest mistakes that companies make when searching for a suitable industrial facility is waiting too long to start the process. The closer you are to your lease expiration date or purchase of a new facility, the less leverage you will have with your landlord. Even if you wish to stay in your existing location, considering all possible alternatives is a must. Properly evaluating alternatives requires a strategic plan with a qualified adviser.
“I would suggest the process begin anywhere between nine and 18 months in advance of the targeted occupancy date. This timeline varies based on the complexity of the deal,” says Ed Lampitt, vice president and principal for Colliers Turley Martin Tucker.
Smart Business spoke with Lampitt about industrial real estate, the importance of a supply chain analysis and how to find a quality tenant representative.
What is the current environment for industrial real estate like in the St. Louis area?
2008 can be wrapped up in one word: uncertainty. In short, everyone is uncertain about how the election and oil prices will impact the economy. Corporate America is struggling to forecast future real estate requirements and real estate investors are concerned about the changes in the capital markets. All of the uncertainty in the economy is slowing things down. It is like trying to punch someone under water. As hard as you try, you can’t generate any momentum. All that being said, St. Louis has performed very well, with more than 1.7 million square feet of positive absorption through the first half of 2008.
What factors make capturing prime industrial space so difficult?
Construction pricing is a real problem. The overall price of construction is increasing at historical rates. Contractors and their suppliers are having a hard time holding numbers for more than 30 days. This makes it very difficult to forecast what deal you’re going to be able to make.
It is important to find a building as close to what you need as possible so changes to the space are minimized.
Another factor is fuel pricing. Companies are continuously analyzing how transportation costs are affecting their supply chains, how this will affect where their facilities are located and, ultimately, how they’re going to serve their customers.
Why is it important to develop a strategic real estate plan when searching for a suitable location?
It starts long before you start searching for an actual building. Corporations are spending more time on the front end analyzing the entire supply chain, not just one portion of it. You can not evaluate facilities in a vacuum. Manufacturing, transportation, inventory control and facilities are part of one discussion. Large corporations have been doing this for a while. The trend we are seeing now is advanced supply chain analysis with small and mid-sized companies. Everybody is trying to better understand what is happening in transportation in order to help determine where they should locate their facilities. Anymore, transportation is 50 to 60 percent of the decision-making process.
Once you get to the real estate portion, timing is so important. For instance, if you have your plan in place, you can look at a build-to-suit rather than just taking speculative space. This will provide you with more options, more flexibility and better economic terms.
What is the biggest mistake companies make as far as lease renewals go?
The biggest mistake is when a company renews without scouring the market to make sure it is getting a favorable market deal. This holds true even if you are not expanding, don’t feel a need to move, or don’t want to spend extra money to set up a new operation. It is important that the market thinks you are willing to move to drive the best economics.
Also, sometimes companies base their decisions on what they are currently paying and that is often a mistake. Typically the market has changed since their last lease expiration. That is where market information becomes so vital. It is strongly encouraged that companies engage a brokerage company to help understand how they compare to the market.
How should a company go about finding a quality tenant rep?
Time and time again, I am amazed companies rarely go through the interview process when selecting a broker. This is one of the most important decisions a company can make and it should take the time to evaluate who its adviser should be. Interview a couple of referred companies (or brokers) and let the best team win.
Lastly, instead of hiring just a broker, companies are hiring firms that can provide additional services. Often, real savings can be achieved in state economic incentives, construction management, supply chain services, etc. Considerable time and money can be saved in arenas outside the actual real estate negotiation. Remember, companies, at most, move every five to 10 years; tenant reps do it every day.
ED LAMPITT is a vice president and principal at Colliers Turley Martin Tucker. Reach him at (314) 746-0383 or email@example.com.
Currently, one of the few bright spots in the flagging U.S. economy is exporting, says Cassie Stiles, first vice president of international trade services for Comerica Bank.
“Trade is driving our small, but positive, economic growth,” she says. “In 2007, exports represented 12 percent of America’s gross domestic product. So far this year, exports have expanded by 18 percent, which is on top of a 12 percent growth in 2007.”
To further encourage global trade and assist exporters, the U.S. Commercial Service provides a number of offerings designed to help small and medium-sized businesses expand into international sales.
Smart Business spoke with Stiles about the U.S. Commercial Service, the services it provides and how a company can secure export financing.
What is the U.S. Commercial Service?
The U.S. Commercial Service is the trade promotion arm of the U.S. Department of Commerce’s International Trade Administration (ITA), which helps to create economic opportunity for American workers and businesses. To increase trade and investment, ITA helps U.S. companies navigate foreign markets. They help educate companies about how to tailor their activities to a specific market with respect to their product slate, financing, marketing, assembly and logistics. In 2007 alone, the U.S. Commercial Service counseled 25,000 U.S. companies. This counseling facilitated exports worth $21 billion and helped create or retain 275,000 jobs in the United States.
What type of assistance does the U.S. Commercial Service provide to exporters?
The U.S. Commercial Service has trade specialists located in 107 U.S. cities, including San Diego, and in more than 80 countries. They work with companies just getting started in exporting as well as assist companies with increasing their sales to new global markets. Their services include world-class market research, trade events that promote a company’s product or service to qualified buyers, introductions to buyers and distributors as well as counseling and advocacy through every step of the export process.
Probably the most popular service offered is the Gold Key service. Prescreened appointments with buyers and distributors are arranged by the trade specialist before an exporter arrives in a specific country. Additionally, help with travel, accommodations, interpreter services and clerical support are also part of the service.
How does the U.S. Commercial Service build awareness of exporting opportunities?
The U.S. Commercial Service expanded the U.S. export base through innovative government-private sector partnerships. By using each other’s organization, databases and global/regional networks, they are able to reach as many small and medium-sized enterprises (SMEs) as possible. Under the Partnership Program, seminars are co-sponsored to support the domestic and international marketing efforts of these SMEs. Topics range from ‘Export Basics 101’ to market- or industry-specific topics. A popular alternative to the seminar is the webinar a seminar conducted on the Internet and telephone. This can reach participants all over the country and allow access to industry specialists located globally. Finally, trade missions are an excellent way for SMEs to cost effectively visit specific countries and meet with pre-screened business opportunities.
How can a company secure export financing?
An important component for companies expanding into exporting is financing. At Comerica Bank, we work with our clients to provide trade cycle financing that is, financing that starts at the pre-export stage and continues all the way through the collection cycle. Two programs that have been very helpful to exporters are loan guarantees offered by the Export-Import Bank of the United States (Ex-Im Bank) and the Small Business Administration (SBA). U.S. exporters can obtain short-term working capital loans that are guaranteed by either Ex-Im Bank or the SBA. The loan proceeds can be used to purchase finished products for export or to pay for raw materials, labor and overhead to produce goods for export.
What other options are available?
Since exporters are selling globally, they need to consider how they differentiate themselves from the competition. Two ways of achieving this are to offer competitive terms and to price in the local currency . Both of these have additional risk for the exporter, but they can be mitigated by using export credit insurance and hedging strategies.
While cash in advance is great if you can get it, many exporters find that they need to offer terms to their foreign buyers. Export credit insurance policies protect against both the political and commercial risks of a foreign buyer defaulting on payment. In addition to the risk mitigation, insured receivables can be used to obtain bank financing.
To eliminate foreign exchange risk, an exporter can sell the foreign currency for delivery at a future date through a forward contract. This is called hedging and allows for the company to lock in a rate, hence assuring the company of a certain profit margin. Subsequent changes in rates will not affect the company’s profit margin.
CASSIE STILES is first vice president of international trade services for Comerica Bank. Reach her at firstname.lastname@example.org or (619) 652-5774. Comerica Bank has entered into a formal partnership with the U.S. Commercial Service to expand the outreach to more potential exporters.
When renewing a lease, getting a quality tenant rep involved early can pay huge dividends, according to Piers Pritchard, senior associate, and Jay Holland, senior vice president and principal, both of Colliers Turley Martin Tucker.
“Your landlord is in the real estate business; brokers level the playing field,” Pritchard says. “Brokers provide expertise so you can concentrate on your core business.”
Smart Business spoke with Pritchard and Holland about what services tenant reps provide, the importance of making contact early and what types of savings can be realized.
What benefit does a quality tenant rep bring to the table?
A quality tenant rep provides a broad spectrum of services. It’s not as simple as just showing buildings there is a wide array of knowledge that is necessary for every aspect of a transaction. This includes accurate and up-to-date market information, construction expertise and a detailed knowledge of lease documents. In addition to identifying properties and providing expertise in the negotiation process, a good tenant rep will provide a comprehensive financial analysis that allows their clients to compare alternatives on an ‘apples to apples’ basis. By utilizing the services of a quality tenant rep, a company can reduce occupancy costs, increase profitability, mitigate lease risks and minimize time invested. A quality tenant rep will also interview architects on behalf of tenants. If a tenant is going to move or renovate its existing space, it will need an architect to design the space. A good tenant rep interviews architects and negotiates architectural contracts at no charge.
How can a tenant rep help a company gain leverage during the negotiation process?
When negotiating, it’s critical to have as much leverage as possible. When conducting real estate negotiations you gain leverage through a number of factors. Some of those include using market comparables knowing what other deals the landlord has done, what the market dictates, what the landlord acquired the building for, upcoming lease expirations and if the owner has any intentions on selling the building. All of these factors affect a lease renewal and good brokers will use this information to gain leverage with a landlord, whether it’s an existing landlord or potential relocation.
At what point should a company contact a tenant rep?
The lead time necessary is dependent on the size of the tenant. The largest tenants need to engage a tenant rep several years prior to lease expiration so new construction can be considered. For smaller tenants, it’s important to contact a tenant rep at least 12 to 18 months prior to a lease renewal for several reasons. One, the lease renewal/relocation process, when done properly, simply takes that much time. Secondly, and more importantly, in order to properly assess all of a client’s options it’s imperative to review, explore and negotiate any relocation options before a tenant hits renewal option dates.
Typically, tenants will have the option to renew their lease with an option time between 6 and 12 months before the lease expires. It’s important that market research is completed before that option date, because if it’s not, you’re exposed to your existing landlord. Tenants that pass through renewal options are often treated differently than those with options as their ‘parachute.’ Landlords can stick tenants with above market deals simply because the tenant does not have enough time to move. Being ahead of the curve is critical.
What types of cost savings can be realized by utilizing a tenant rep?
There are two types of savings, quantitative and qualitative. Quantitative savings include how much you lowered the rent, how much the construction allowance was increased, and how much free rent a tenant received.
Perhaps even more significant and where a good broker can drive value are the qualitative items, which are more difficult to measure. That’s where you really see the benefit of having a strong tenant rep. Items in leases like renewal option language, operating expense caps and exclusions, termination and expansion options, white-box definitions, subletting rights and code compliance are hard to quantify upfront because you can’t associate a dollar value to them. But over a three-, five- or 10-year period whatever your lease might be you are certainly going to have to reference the lease for certain items. Qualitative items are hard to identify upfront, but often provide the biggest benefit in the long run.
What questions should be asked when meeting with a prospective tenant rep?
First, make sure the rep has adequate experience with similar types of tenants and transactions in the market. Secondly, ask a prospective tenant rep to answer the most important questions upfront, including: Specifically how are you going to save me money? How are you going to reduce my occupancy costs and increase my company’s profitability? What do you know about my building and landlord? Every good broker should think from the landlords’ perspective. What keeps them up at night? What specific issues are they having in the building? Are there other tenants with leases expiring in the near future? Are there tenants moving out? If there is a tenant moving out, the landlord will be more sensitive to your lease they’re already losing one tenant and certainly don’t want to lose another.
PIERS PRITCHARD, senior associate, and JAY HOLLAND, senior vice president and principal, are both of Colliers Turley Martin Tucker. Reach Pritchard at (314) 236-5477 or email@example.com. Reach Holland at (314) 236-5446 or firstname.lastname@example.org.
When making a real estate purchase, many details must be scrutinized. Failing to exercise proper care and planning prior to the completion of a transaction can be potentially catastrophic. That’s where due diligence comes into play.
Independently verifying all representations made by a prospective seller and uncovering relevant information that has not been disclosed but is important to the buyer can help you avoid expensive mistakes.
“Due diligence is a buyer’s investigation of an income-producing property during the sale process,” explains Marla Maloney, a senior vice president and principal with Colliers Turley Martin Tucker.
Smart Business spoke with Maloney about due diligence, common mistakes made during the process and the importance of a strong team of professionals.
How do you make the most of due diligence?
It is important to complete the physical inspection early in the process to ensure there is adequate time for inspectors to submit their reporting. If there is additional research that needs to take place, a structured timeline will allow the buyer to dig deeper. It is also important to manage the documentation flow so that there is time to review the materials.
How long does the due diligence process usually last?
Typically, the buyer and seller agree to a 30-day period. If the buyer finds significant deferred maintenance, if there is a hiccup with financing or if the seller is not diligent in handing over applicable materials leases, surveys, the last elevator inspection, contracts that are placed on the property for services, etc. the buyer will likely ask for an extension to have time to analyze and review the documentation as it relates to the property’s commitment.
What are some common mistakes that are made during the process?
There is so much exposure for buyers if they don’t fully understand the implications of code compliance and deferred maintenance. Let’s say a space has been vacant for a number of years. The previous tenant might not have been required to have a sprinkler system, but now it is mandatory. Maybe the building only has risers, it doesn’t have sprinklers on that floor, so the previous owner could have gotten away with it. However, if the code has evolved the new owner may no longer be grandfathered and may not be reflecting that cost in its pro forma, which could significantly affect the deal.
Sometimes, buyers assume unnecessary liabilities by failing to utilize professionals to complete their inspections. For example, a garage consultant should be hired to do core samplings of the parking garage. In the Midwest, there is a lot of deterioration of parking structures from deferred maintenance because of salt and chemicals that penetrate through the membrane into the actual structure of the garage. Perhaps on the outside it looks physically sound, but it could have a significant amount of deferred maintenance that will require the parking garage to be out of service for an extended period of time.
What type of research should be conducted in regards to current tenants?
It is important to examine leases and rent rolls as well as the payment history and creditworthiness of the existing tenants. It is a good idea to interview current tenants because you want to make sure they are happy and you can learn a lot about their future plans. A tenant may say it loves the building and its space, but the building is 100 percent leased and it is a growing company, so when the lease expires in two years, it will need an additional 10,000 square feet. The writing seems to be on the wall that the tenant will be relocating so you need to note this in your pro forma.
How can a company benefit from professionals when going through the due diligence process?
The benefits far outweigh the costs. Professionals understand and are aware of building codes. If you are engaging professionals, they can mitigate potential cost and help you understand the risks involved with the property.
Who should be on the professional team?
A real estate professional will act as a fiduciary on your behalf. An attorney will pore over the leases and identify the commitments that have previously been made to tenants. Due diligence includes an analysis of the incoming revenue stream. A tenant may be paying $22 per square foot in years one through three of its term, and in year four, the rent may go down. Without an attorney physically going through the documents this might have been overlooked. Also, in most cases, an environmental consultant, garage structural engineer, electrical engineer, mechanical engineer, surveyor, insurance broker and appraiser should be involved.
MARLA MALONEY is a senior vice president and principal at Colliers Turley Martin Tucker. Reach her at email@example.com or (314) 746-0342.
When handled properly, debt consolidation can provide significant assistance in avoiding a crushing debt load. By consolidating a number of different loans, interest rates can be reduced. Convenience is another major draw of consolidation loans. Rather than pay numerous creditors who are charging varied interest rates at different times of the month, you can take out one loan and pay off all of your accounts.
Prior to exploring the possibility of securing a consolidated loan, however, it is important to evaluate your financial position with the help of a CPA. “The first and most critical thing is to have clean and accurate financial statements in order to make a rational decision,” says Rodney Fingleson, chairman of Gumbiner Savett Inc.
Smart Business spoke with Fingleson about debt consolidation, the importance of clean financial statements and what type of debt-to-equity ratio lenders want.
How does the debt consolidation process work?
It is generally a transfer of loans from different lending institutions to consolidate into one particular loan. Many of our clients have their charge cards as liabilities on their corporate balance sheets. They use their American Express, Visa or Mastercard; they use every kind of loan possible to finance their operation. This is extremely expensive, so what we try to do is take all of these loans, bundle them up into one package and have a financial institution consolidate the loan at a much lower rate, provided the company is making a profit.
What are the pros and cons of debt consolidation?
The biggest pro is that you can consolidate to a much cheaper rate. For example, many business owners have debt that is responsible for a whole slew of interest charges. Consolidation will generally eliminate those high charges into a much lower amount. Another pro is that a move toward consolidation helps to save bookkeepers time; rather than spending hours and hours each month reconciling every single account, they can get financial statements to the owners much quicker.
The con is that you have to be careful of the promises that are made to you by debt consolidation companies. It is important to find out which ones are the true lenders. Oftentimes, people get caught up with introductory rates to change their debt and find out much later on that they are in a worse position. One has to watch out for these hard money loans and people who promise to take care of everything when, in reality, the situation only becomes worse.
What factors should be considered when evaluating whether or not to consolidate debt?
The most important thing is that you have to have clean financial statements in order to make a decision. If the books and records of a company are not updated, it is very difficult to analyze a full balance sheet. It is crucial to have up-to-date financials in order to make a proper decision as to when to consolidate and when not to consolidate.
How often should financial records be updated and what specific components are lenders most interested in?
Monthly financial statements should be done between two to three weeks after the month ends. Financial institutions are looking at current ratios and debt ratios to see how a company is performing. Their main concern is debt to equity and whether the company is highly leveraged in the debt area.
Generally, banks are looking at a 5-to-1 or less debt-to-equity ratio. When you cross over this ratio, banks get highly nervous. A great company will have approximately a 3-1 ratio. If the leverage becomes higher than 5-to-1, you will have a rea problem especially in today’s lending market to try and consolidate your debt. A company with a ratio greater than 5-to-1 will pay a much higher rate of interest. The risk factor to the lender is much higher so, in order to bring down your interest charge, it is important to reduce your debt-to-equity ratio.
How should one conduct a search for a firm that specializes in debt consolidation?
The most important thing is to ask your CPA to analyze your balance sheet so he or she can provide you with some answers. Accountants should be aware of the potential benefits that can be derived from debt consolidation and let their clients know on a monthly basis if it makes sense for them.
At our firm, we have clients fax us their monthly financial statements so we can review them and see if there is anything that stands out. If we see anything out of the ordinary or out of balance, we call the client. It is very important to be proactive, and the best person to help you do this is your CPA.
RODNEY FINGLESON is chairman of Gumbiner Savett Inc. Reach him at (800) 989-9798 or firstname.lastname@example.org.
Allowing a disruptive or poor-performing employee to remain on staff will only create a hindrance toward meeting business objectives. If handled improperly, however, giving notice of termination can result in a wrongful discharge claim. Prior to terminating an employee, it is important to conduct a fair and comprehensive investigation.
“Terminations should occur only after thorough investigation and in conjunction with established principles and procedures within the company,” says James Bradley, an executive partner at Secrest Wardle.
Smart Business learned more from Bradley about how companies can best protect themselves from wrongful discharge claims and the importance of management setting a good example.
What are the most common types of wrongful discharge claims?
Some of the more common wrongful discharge claims in Michigan are brought pursuant to the Elliot-Larsen Civil Rights Act. These claims may allege constructive discharge based upon harassing conduct associated with race, gender, age or national origin, but they may also be based upon improper retaliatory discharge such as whistleblower-type conduct, wherein employees are terminated for raising concerns with management about improper conduct by other employees. Often they will include allegations of both improper conduct and wrongful discharge, and claims brought under this act may also subject an offending party and the employer to the payment of not only damages but also additional sanctions, such as attorney fees.
Other claims may be founded in alleged violations of conduct outlined in employee office manuals, such as smoking, taking drugs or other activities banned pursuant to established company policy.
How can companies protect themselves against wrongful discharge claims?
First, have a well-documented company policy in place that outlines employment expectations and job responsibilities as well as unacceptable employee behavior. This manual should be updated regularly, and employees should be thoroughly trained on what the policies are and how the policies will be enforced.
Second, insert a signature page into the employee manual that each employee must sign. By signing this page and returning it to the personnel office prior to beginning work, the employee signifies not only his or her understanding of what constitutes unacceptable behavior but also what the ramifications will be for violation of those policies.
Third, remember that every termination of an employee is an invitation to a wrongful termination claim. Terminate each employee with the expectation that a lawsuit could ensue. Disciplinary actions should, in most cases, be progressive, well-documented and fully discussed with the employee. Witnesses to the offending behavior should be identified in the company personnel files, along with any tangible evidence of the violation. The penalty imposed should also be outlined in the file, along with reference to any prior conduct of this nature.
How should a company communicate its policies to employees?
In well-published, strictly enforced directives from the highest levels of the business. While it is important to have policies against sexual and other forms of harassment well documented in employee manuals, it is equally important that they be adhered to at all levels of management. In many ways, businesses are like families. In fact, statistics show that other than your family, you will spend more time at work than in any other social setting.
Why is it so important for management to set the tone in regards to appropriate behavior?
First, because it is the right thing to do, and secondly, because it can save your business the needless loss of productivity and money spent defending litigation. Businesses do not exist in a vacuum. They act through their employees. Likewise, their exposure for the acts of their employees depends in many cases upon how fast and in what way(s) management reacts to the behavioral issues of its employees. If management is accommodating of bad behavior, or worse yet, complicit in the acts, it may expose itself to additional liability to a claimant for allowing injurious behavior to continue. Damages in harassment cases are often a function of not only what the offensive behavior was but how long the harassment was allowed to continue and what steps management took to abrogate the offending behavior.
How should a harassment complaint be handled?
With compassion, understanding and seriousness. Always remember that this issue is important to the claimant who is feeling wronged in some way. By taking the allegations seriously and investigating the allegations thoroughly, businesses demonstrate to the complainant and their other employees that harassment is a serious issue within the company and that it will not be tolerated.
JAMES BRADLEY is an executive partner at Secrest Wardle. Reach him at (517) 886-9024 or email@example.com.
The market’s recent turbulence signals the need to revisit short-term cash investments. Not long ago, investors were flocking to high-yield instruments. Now the pendulum has swung back in favor of less risky strategies. Successful liquidity management involves striking a balance between retaining accessibility to cash and earning predictable income from excess funds.
“Organizations need to understand what their cash needs are to determine how active or passive they want to be with their investments,” says Scott Horan, Vice President and Group Product Manager for Treasury Management at PNC Bank.
Smart Business spoke with Horan about the different types of liquidity, how the investment approach varies for each type and how to best strike a balance between risk and return when making short-term investments.
How has recent market turmoil affected how organizations manage their short-term cash?
When you look at what clients were investing in six months to a year ago, there was a lot of talk about higher yielding instruments, such as enhanced cash funds, cash plus funds and auction rate securities. However, auction rate securities had problems in that they were no longer considered cash equivalents. And enhanced cash funds and cash plus funds have had their liquidity problems. In response, clients that were the most aggressive have generally backed up one level on the risk scale.
The other thing that we’ve seen clients do is reorder their short-term cash investment criteria. It used to be that No. 1 was return, liquidity was a distant second and safety a very distant third. Now the order has been completely reversed: No. 1 is safety, No. 2 is liquidity and No. 3 is return. People are more concerned about the return of their money than the return on their money.
What are the different types of liquidity, and how does each investment approach vary?
There are primarily three different types of short-term cash: operating cash, reserve cash and strategic cash. Operating cash is not very predictable and tends to be what a client has in his or her checking account or in very short-term investments. Usually, with this type of cash, investments are pretty conservative and somewhat passive. Reserve cash is the amount of cash outside of operating cash that a client always wants to have on hand. For example, clients may know they need $1 million on hand in cash from an operating perspective, but they never want to be below $5 million because they want a little bit of cushion, or reserve. Typically, reserve cash is kept close to hand but may be directed to short, liquid investments like a money market mutual fund. Strategic cash tends to be longer term but not normally out past a year. Perhaps you have a certain amount of cash that you know you’re going to use to buy a building or equipment. You don’t want that cash to sit idle, so in this kind of situation you might be willing to lock up the cash in order to get a better rate of return.
What are some typical investment options for short-term cash?
There are three broad categories to choose from when investing short-term cash. The first category is individual-type securities, such as Treasuries, U.S. Government agency bonds, variable-rate demand notes, auction rate securities and commercial paper. The second type is a pooled investment, such as a money market mutual fund. With this option, the risk is diversified and you receive a blended return. The third type of category is bank liabilities. This includes bank repurchase agreements, bank time deposits, including certificates of deposits, and bank money market deposit accounts.
How can a business strike a balance between risk and return with short-term investments?
It is important to document your investment guidelines and policies. We talked earlier about return, liquidity and safety. An organization needs to determine what is most important to it. By understanding how to manage these three criteria and understanding the investments themselves, a company can effectively balance risk and return.
In the current environment, what steps should a company take to re-evaluate its short-term cash position?
If a company has already established its investment guidelines and policies, it should revisit them. If this information isn’t documented yet, it is important to start the process. This includes defining desired maturities, comparing current investments, understanding the ratings of the investments and examining diversification within the portfolio. These steps help to ensure that an organization’s investments are appropriate. <<
This article was prepared for general information purposes only. The information set forth herein does not constitute legal, tax or accounting advice. You should obtain such advice from your own counsel or accountant. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Opinions expressed herein are subject to change without notice. Bank deposit accounts are provided by PNC Bank, National Association and PNC Bank, Delaware, which are Member FDIC. Certain non-deposit investments are not insured or guaranteed by the FDIC or other government agency, are not deposits or other obligations of, or guaranteed or endorsed by, any bank and may lose value. © 2008 The PNC Financial Services Group, Inc. All rights reserved.
SCOTT HORAN is Vice President and Group Product Manager for Treasury Management at PNC. Reach him at (412) 768-9910 or firstname.lastname@example.org.