Sweating the Asset

By James Crisp, Executive Director - Occupier Advisory
T: +44 (0) 20 7544 2229 or E: jcrisp@nbrealestate.co.uk 

Beware of the man bearing gifts

Extra income is always welcome - or is it? There are times when you just can't give money away. Occasional publicity stunts reveal that we sometimes fail to recognise a great opportunity simply because it seems too good to be true - for example, when someone tries to give money away to a suspicious public on camera.

Most of the time of course we are absolutely right to be suspicious of anything that seems too attractive. It's a well proven protection mechanism that ensures we don't get taken for a ride and end up on the wrong end of a scam. Clearly we have to be discriminating when assessing "attractive" opportunities for extra income and it is not surprising that we often reject out of hand those that appear simplistic or naive.

So it’s hardly surprising that opportunities to gain incremental revenue opportunities from our commercial properties can sometimes fail the credibility test. After all, in the current market conditions, there's no such thing as easy money. So, all too often, human nature gets the better of us. We stick to the tried and trusted methods and practices – and as a result, we miss out.

The opportunity

So in order to make sure you don't fall into the same trap, I want you to suspend your judgement temporarily while I outline a very simple (but not simplistic) proposition.

The opportunity is most suitable for "owner occupiers" with multiple industrial or retail sites, but it can also be appropriate for those with favourable leases or office blocks. It really depends on your specific circumstances and the nature of the local demand. Let’s suppose that you are an owner occupier with a portfolio of industrial properties in key locations. Unless you have already taken action in this area, you are probably missing out on a major opportunity to raise extra income without raising an extra finger.

The opportunity is to create additional income by allowing third party business operators to provide a range of services from your business premises. As an example, you could provide a site for communication masts, car parking, a car wash, burger bar and/or similar concessions, a switching area for distribution operators or storage – either open or containerised. These are just a few suggestions. The list is only restricted by the imagination of the entrepreneur.

Key Considerations

So is this for you? Are you indeed sitting on a golden egg? Well there are some key considerations, for example:

• Location is important, but if for example you have a portfolio of retail outlets, then location is a given and you may be able to capitalise on your footfall.
• Suitability to your own operation is key. Most occupiers will not want to something which detracts from their own brand or image.
• Risk v Reward needs thought. The income has to be sufficient.
• Sites with prime road or rail frontage offer good opportunity
• Car Parking remains in demand

The list goes on. It is as diverse as it is long and there is always room for yet another innovative idea. Some are well established and are approaching saturation, but you may be pleasantly surprised at the range of income generating activities that are still available. Of course, the best locations are in short supply, demand is high and as a result they command a premium price. But whether or not you are in a prime location, the objective is still the same; to establish the positive attributes of each site, understand the needs of your audience and to match the two together, in order to deliver value for your prospect and income for you.

A useful feature of this business is that it can generate income in the short term and can be without any significant upfront investment. An opportunistic foray can return fairly instant results. However, you can also take the strategic view by treating your property as you would an investment portfolio; adopting strategic initiatives that maximise yield and manage risk in the medium to long term.

Whether you take the tactical or strategic approach is up to you. Dependant on your specific circumstances, a venture of this kind can provide a flexible way of helping to cope with the current economic conditions and/or position you for growth in the medium term.

The Cultural Factor

If you have a range of properties, expanding their earning potential in this way can be an alluring proposition, but the sheer diversity of opportunities can be daunting and will likely bring you into contact with a wide range of businesses, of which you may have little or no experience. Therefore there is a good chance that this exercise will take you outside your comfort zone; sometimes into areas that you might instinctively chose to avoid, simply because they do not seem to be a good cultural fit.

Dealing with culturally disparate businesses can place you at a disadvantage, especially when it comes to identifying risk and negotiating the best deal and - if for this reason alone - it does make sense to seek advice, plan accordingly and take a structured and consistent approach.

The Approach

So what is the right approach? Clearly this is still an emerging industry, so there is no rigid framework, but it will help if you take account of the following factors:

1. Coming up with the ideas

Who will do this and how will you know that the process is sufficiently exhaustive? You won’t want to leave any lucrative ideas untapped through lack of rigour.

2. Resourcing the exercise

Someone will need to take overall responsibility and you will probably need to assemble a team to cover the skill requirements.

3. Managing the process

Governance is essential to keep a firm grip on the cost/benefit equation and to manage the risk.

4. Funding

If you need to fund activities in advance of income flow, you will need to conduct a cost justification exercise.

There's nothing radical here, but getting the sponsorship to fund and resource an exercise such as this can be a major stumbling block; hardly surprising then that some initiatives don’t get off the ground. Clearly to overcome these issues and improve the chances of success, you need to keep any up front commitment to an absolute minimum.

Assessment

Before you approach any target prospects, you will need to assess your properties in terms of the following attributes:

• Location
• Access
• Visibility
• Adjoining uses etc

This assessment is a vital pre-requisite for the next stage – approaching the market – as it helps to position your facilities in terms of the needs of the prospective targets.

There are several other attributes that will also affect revenue potential such as tenure details, boundaries, sub-let agreements and liaison with site managers to establish what – if any – space could be released for open storage/parking etc. Also, it may be useful to segment the sites into zones e.g. inside the M25, South East, South West etc.

In addition, each property will require a physical inspection and existing contracts will need to be reviewed to establish any restrictions that may apply.

Then you will need to develop an action plan, covering marketing and communications, with nearby occupiers – who may want to take advantage of facilities such as parking – and creating and tendering the individual packages.

DIY or leave it to the experts

At this point you may well be starting to think that this entire exercise is not quite as simple as it may at first appear and the initial attraction may be fading. And of course, if you were to go it alone, then there would be some validity to this assumption.

Like any other business, experience and expertise make all the difference between success and failure and although this venture is property centric, it falls outside the realm of the typical property manager. It is a specialist business and as such it demands specialist knowledge. So the key to success lies in finding the right partner, not just to provide advice and guidance, but to take on the entire process. It is the most financially beneficial option, both short and long term - just as long as you chose the right partner.

NB Real Estate has experience and expertise in this market. Our approach is to assess your properties to ascertain their potential and then source suitable candidates who can benefit from the location, access and visibility that your sites offer. We have been doing this successfully for a wide range of clients who get the benefit of an additional revenue stream, without the need for any additional effort, resource or risk.

We take care of everything; it really is "money for nothing".

We may be able to do the same for you and you have nothing to lose. If we cannot help you, we will shake hands and move on, but if we can be of assistance then you will be the winner. Why not have a chat? I’d be delighted to discuss the opportunities and options. I'm James Crisp and you can reach me on +44 (0)20 7544 2229 or email me at jcrisp@nbrealestate.co.uk.