Looking forward Featured

7:00pm EDT November 25, 2007

Though strategic planning for your 2008 corporate real estate needs should already be completed, now’s the time to consider retaining a professional consultant year-round.

“Because there is so much to know about commercial real estate, many companies just do not have the expertise internally,” says Kevin McGovern, Senior Vice President for Grubb & Ellis Company. “Utilizing a broker throughout the year will provide a company an outsourced consultant and, in most cases, for no additional cost to the company because the transactional fees alone are usually enough to provide ongoing services.”

Smart Business talked to McGovern about advanced planning for real estate needs.

When is the best time to evaluate real estate needs?

The simple answer is all the time, but it’s not a very practical answer. Companies should examine where they have been and then determine the best way to get where they are going. The easiest time to do this is during the fourth quarter or when planning next year’s budget.

Who is in charge of real estate decisions?

Typically, it is the CEO or CFO for local or regional firms. Fortune 1000 companies, or companies of similar size, are large enough to absorb the salary for a director of real estate or even an entire real estate department. In any case, a company will want to have a real estate professional, either internally or outsourced, adhering to the company’s needs year-round — even outside of the planning period.

What specific services can a real estate consultant offer?

It really makes no sense for a company to use a real estate broker for a specific transaction only, whereas the company can use the same broker to advise them on a much broader level. For example, most tenants don’t know that a broker can help them analyze the operating expense reconciliation reports that come from their landlord every March or April. The broker can help you determine if something needs further investigating and then guide you through an audit of the landlord’s books. This, of course, is possible only if you negotiated within your lease for the right to do so — which is what a good consultant would ensure.

A real estate broker typically gets paid a commission based on results, and it is primarily the result of a transaction closing. A better and more intelligent path is for a company to utilize this broker year-round as part of the services that come from representing the client during the transaction.

Can a company really include an outsider in its strategic planning meetings?

You shouldn’t release your most valuable trade secrets to an outsourced team member; you still have to use common sense. But you should involve a real estate professional frequently and consistently.

If your current adviser is not capable of this kind of service, then start taking the phone calls from the dozens who call you every week. Interview them and decide on the right fit for your company. It will ultimately increase your profit and provide you more time to focus on your core business.

What information should a company share with a new consultant?

A good consultant will have many different options and ideas, so take the time to explain the needs of your firm or business. By knowing a client’s strengths, weaknesses, opportunities and threats, a broker/consultant will be able to strategically position the company to function within all of your given parameters. And intelligent creativity during a lease negotiation will provide you flexibility when you need it most.

What might a real estate broker/consultant advise during strategic planning?

Real estate runs in cycles, yet many tenants continually sign their new lease at the top of the market. Though you will not always transact a lease at the absolute bottom, you still want to have a consultant monitor the market on your behalf. When the time is right, the consultant will advise the appropriate action, even if it was not on your current agenda.

Opportunity does not always wait. If a building’s rental rates are at or near an all-time high, chances are there will be better days ahead for you to do a long-term lease. But don’t be afraid to do a long-term lease when the market dips down, as long as your long-term business is sound.

Also, a good consultant can help analyze whether it is better to own or lease real property. Many data components given to the consultant from the client and from the market are plugged into a financial model that addresses objective and subjective concerns.

KEVIN MCGOVERN, SIOR, CCIM, is a Senior Vice President, Transaction Services Group with Grubb & Ellis Company in Dallas. Reach him at kevin.mcgovern@grubb-ellis.com or (972) 450-3239.