real estate strategy
Property plotting T
With an increasing number of businesses struggling with cash flow, establishing an appropriate real estate strategy is one of the most important considerations for companies during the downturn, says Jonathan Kearney.
he key focus for any company contemplating real estate investment at any time is the potential for return. The need or the desire for long- or short-term gain must also be evaluated
when establishing real estate strategy. If the purchase is manageable, ownership of a building brings security to a business, with freedom from restricting covenants and obligation found in most leases. Ownership also offers businesses security for obtaining loans at reasonable rates of interest.
With capital tied up in the building,
however, the value of the property may not be realised by the business for decades or more. For listed companies their primary responsibility is to their shareholders. If significant cash stock can
be invested into the growth of the core business then freeing up that capital through sale and leaseback should be seriously considered. That is unless the company sees potential in a property investment arm, which proves lucrative to many when managed successfully. Helical Bar was a well-established engineering company before, by force of circumstances, fully diversifying to property development and investment. Although the tax impact of selling a
property should not be underestimated, sale and leaseback can offer crucial tax advantages, with rent offset against profit in a company’s annual accounts. In some cases it can also offer swift and lucrative gain. HSBC sold their 8 Canada Square global headquarters for more than £1bn at the height of the market in 2007,
hundreds of millions from significant sale and leaseback deals in 2001, while high street rivals Debenhams is also said to be considering unlocking the value in its property portfolio to fire fight their mountainous debt. Jeremy Day, head of corporate real
estate at King Sturge, notes that with new accounting measures likely to be introduced in the coming years, leaseback agreements will have to be reflected in a
www.pm-select.co.uk l september 2010 l Property Management Select l 33
providing Spanish development company Metrovacesa with an £810m bridging loan for the purchase of the 45-storey building to lease it back for uninterrupted occupation. The bank regained ownership of its headquarters the following year, posting a £250m profit on the transaction. With its balance sheet, rather than its portfolio in mind, HSBC sold the property again in 2009 with a cash injection of £772m from current landlords the National Pension Service of Korea. HSBC has been involved with other profitable sale and leaseback deals for its other national headquarters in prime locations globally, while other banks domestically have long since engaged in sale and leaseback deals on individual branches across the board. Retail giants Marks & Spencer raised
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