Cash is king

by Martin Trundle, Director - Corporate Consulting
T: +44 (0) 20 7544 4299 or E: mtrundle@nbrealestate.co.uk

The landlord has had it all his own way for far too long and now it's payback time - and as they sow, so shall they reap. 

Maybe there is an opportunity to turn the current situation to your advantage. Think about it from the landlord’s perspective: he's quite likely sitting on a portfolio of properties which are not performing to expectation. The value has fallen away, businesses are closing, and for every failing business there's a potential delinquent tenant. Voids are on the up and the government isn't helping with its aggressive policy on empty building rate relief. So, as landlords try to restructure their portfolios to improve their cash flow, we can expect them to experience some distress. What are the implications for you as a tenant? 

Well you may find that this is a prime opportunity for you to consider making the change from being a tenant to becoming an owner occupier. After all, it is a buyer's market and, for well understood reasons, property prices are very subdued. This is a major decision and one which involves a wide range of stakeholders, from your FD/CFO to your employees and above all your shareholders.

On the face of it, now could be a great time to buy, but there are a number of factors and considerations that must be taken into account:
 
• Is there a near term lease event?
• Will you be able to fund the purchase?
• What will the implications be from economic and accounting perspectives?
• What about the management overhead?
• What is the exit strategy if the building becomes surplus? 
• Above all can I secure approval from the Board to invest in commercial property rather than in the business?

This is where corporate property, business strategy and corporate finance meet each other head on. It is hardly surprising that there may not be a headlong rush to get into property ownership given all the issues. It may just be that it is the right choice for your company in the current circumstances, but given the very unusual nature of the current market, how will you make the judgement? It takes a wide range of skills and experience to understand the potential impact of making the buying choice. 

From a purely economic perspective, buying today could seem to be a sound choice, if the entry price and funding plan provide an adequate return on investment. Of course the accountant's views will be vital given the cash implications. Right now cash is king and capital is scarce, so why invest in property rather than the business? Clearly, the underlying requirement is to deliver value in ways that support the objectives of the business. This calls for an understanding of the business strategy and the part that this choice may play in the execution of that strategy.

The decision making and business planning processes may be complex, but don’t let that be the sole determinant of your actions. If there is an opportunity to make the move and the time is right, it would be a shame to lose out just because you are unable to assess the potential. At times like these it pays to have a chat with someone who has the skills and experience to help you judge the situation. Don’t miss the boat – pick up the phone and let’s have that conversation. In fact, your shareholders will expect you to explore all the opportunities.

If you are in the process of assessing your options in this area, I'd be delighted to hear from you with a view to providing you with an experienced opinion and as much assistance as you would like. Why not give me a call. I'm Martin Trundle, Director of Corporate Consulting, and you can reach me on +44 (0) 20 7544 4299 or email me at mtrundle@nbrealestate.co.uk.