Sarah Schwartz

There’s much more to business travel than simply buying an airline ticket, renting a car and staying in a hotel. Especially now, with travel costs expected to increase 10 to 12 percent over the next 12 months, says Rob Turk, the executive vice president of Professional Travel Inc.

“Travel typically represents the third largest controllable expense that a company has behind payroll and IT,” Turk says. “However, many companies don’t properly manage it. They need to create strategies to overcome and adapt to its escalating costs.”

Smart Business spoke to Turk about what companies should pay attention to in order to rein in their travel expenses and positively affect their bottom lines.

How can companies manage rising travel costs in today’s economy?

Companies have to develop a consistently communicated travel policy. This will provide the framework and foundation of expected travel behavior as far as utilizing certain providers and certain suppliers. Many companies also provide per diems for guidance as to the types of hotels employees should book or cars they should rent.

A key issue today is the managed utilization of unused nonrefundable tickets. Failure to do so creates thousands of dollars of loss, as organizations have a significant investment in these types of purchases. On average, there are three changes made to each booking, so when travelers make changes, many times the original purchased ticket has to be reused. So you have a credit of an unused nonrefundable ticket; how do companies manage those credits? To address this, establish a database of unused tickets, which should be managed by your travel management partner. The process of utilization can be quite complex because different carriers have different policies with several variables, for example, how long after purchase you can utilize those credits.

How does a business know when its travel needs to be formally managed?

There isn’t really a benchmark of expense, like you need a policy if you spend more than $50,000 a year. Simply, companies with traveling employees should have a managed process. You can’t manage what you can’t measure, so it’s key to measure travel expenses and both monitor and manage travel activity. One way to do this is with a pretrip approval process. It’s trip justification; the employee says, ‘I need to travel here for this benefit for the company. Here’s my estimated costs; is it approved?’

What risks do companies face if they don’t closely manage travel?

After the events of Sept. 11, businesses recognized that they needed to know where their people are at all times from a risk management perspective. If they allow their traveling employees to buy from various sources, there’s no centralized database of where people are. There are also risks associated with personal buying decisions. The challenge is that air, hotel and car suppliers all market loyalty programs to the traveler. So what has to be managed is whether travelers are buying in their own best interests or those of the organization. A third party can ensure that the traveler is comfortable and being provided the right supplier at the right cost, while the organization has supporting data that the decisions complied with policy.

Can an outside party be expensive?

Travel purchasing should be managed at the micro level just like any other high-cost purchase a company makes. Yet some companies think, ‘We’ll just do it ourselves; using a travel management company will cost more.’ However, statistics show managed travel processes can generate annual savings to an organization of 15 to 18 percent, while travel management fees generally only represent 2 to 3 percent of total travel spending. As a result, 96 percent of Fortune 1,000 companies utilize the services of an outsourced travel management company. It makes sense: You’re aggregating purchasing, you’re driving purchasing to select preferred suppliers, your people are following the guidelines of an established travel policy, and the firm you selected provides travel advocacy and updates you of changes within the industry and how to best take advantage of them.

There’s probably not a more volatile industry that exists from a standpoint of day-to-day changes, so you should have a travel expert monitoring it who will provide that daily information to you and your staff as to what to expect while traveling.

Many organizations try to maximize employee productivity, yet they expect employees to also become travel agents. How that fits or doesn’t fit into their other responsibilities and the cost of that productivity also needs to be factored into a decision of retaining a travel management company. Travel is recognized to be the most personal business service that employees use. It affects the framework of people’s lives because it takes them away from home and families, and so decisions associated with it are very important. The cost risks of nonmanagement far outweigh the minimal costs associated with hiring a travel management company.

Most companies are focused on return on investment. In this case, it includes the education of the traveler and the necessary communication between senior management and travelers. Only then can organizations reach the next level and begin examining areas like meetings management, international travel complexities, preferred vendor contracts and best practice benchmarks.

ROB TURK is the executive vice president of Professional Travel Inc. Reach him at (440) 734-8800 x4029 or robt@protrav.com.

Thursday, 25 June 2009 20:00

The business of travel

There’s much more to business travel than simply buying an airline ticket, renting a car and staying in a hotel. Especially now, with travel costs expected to increase 10 to 12 percent over the next 12 months, says Rob Turk, the executive vice president of Professional Travel.

“Travel typically represents the third largest controllable expense that a company has behind payroll and IT,” Turk says. “However, many companies don’t properly manage it. They need to create strategies to overcome and adapt to its escalating costs.”

Smart Business spoke to Turk about what companies should pay attention to in order to rein in their travel expenses and positively affect their bottom lines.

How can companies manage rising travel costs in today’s economy?

Companies have to develop a consistently communicated travel policy. This will provide the framework and foundation of expected travel behavior as far as utilizing certain providers and certain suppliers. Many companies also provide per diems for guidance as to the types of hotels employees should book or cars they should rent.

A key issue today is the managed utilization of unused nonrefundable tickets. Failure to do so creates thousands of dollars of loss, as organizations have a significant investment in these types of purchases. On average, there are three changes made to each booking, so when travelers make changes, many times the original purchased ticket has to be reused. So you have a credit of an unused nonrefundable ticket; how do companies manage those credits? To address this, establish a database of unused tickets, which should be managed by your travel management partner. The process of utilization can be quite complex because different carriers have different policies with several variables, for example, how long after purchase you can utilize those credits.

How does a business know when its travel needs to be formally managed?

There isn’t really a benchmark of expense, like you need a policy if you spend more than $50,000 a year. Simply, companies with traveling employees should have a managed process. You can’t manage what you can’t measure, so it’s key to measure travel expenses and both monitor and manage travel activity. One way to do this is with a pretrip approval process. It’s trip justification; the employee says, ‘I need to travel here for this benefit for the company. Here’s my estimated costs, is it approved?’

What risks do companies face if they don’t closely manage travel?

After the events of Sept. 11, businesses recognized that they needed to know where their people are at all times from a risk management perspective. If they allow their traveling employees to buy from various sources, there’s no centralized database of where people are. There are also risks associated with personal buying decisions. The challenge is that air, hotel and car suppliers all market loyalty programs to the traveler. So what has to be managed is whether travelers are buying in their own best interests or those of the organization. A third party can ensure that the traveler is comfortable and being provided the right supplier at the right cost, while the organization has supporting data that the decisions complied with policy.

Can an outside party be expensive?

Travel purchasing should be managed at the micro level just like any other high cost purchase a company makes. Yet some companies think, ‘We’ll just do it ourselves; using a travel management company will cost more.’ However, statistics show managed travel processes can generate annual savings to an organization of 15 to 18 percent, while travel management fees generally only represent 2 to 3 percent of total travel spending. As a result, 96 percent of Fortune 1,000 companies utilize the services of an outsourced travel management company. It makes sense: You’re aggregating purchasing, you’re driving purchasing to select preferred suppliers, your people are following the guidelines of an established travel policy, and the firm you selected provides travel advocacy and updates you of changes within the industry and how to best take advantage of them.

There’s probably not a more volatile industry that exists from a standpoint of day-to-day changes, so you should have a travel expert monitoring it who will provide that daily information to you and your staff as to what to expect while traveling.

Many organizations try to maximize employee productivity, yet they expect employees to also become travel agents. How that fits or doesn’t fit into their other responsibilities and the cost of that productivity also needs to be factored into a decision of retaining a travel management company. Travel is recognized to be the most personal business service that employees use, it affects the framework of people’s lives because it takes them away from home and families, and so decisions associated with it are very important.

The cost risks of nonmanagement far outweigh the minimal costs associated with hiring a travel management company.

Most companies are focused on return on investment. In this case, it includes the education of the traveler and the necessary communication between senior management and travelers. Only then can organizations reach the next level and begin examining areas like meetings management, international travel complexities, preferred vendor contracts and best practice benchmarks.

Sunday, 26 October 2008 20:00

International travel

International travel brings a bevy of challenges the domestic traveler never faces. When a corporation sends its employees out of the U. S., it is liable for their safety and must be able to locate them quickly, especially in areas of headline-making unrest. And, before the trip, travelers need to familiarize themselves with security resources and foreign cultures and make arrangements for currency, passports and visas.

A managed travel process will monitor and address these issues as needed so you don’t have to, providing you with an up-to-date version of what makes safe travel, says Kathleen France, director of international reservations and services at Professional Travel.

Smart Business spoke to France about the challenges associated with international travel and ideas to help mitigate your risk.

How should businesses monitor hot spots around the globe?

The best method is to partner with a travel management company that provides daily updates on travel, security, health and weather alerts directly to your travelers and human resource staff. That way, you’ll know if your travelers are going to be affected by a tsunami in Japan, terror threats in London, a strike by Lufthansa ticket agents, or exposure to avian flu overseas.

How do you stay abreast of security issues?

With more than 190 countries in the world and varying degrees of unrest and potential disasters, no one source can fully prepare your travelers for all potential hot spots. As part of risk assessment, your travel management company has a responsibility to subscribe to the various monitoring services that provide instant updates 24/7/365 — and disseminate the information to you. These resources focus on the traveler, risks they may face, impacts, delays, strikes and health concerns; many of which won’t appear on your evening news or Internet search, but are invaluable to your travelers.

What difficulties do foreign currencies pose?

People take foreign currency for granted; they assume you can walk into an airport and get it anytime and at the lowest price. Unfortunately, if there is an airport location, they typically charge a significant premium. It’s always recommended that travelers plan ahead and carry at least $100 U.S. This way, if a flight is delayed or canceled, and the airport machines don’t work, the traveler can still reach his or her destination. Don’t exchange currency on the street; be cautious and use reputable sources.

How can a travel management company help with documentation and visas?

You have a responsibility through internal processes or through your travel management firm to ensure your travelers are able to enter and exit their international destinations. Do your employees have valid U.S. passports? Do they have at least six months remaining and pages that are still blank? Some countries require itineraries; others need letters of invitation, and this often changes daily. You used to not need a letter of invitation for Brazil; now you do because the relationship has changed between the two governments. Your travel management company plays a pivotal role in helping you through the red tape.

What about paper tickets?

Only domestically has everything gone electronic, and from a human resource point of view, gone is the day of stapling passenger receipts to expense reports. However, many foreign carriers haven’t ramped up to fully utilize electronic tickets. Some of these carriers have partnered with major airlines, allowing your travel management company to validate and issue tickets on other carriers for electronic ticketing. So if Continental allows them to validate China Eastern, and China Eastern in a given city doesn’t allow an electronic ticket, your travel management company will validate a ticket and sell it as a Continental coach seat with an electronic ticket. The fare may be slightly higher, but changes can be made; otherwise, the traveler would have to go to the China Eastern ticket counter in some small city in China to do this. Then, the traveler would have to deal with ticket agents who likely speak little to no English, and he or she will have to pay whatever amount they say. They’re looking at a ticket issued in U.S. dollars, not their currency, and sometimes their calculations are correct and sometimes they’re not. Sometimes they’ll stamp it and just say ‘go,’ but the traveler may have to buy a new ticket home. Electronic tickets have saved international clients hundreds of hours of standing in line, not to mention having to bring back paper coupons they don’t know the value of.

What other risks does international travel pose?

Namely, the risk of not knowing where your employees are. Without a managed travel program, it’s nearly impossible to track this. When an international situation arises, your travel management company can proactively e-mail you and say it has no one at a certain hotel, for example, that was booked through it. Corporations need to tighten up all those things, to be able to look to one source to find out if employees are in harm’s way.

KATHLEEN FRANCE is the director of international reservations and services at Professional Travel. Reach her at (440) 734-8800 x4105 or kathleenf@protrav.com.

Saturday, 26 July 2008 20:00

The business of travel

There’s much more to business travel than simply buying an airline ticket, renting a car and staying in a hotel.

Especially now, with travel costs expected to increase 10 to 12 percent over the next 12 months, says Rob Turk, the executive vice president of Professional Travel.

“Travel typically represents the third largest controllable expense that a company has behind payroll and IT,” Turk says. “However, many companies don’t properly manage it. They need to create strategies to overcome and adapt to its escalating costs.”

Smart Business spoke to Turk about what companies should pay attention to in order to rein in their travel expenses and positively affect their bottom lines.

How can companies manage rising travel costs in today’s economy?

Companies have to develop a consistently communicated travel policy. This will provide the framework and foundation of expected travel behavior as far as utilizing certain providers and certain suppliers. Many companies also provide per diems for guidance as to the types of hotels employees should book or cars they should rent.

A key issue today is the managed utilization of unused nonrefundable tickets. Failure to do so creates thousands of dollars of loss, as organizations have a significant investment in these types of purchases. On average, there are three changes made to each booking, so when travelers make changes, many times the original purchased ticket has to be reused. So you have a credit of an unused nonrefundable ticket; how do companies manage those credits? To address this, establish a database of unused tickets, which should be managed by your travel management partner. The process of utilization can be quite complex because different carriers have different policies with several variables, for example, how long after purchase you can utilize those credits.

How does a business know when its travel needs to be formally managed?

There isn’t really a benchmark of expense, like you need a policy if you spend more than $50,000 a year. Simply, companies with traveling employees should have a managed process. You can’t manage what you can’t measure, so it’s key to measure travel expenses and both monitor and manage travel activity. One way to do this is with a pretrip approval process. It’s trip justification; the employee says, ‘I need to travel here for this benefit for the company. Here’s my estimated costs, is it approved?’

What risks do companies face if they don’t closely manage travel?

After the events of Sept. 11, businesses recognized that they needed to know where their people are at all times from a risk management perspective. If they allow their traveling employees to buy from various sources, there’s no centralized database of where people are. There are also risks associated with personal buying decisions. The challenge is that air, hotel and car suppliers all market loyalty programs to the traveler. So what has to be managed is whether travelers are buying in their own best interests or those of the organization. A third party can ensure that the traveler is comfortable and being provided the right supplier at the right cost, while the organization has supporting data that the decisions complied with policy.

Can an outside party be expensive?

Travel purchasing should be managed at the micro level just like any other high cost purchase a company makes. Yet some companies think, ‘We’ll just do it ourselves; using a travel management company will cost more.’ However, statistics show managed travel processes can generate annual savings to an organization of 15 to 18 percent, while travel management fees generally only represent 2 to 3 percent of total travel spending. As a result, 96 percent of Fortune 1,000 companies utilize the services of an outsourced travel management company. It makes sense: You’re aggregating purchasing, you’re driving purchasing to select preferred suppliers, your people are following the guidelines of an established travel policy, and the firm you selected provides travel advocacy and updates you of changes within the industry and how to best take advantage of them. There’s probably not a more volatile industry that exists from a standpoint of day-to-day changes, so you should have a travel expert monitoring it who will provide that daily information to you and your staff as to what to expect while traveling.

Many organizations try to maximize employee productivity, yet they expect employees to also become travel agents. How that fits or doesn’t fit into their other responsibilities and the cost of that productivity also needs to be factored into a decision of retaining a travel management company. Travel is recognized to be the most personal business service that employees use, it affects the framework of people’s lives because it takes them away from home and families, and so decisions associated with it are very important. The cost risks of nonmanagement far outweigh the minimal costs associated with hiring a travel management company.

Most companies are focused on return on investment. In this case, it includes the education of the traveler and the necessary communication between senior management and travelers. Only then can organizations reach the next level and begin examining areas like meetings management, international travel complexities, preferred vendor contracts and best practice benchmarks.

ROB TURK is the executive vice president of Professional Travel. Reach him at (440) 734-8800, x4029 or robt@protrav.com.

Monday, 26 May 2008 20:00

Brokering a deal

Thinking of renewing your lease? Then think again before calling your landlord, and contemplate retaining a broker instead, advises Dave Kelpe, CCIM, SIOR, vice president, and Art Kerckhoff, second vice president, both of Colliers Turley Martin Tucker.

“Oftentimes, tenants will renew without representation because they think it is easier and less time-consuming to do it on their own and, in doing so, may not consider the financial implications this strategy can cause,” says Kelpe. “A broker brings a lot of market knowledge, expertise and time savings, which translates into a more advantageous lease.”

A broker also acts as an intermediary, allowing the tenant-landlord relationship to remain intact.

The downside of serving as your own negotiator can include paying above market base rent, being exposed to operating expense increases that may exceed those of your counterparts in the building and limiting your company’s potential growth by not having the appropriate options to grow or downsize.

Smart Business spoke to Kelpe and Kerckhoff about how to best approach lease renewals.

What are clients surprised to learn about the lease renewal process?

The time it takes. To create the leverage and effectively negotiate a renewal, the typical office tenant needs 12 to 18 months; larger tenants should begin much further out. Begin the process far enough in advance so that you know the market and your landlord knows that there is sufficient time to evaluate alternative options. If you’re trying to work out a renewal two months before your lease expires, you are likely to receive less desirable terms because the landlord knows this is not adequate time to relocate.

What advice would you give a client who is considering renewing?

Our recommendation is that tenants should not initially have direct contact with their landlord. Tenants do not want to give the landlord the impression that they are staying and will not consider any other options. Even if tenants have no desire to move, leverage is created by convincing landlords that they may vacate the property. Typically, it is significantly more expensive for a landlord to replace a tenant than to retain a tenant, in addition to the lost rent.

What areas need to be addressed to serve a client’s best interests?

The answer will vary depending on the tenant and its specific needs but may involve growth options, renewal options, assignment and subletting, the operating expense exclusions, etc. You should know what to look for and read each section of the lease in detail; for example, a ‘renewal option’ written into a lease may not truly be a beneficial option at all.

What preparation should tenants do?

Review their existing leases. The renewal/relocation process is an opportune time to modify and correct items in the original lease document. These can include the rent structure, what is included in operating expenses, holdover provisions, etc. They can even include items often overlooked, such as parking provisions, etc. Be forward-thinking, that is, consider your growth needs for the year, three years and 10 years out.

Also, know the market — for example, what the rates are in nearby buildings and the competitive transactions that have recently occurred. Landlords are well educated in these matters, so if you’re not properly informed you are already at a disadvantage.

For example, the market rent for a particular building may be $22 per square foot but has an ‘asking’ rent of $26 per square foot. Tenants may think they are getting a good deal at $24 per square foot because it is well below the building’s ‘asking’ rate or may be lower than the rent they are currently paying. They do not have the market knowledge to realize that, even though they are paying below the asking rate for the building, they are still paying well above the market rent. Having that knowledge is critical in lease negotiations.

What should you look for in a broker?

Seek a specialist active in the submarket you’re in and a firm with the tools and resources to enable you to successfully renew your lease. That includes competitive transactions in the marketplace, research and experience, and someone who is experienced in similar transactions in your submarket.

DAVE KELPE, CCIM, SIOR, vice president, and ART KERCKHOFF, second vice president, are both of Colliers Turley Martin Tucker. Reach Kelpe at (314) 746-0337 or dkelpe@ctmt.com. Reach Kerckhoff at (314) 746-0393 or akerckhoff@ctmt.com.

 

 

Monday, 26 May 2008 20:00

Auditing Standard No. 5

The Public Company Accounting Oversight Board (PCAOB) issued and approved Auditing Standard No. 5 (AS5) in June 2007; the SEC approved it the following month. Rich Bellucci, partner and SEC practice leader at Burr Pilger Mayer, says that the new standard brings the possibility of lower audit fees — anywhere from 5 to 10 percent — but only for the prepared.

“After hearing about AS5, many companies assumed their fees would decrease,” he says. “But if they are not proactive in their risk assessment and the design of their processes or how and when they pull their information together, they are not going to see that fee reduction.”

In fact, he cautions, “The ability to achieve cost savings from AS5 depends on management’s focus and preparation. Companies that wait too long to prepare will see that the amount of time and energy they invest internally, as well as the extra effort required of their auditors, may even increase their costs.”

Smart Business spoke to Bellucci for more on what companies should know about AS5.

What are the origins of AS5, and what is its purpose?

Following the Sarbanes-Oxley Act of 2002, the PCAOB issued Auditing Standard No. 2. The rule was the PCAOB’s first attempt to provide guidance on how companies and auditors should audit internal controls. It was restrictive and essentially led to audit firms doing more work than anyone intended. Wanting to comply, audit firms began auditing cycles that were not relevant to financial reporting. This led to a large increase in fees. Several companies lobbied the PCAOB to devise something simpler.

The PCAOB came back with AS5. Under AS5, auditors are empowered to complete a more risk-based audit, focusing on the most important matters first and being able to rely on the work of internal audit or third-party providers. This should translate into a more streamlined, less complicated process, reducing the hours spent completing an integrated audit and potentially lowering fees.

Whom did AS5 affect, and how were they affected?

AS5 affected public companies that are considered accelerated filers by the SEC and whose year-end was on or after Nov. 15, 2007.

Under AS5, auditors are given more leeway in how they perform their audit. AS5 removes many of the required procedures and allows auditors to use their judgment to perform a top-down, risk-based integrated audit. Auditors can now focus on the high-risk areas and not be as concerned with areas that have a lesser effect on financial reporting. They are now encouraged to place more reliance on the work of others as long as those performing the work are deemed competent and objective in the judgment of the auditors. Auditors must obtain sufficient evidence to support their opinion, but their own audit work is no longer required to be the principal form of evidence.

Companies and auditors can now focus on what is important: risk and materiality. AS5 also contains multiple notes throughout the document explaining how to apply the principles to smaller, less-complex companies. AS5 allows a company’s control systems to achieve the intended objective of improving the quality of financial reporting without unnecessary effort.

How did the first year of AS5 go?

Overall, the adoption of AS5 went well. The greatest benefit was seen by those companies that adopted and followed AS5’s guidelines as early as possible and focused on the top-down, risk-based approach. Historically, companies have not taken this approach, failing to evaluate and document their reliance on their entity-level controls to the extent encouraged under AS5.

Those companies that documented and tested controls early in the process saw the biggest benefit from AS5, both in the reduced amount of work by the company and the amount of work auditors performed. Another big benefit was the ability to move away from some of the required steps and focus on the aspects of the audit that really mattered. Lastly, the ability to rely on the work of others helped as well.

What can be done to make the process smoother, more efficient and cost effective?

The smartest thing companies can do is to prepare as early as possible. For a calendar-year company, starting in the fourth quarter is too late. You need to begin scoping the project in June or July and identifying top-level controls to get the most benefit. Companies that are prepared enable auditors to determine where the risks are and focus their attention on those areas.

If auditors get the control work late in the process, they are unable to reduce their substantive testing but still have to test internal controls. Additionally, if companies are going to utilize consultants to assist in testing and documentation, they need to make sure the consultants have the appropriate background, are competent and understand what they are being asked to do. Finally, companies should make sure that they and their auditors are on the same page: An open dialogue between the company and the auditor will lead to a more efficient audit.

RICH BELLUCCI is a partner and SEC practice leader at Burr Pilger Mayer. Reach him at (408) 961-6300 or rbellucci@bpmllp.com.

St. Charles County has historically been in the shadows of St. Louis County, but it’s blossomed into a booming entity, as a result of ranking in the top 2 percent in growth among all U.S. counties during much of the last decade. Several factors created this growth, including strong, pro-business communities, abundant educational opportunities, availability of high-quality jobs, a well-qualified work force, reasonable land prices and infrastructure improvements that have kept pace with growth.

For those businesses seeking office or industrial space, a St. Charles address can provide a significant property tax break — up to 30 percent compared to St. Louis County. And, two of Colliers Turley Martin Tucker’s vice presidents — Mike Statter, CCIM, who specializes in St. Charles’ industrial market, and Keith Schneider, CCIM, SIOR, who specializes in St. Charles’ office market — expect the market to continue its strong growth.

“If you consider that the population of St. Charles county is expected to be 450,000 by 2020 — roughly half the population of St. Louis County today — businesses will be missing out on the opportunity to benefit from an excellent work force and establish a presence in a county that stands on its own,” Statter says. “If you want to take advantage, now is the time.”

Smart Business spoke with Statter and Schneider about St. Charles County and why it’s such a hot commodity in today’s market.

What’s behind the county’s growth, and how long will it continue?

It started as residential growth, with the county’s population growing 853 percent between 1950 and 2000. This strong residential growth fostered commercial growth, which created a strong tax base, which funded the infrastructure. The enhanced infrastructure has facilitated continued residential and commercial growth. This self-perpetuating cycle is expected to continue well into the future.

Have prices risen?

The trend for prices in just about every product type has increased steadily. We haven’t seen the significant peaks and valleys that occur elsewhere. We are seeing some flat-lining in land right now, but as far as industrial and office products, there’s still steady, moderate increases.

What is the market like for office space?

All the growth factors mentioned, and most importantly the skilled labor pool, have fueled rapid, phenomenal office development. Large office campus users, such as CitiMortgage and MasterCard, moved their corporate offices to St. Charles County to be closer to where the bulk of their employees lived and capitalized on the abundant work force and reasonable land prices. These two users alone account for more than 1 million square feet of office space constructed since 2002. Successes such as these created credibility for St. Charles County as a player in the metro office market. In fact, since 2000, St. Charles County absorbed more office space than all of St. Louis City and County combined. We predict that in 2008, we’ll see a significant amount of new speculative office construction. However, as demand and growth continue, there’s going to be less land to develop, so rents — which are generally lower than comparable areas in St. Louis — may increase.

What is the market like for industrial space?

The St. Charles industrial market finished 2007 with a very healthy vacancy rate of 3.2 percent, which we believe provides some targeted opportunities for developers. Our industrial inventory is only about 25 million square feet, which represents about 10 percent of the overall inventory of the metropolitan area. About 8 million square feet of product has been built here in the last decade, which accounts for about 25 percent of new product delivered in the metro area during the same timeframe. Regarding industrial land, there is at present a definitive lack of large tracts available for development — leaving prospective users with 5 to 10 acre parcels that are available in disparate pockets around the county.

What about property taxes and values?

Compared to St. Louis County, property taxes are lower in much of St. Charles County. For example, the Highway 370 area, which is primarily an industrial corridor connecting into St. Louis County, can have a 30 percent differential in property taxes compared to the nearest industrial parks in nearby St. Louis County. Meanwhile, rents and asking prices tend to be higher along the I-64 corridor coming out of Chesterfield Valley versus the I-70 corridor.

Land is overall somewhat less expensive than St. Louis County, and land values are similar to building values — less expensive along I-70 corridor versus I-64 corridor. There’s a relatively young age demographic, a relatively high-income demographic and high degrees of education, so the St. Charles market is wealthy, young and smart.

MIKE STATTER, CCIM, and KEITH SCHNEIDER, CCIM, SIOR, are both vice presidents of Colliers Turley Martin Tucker. Reach them at (636) 949-9797 or mstatter@ctmt.com or kschneider@ctmt.com, respectively.

Friday, 25 April 2008 20:00

Wealth preservation

You’ve worked hard your entire life. Whatever your assets may include, if they aren’t distributed according to a plan tailored to your unique circumstances, both you and your beneficiaries ultimately lose out.

“I consider myself a financial adviser to the family,” explained Angie Hager, CFA, CFP®, investment manager for BPM Wealth Management LLC. “And every family is different.”

The key to successful estate planning, she emphasized, is planning for every conceivable eventuality.

“For example, if you want to pass down the family business or the baseball you caught at the World Series, but you don’t provide the cash or liquidity to pay the taxes on it, your heirs will have to sell it, and it would move out of the family.”

Smart Business spoke with Hager about devising a plan that works for you.

How does estate planning protect assets, and how are the directives of a trust carried out?

A trust is a legal agreement that protects assets in complicated situations. The trustee may play quarterback and make decisions as to whom the assets are distributed and how they are distributed. For example, a trust is especially helpful when the trustor has the intention of leaving assets to children of a current spouse, and there are also children or a spouse from a former marriage involved. Another example would be a situation in which the beneficiary of the assets might not be prepared or mature enough to receive the assets, and the trustee may be asked to distribute a limited amount of the assets to the beneficiary on an annual basis. In either of these situations and many more, proper planning in advance can ensure that there are legal instructions and a trustee in place to follow your wishes.

Trusts can also ensure that assets are properly directed to charitable organizations.

In addition to monetary assets, what kind of unusual assets can trusts aid in passing down?

Assets like artwork, antiques or possessions you love can also be protected with a trust. Unusual assets are not easily marketable, and you wouldn’t be able to sell them quickly. A trust allows you to give specific instructions to the trustee or general guidance to the beneficiary on those types of assets.

What might happen if a trust is not properly designed and implemented?

When there is no trust in place or the trust is incomplete or out of date, assets may go to the wrong beneficiary or might be seized by the court altogether. Perhaps your trust was designed for your once-current family structure but was not updated when you remarried. If the trust weren’t properly redesigned, the court might step in and follow probate laws, resulting in your intended beneficiaries receiving a fraction of the assets you had hoped to leave them.

How can assets from trusts be protected from litigation, divorce and other claims?

The beneficiary of the trust doesn’t actually own the trust entity but rather receives assets from it. If the beneficiary had been given the same amount of assets in cash, the assets would belong to the beneficiary and would therefore be more vulnerable to legal claims.

How can you avoid simple mistakes when planning?

When we go through the planning process with clients, we confirm that the designated beneficiaries on the IRA and life insurance policy are the right people. We also check clients’ investment accounts, their houses and/or real estate. If those should be in a living trust or other trusts, we make sure it’s funded correctly.

Advisers should generally review all trust information every two years, asking the client what has changed and confirming that what has already been set up is still accurate. From an investment standpoint, the client should be reminded that one objective is for these assets to continue to grow while they are protected and preserved. There should be an appropriate asset allocation and adequate diversification to ensure continued growth for the next generation.

To be certain that your assets are distributed the way you want, it is important to use a team of professionals. In addition to a financial adviser, you need to involve an estate attorney and a tax accountant. If it is a complex trust, you will also need the assistance of a trust officer. Oftentimes, your financial adviser can coordinate the efforts of all of these professionals.

The successor trustee is also an important person in the design of the trust. Should you become incompetent, your successor trustee, someone who thinks like you and will stand firm on your decisions, will step in to make sure your wishes are carried out. He or she should be compatible with your survivors.

You have worked hard to earn and grow your assets. Take the time to design a proper trust to be sure that all of your hard work is properly distributed to those who matter most to you and that the means are provided for them to receive and enjoy your generosity.

ANGIE HAGER, CFA, CFP®, is an investment manager for BPM Wealth Management. Reach her at ahager@bpmwealth.com or (415) 288-6277.

Sunday, 24 February 2008 19:00

Corporate relocation

It’s been said that moving a home is one of life’s most stressful experiences, but what about moving an entire corporation? “For many companies, their real estate obligation is one of their largest annual obligations,” says James W. Mosby, principal, senior vice president, Colliers Turley Martin Tucker. “These transactions are often multimillion-dollar obligations, and they should receive the highest priority and resources possible.”

Thorough planning is key to a smooth relocation, and it’s never too early to start the process. A carefully prepared strategy executed by a qualified team, including brokers, attorneys and architects, prior to embarking on property tours, will greatly ensure the likelihood of a successful corporate relocation.

Smart Business spoke with Mosby about ways to find the best space for your business, while getting the most for your money.

What are the phases of a good strategy?

A process we’ve executed with success on multiple occasions is divided into five phases, some of which may overlap or take longer than other phases. Phase I consists of defining your objectives and priorities. What are the desired space requirements, growth projections, financial goals, location requirements and project timeline? Keep both short-term and long-term needs in mind.

Ninety percent of problems occur because clients want to skip this all-important step and move directly to Phase II — market survey and property tours. In the first phase, market conditions and available properties are reviewed, with consideration given to existing spaces, build-to-suit, new construction and sublet opportunities.

During property tours, a range of qualities to assess functionality are considered, including location, building and area services, parking, floor plan efficiency, expansion capability, ownership stability and quality of building management services. Preliminary cost estimates are also prepared to begin narrowing down the possible options.

In Phase III, Request for Proposal (RFP) forms are submitted to selected properties in order to evaluate all occupancy variables, including tenant and landlord responsibilities, economic obligations, renewal and expansion options. Larger tenants or tenants that are adding a significant amount of new jobs to an area need to allow extra time to procure incentives. Additional financial considerations such as tenant improvement allowances, operating expense base years and moving allowances are evaluated and negotiated during this phase. A comprehensive financial analysis that encompasses both qualitative and quantitative elements is prepared for the selected properties, resulting in projected occupancy costs for each alternative.

Phase IV begins with space planning and design. An architect prepares preliminary plans for the most desired properties; these are submitted to landlords to allow them to prepare preliminary construction budgets. Negotiations continue resulting in a detailed letter of intent (LOI) defining the terms and conditions whereby a lease can be drafted.

Phase V consists of construction management so that the space is on time and within budget. The bid process is administered, a contractor is selected, permits are obtained and a construction schedule is finalized.

What role does timing play?

The goal of the entire process is designed to create leverage for the company to carefully analyze all of its options and make the best possible decision. Time and the ability to research many options will create an environment where landlords are competing for the company’s tenancy. However, not allowing enough time shifts the leverage squarely back to the landlord. Why? Because the landlords realize that the company doesn’t have the luxury of exploring many other options (if any) and is forced to make a decision. When the landlord doesn’t have to compete with other options, it will exert its leverage on the company — especially in renewals.

How much time is required?

Typically, the larger the tenant, the greater the amount of lead-time required, since there’s a greater supply of small spaces. If a company is considering a build-to-suit, the lead-time is a minimum of 24 to 30 months. If a tenant is considering existing buildings, it’s a minimum of 12 to 18 months. But again, larger tenants — 50,000 square feet and up — should allow for additional lead times.

What mistakes do you see clients make?

The most prevalent mistake is believing you can execute this process without retaining qualified individuals and involving them early in the process. Remember that most landlords will have assembled a qualified team. Why wouldn’t a company want the same advantage? A corporate relocation is a time-consuming process, but if qualified outside individuals are retained, the burden is shifted to the assembled team.

Another common mistake is not assembling an internal team tasked with this responsibility. Equally important is receiving continual participation from the individual(s) that will eventually approve the team’s recommendation. Inevitably, assumptions and decisions will be challenged, but the chosen direction can be supported through a prepared and planned process. Otherwise, you’re back to square one, with much less time and leverage.

JAMES W. MOSBY is the principal and senior vice president at Colliers Turley Martin Tucker. Reach him at jmosby@ctmt.com or (314) 746-0316.

Sunday, 24 February 2008 19:00

SEC Rule 10b5-1 plans

So often, executives receive a large portion of their compensation in stock options, restricted stock or performance stock units, tying their overall compensation package back to the growth of the company and the value provided to shareholders. They often seek diversification strategies based upon their risk tolerance and investment objectives. But as insiders, or being perceived as insiders, they’re limited on when they can sell company shares.

Usually, executives can only trade when they are not in possession of material non-public information. This is generally presumed to be during an open trading window, which is set by companies and most often occurs for a short period after earnings release. These windows are narrow and can close unpredictably when the executive insider comes into the possession of material nonpublic information.

The executive is caught in a bit of a conundrum: While stock sales of key executives tend to be negatively perceived, a concentrated position in their company stock exposes them to market-and company-specific risk. As a result of all these factors, the executive’s ability to sell stock in the most optimal manner is quite limited.

“SEC Rule 10b5-1 plans are a potential solution,” explained Richard K. McDonnell Jr., CPA, a senior manager in the tax department at Burr Pilger Mayer. “They also allow for an affirmative defense against potential claims of insider trading.”

Smart Business received more insight into these plans from McDonnell.

How do SEC Rule 10b5-1 plans work?

These plans allow executive insiders to complete an agreement between a broker-dealer and the executive, approved by the issuer’s corporate counsel, to sell shares in a preset manner throughout the year.

Corporate executives can generally use the plans for the sale of actual company shares, to allow for the exercise of their company stock options and the immediate sale of the shares received, as well as the sale of their restricted stock or shares warded through performance share plans.

For example, let’s say that the executive has different lots of stock options at different grant prices and expiration dates. We would review the grants with the executive and complete the planning. The executive’s decisions would then be incorporated by the broker-dealer into a SEC Rule 10b5-1 plan for the executive’s and corporate counsel’s sign off. For example, the executive only has two years to exercise one lot of stock options prior to expiration of 20,000 shares. The grant price is $10 and the market is $40; the executive thinks that the stock should go up to $45 over the year or so. The executive could set up his plan to exercise 3,000 shares a month, as long as the current market is over $40. On the next lot, with approximately the same parameters, the executive could set the exercise price at $45 for the full lot. For a lot that has a few years until expiration, consideration for the exercise price might be at $60 because the executive thinks, and the market shows, that over the next few years the value might reach $60 but not much more than that. If the price hits currently, the executive can capitalize. On the whole, the planning is quite flexible and can be customized to fit both the executive’s needs and selling decisions.

How do the plans apply to restricted stock grants?

These plans are extremely important for use with restricted stock grants, whose restriction may lapse during a blackout window. In that case, the executive would receive the stock and the Form W-2 compensation without the ability to sell the stock until the next open window. This could be detrimental if the stock drops in value between the date of the lapse in restriction when the compensation element is determined and the actual sale of the stock.

So we could set up a plan during an open window that would enable the executive to sell these shares the day the restriction lapses. Once the plan is drawn up with a broker-dealer and approved by corporate counsel, when the restriction lapses, the executive would be able to sell the shares at the current market value, equal to the compensation element.

Are there any other considerations?

Most companies will only allow SEC Rule 10b5-1 plans to be implemented during open window periods and, of course, when the executive does not have knowledge of any material nonpublic information.

The most important item to remember is that the modification or termination of the plan may weaken or lose the benefit of the affirmative defense against insider trading. If the executive completes his or her stock option planning and diversification strategy in conjunction with the SEC Rule 10b5-1 plan, it is very important that he or she stay the course for the length of the particular plan, which typically runs for one year.

RICHARD K. MCDONNELL JR., CPA, is a senior manager in the tax department at Burr Pilger Mayer. Reach him at (650) 855-6880 or rmcdonnell@bpmllp.com.

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