If the property you’re in doesn’t meet your needs, you may need to see a specialist,I wrote for CFO in November 2002.
Managing a diverse portfolio of property assets is a huge task. So it is no surprise that many of Australia’s biggest companies – for example, Telstra, ANZ Banking Group or National Australia Bank – call in specialist consultants for help.
According to Ernst & Young’s property specialists, 20 to 30 per cent of the total asset value of any business is property. It is one of the largest cost centres on the corporate balance sheet. The scale of the problem of looking after property can be illustrated by Telstra’s portfolio. Even after divesting seven prime office buildings for $570 million, it still has $2.2 billion worth of property on its balance sheet split between 10,600 network properties and 900 commercial buildings.
Just coming to terms with such a property portfolio is a mammoth task. Peter Wills, the chairman of property services group CRI, says that most organisations have a fairly crude understanding of the costs of their property assets. “They certainly haven’t looked at property at a strategic level,” he says. “There are billions of dollars of assets on company balance sheets that don’t get the level of attention required. This is what I call the last big hollow log on corporate balance sheets.”
Wills says there is no difference between making a company’s property perform properly whether in high or low inflationary times. It has to do with the expected returns of corporate assets that are usually 15 to 18 per cent. Property assets are lucky to return 5 to 8 per cent.
Wills works with companies to develop a “higher vision” for property linked with a company’s strategy. Often, property is left out of these plans, but can become an important element of financing plans through the various permutations and sale and leaseback, in addition to development deals.
Many of the accountancy-based consultancy groups offer similar advice, such as PricewaterhouseCoopers and Ernst & Young. CRI works with companies to help improve the all-round efficiency of property.
One of the things about property is that it is important to business, but not that important to own. Wills says that unless a company needs to own a property for a strategic purpose, such as heavy manufacturing or as a data warehouse, they don’t need the responsibility of owning it.
One problem is simply keeping corporate property records. Wills says it is surprising how many corporates have records that amount to a series of manila folders spread across the country.
Some advisers, including those from the specialist property advisers such as Colliers International, DTZ or Jones Lang LaSalle, have industry-specific software to manage the pile of documentation. In these databases, triggers are established to warn when rent reviews and lease terminations are coming up, allowing companies to be proactive in their management. Wills says: “Even putting insurance policies on a database will pay for itself in time saved.”
With most advisers recommending companies take a long look at their lease terms in the current market, it is worth considering these options now.
Mario Ormando, Australia director, corporate services, at Colliers International, who previously consulted on property at PricewaterhouseCoopers, has a checklist companies should follow.
First, companies should ask whether or not their property needs meet business objectives. Is there a single point of contact for all property information? Do all the leases and arrangements meet the company’s needs?
If the answer to any one of these questions is no, then a company needs to see a specialist.
Many advisers have different specialisations. There are also advisers at the financial end of the spectrum.
Many developers and trusts such as Lend Lease or Investa are adept at structuring various permutations of outsourcing and sale and leaseback deals – as are the banks, such as Westpac and Macquarie Bank, with their structured finance teams, and some of the larger property consultants.