Looking Back at the Top CRE3 Forum Posts in 2010

As 2010 draws to a close we want to provide a list of CRE3 Forum’s Top Posts of the year based on page views of our readers.

As you will see they fall into a few key themes of:

• The impact corporate real estate has on company financial performance
• Move to sustainability being integrated into CRE strategy
• Role information systems play to support CRE department objectives

We hope you will take a look at the past posts and use some of the highlighted “best practices” as you prepare your department to support your organization in 2011 and beyond.

The Impact of Real Estate on Corporate Assets and Financial Performance

“The More Things Change in the CRE Industry…” Evolving Trends in the Coming Decade

“GREEN is the New BLACK”…Sustainability Comes to Corporate Real Estate

The Convergence in Corporate Real Estate

How Corporate Real Estate Can Boost Your Company’s Share Price

Solutions to Manage an International Corporate Real Estate Portfolio

Leased corporate real estate portfolios to be overhauled by new accounting standards

Tomorrow’s ‘Workplace of the future’ Impact on Today’s CRE Strategy

Budgeting Season Fodder – Preparing Your CRE Portfolio and Your Department for Performance Measurement in 2011

2010 Midterm Election Results Impact on the Economy and Corporate Real Estate

“You Don’t Pay For What You Don’t Use” — Strategies to address the efficiency, economics and environmental sustainability of your real estate portfolio

Corporate Real Estate Benchmarking White Paper NOW AVAILABLE

Are You Ready? The Role of Information Systems to Develop a CRE Strategy and Support Your Organization

“CRE Information System Tools are Cool but Data Integrity and Business Processes Rule”

Best wishes for a joyous holiday season and the hope for a personally and professionally prosperous New Year!!!

“The More Things Change in the CRE Industry…” Evolving Trends in the Coming Decade

As the first decade in the 21^st century draws to a close the “CRE3 Forum” offers some insight on trends and changes the corporate real estate industry might anticipate in the coming decade.

While it is likely many of the cited dynamics will occur, some may not and others will emerge but, the most important thing to consider for you as a CRE professional is that change in our industry will happen and it’s your job and responsibility to find out how it will affect your organization. It is more likely there will be a convergence of trends creating complex issues that will impact your role to deliver efficient facilities in the right place at the right time at the right cost.

The companies of which you are employed are counting on you to be the subject matter expert on corporate real estate ready to anticipate and act on the inevitable changes associated with occupancy costs, sustainability and technology among others that are coming in the next few years.

The Impact of Real Estate on Corporate Assets and Financial Performance

Who says corporate real estate doesn’t deserve more care, attention and a strategic management approach?

For some time now you may have heard CRE consultants and service/technology providers refer to corporate real estate as the “2^nd or 3^rd largest asset on a company’s balance sheet” to justify the need for value-add advisory services, energy efficiency initiatives or investment in technology.

But, until now, have you ever really looked at the details? The facts will alarm you and quite likely challenge you to take a closer look at your own assets to see how they might be managed more effectively.

Below is a chart highlighting the real estate value of 11 companies in the “Fortune 500” (#1 – #10 and #500 as a comparison) listing them based on the percentage of net assets (less depreciation and operating expense) of their ‘Property Plant and Equipment’ (PP&E) on total assets. The source information was gathered through an informal review of the balance sheets of these company’s 10-K SEC filings for 2009.

FORTUNE 500 – Ranking Based on Percentage of Net Property Plant and Equipment Assets
Fortune 500 Ranking*   All Figures Stated in Millions+
Rank*	Company				Property, Plant and Equipment (PP&E)
		Revenue+	Profit+	TL Assets+	% of Total	Net PP&E+	MSF
3	Chevron	$163,527	$10,483	$164,621	58.60%	$96,468
1	Wal-Mart Stores	$408,214	$14,335	$170,706	58.31%	$99,544	959.67
6	ConocoPhillips	$139,515	$4,858	$152,588	57.48%	$87,708
2	Exxon Mobil	$284,650	$19,280	$228,052	53.21%	$121,346
7	AT&T	$123,018	$12,535	$268,752	37.24%	$100,093
500	Blockbuster	$4,162	-$558	$1,538	16.19%	$249	20.05
8	Ford Motor	$118,308	$2,717	$197,890	12.43%	$24,596
10	Hewlett-Packard	$114,552	$7,660	$114,799	9.81%	$11,262	77.00
4	General Electric	$156,779	$11,025	$781,818	8.85%	$69,212
5	Bank of America	$150,450	$6,276	$2,223,299	0.70%	$15,500	125.60
9	J.P. Morgan Chase	$115,632	$11,728	$2,031,989	0.55%	$11,118	80.60

While real estate does not formally appear in the financial statements as its own line item, it is included in the PP&E section which refers to fixed assets, also known as non-current assets (financial institutions refer to PP&E as Premises). These are items of value which the organization has bought and will use for an extended period of time. PP&E fixed assets normally include: land and buildings; motor vehicles; furniture; office equipment; computers; fixtures/fittings; and plant machinery and often receive favorable tax treatment (depreciation allowance) over short-term assets.

Our hypothesis is that a company can create a significant impact to its financial performance and enhance total assets when they:

• Reduce operating expenses through lower occupancy cost initiatives;
• Decrease the size of the CRE portfolio through collocation, space efficiency, use of alternative workplace strategies and dispose of non-core assets; and,
• Gain greater energy efficiency of facilities through effective sustainability initiatives.

Lease Accounting White Paper Now Available

A few weeks ago we made a post referencing a white paper published by PricewaterhouseCoopers about the impact the changes being made to FAS13 lease accounting standards coming into effect January, 2012 will have on corporate real estate.

The new standard will shift from rents being reported as operating expenses to being capitalized as future rent obligations putting millions/billions onto the balance sheet and bringing all occupancy costs beyond rent into the cross hairs of the CFO/controllers purview.

Don’t wait to get the memo, get a copy of the white paper by going to >>> http://www.pwc.com/us/en/asset-management/real-estate/publications/real-estate-lease-accounting.jhtml.

Don’t delay, go get the paper and begin planning now for the impact these changes will have on you and your CRE department. Once you’ve read it, be sure your next call is to your company’s CFO to request a meeting to discuss the impact.

Leased corporate real estate portfolios to be overhauled by new accounting standards

                                                                                                                                                Leased corporate real estate is about to undergo a massive change that will fundamentally shift how real estate is viewed by senior management and challenge CRE professionals to support their organization like never before.

Did that get your attention? If not, maybe this will…

In 2012, the International Accounting Standards and the Financial Accounting Boards will, “utilize a completely new model for lease accounting under which lessee’s rights and obligations under all leases, existing and new, would be capitalized on the balance sheet” according to a recently published white paper entitled, “The overhaul of lease accounting: Catalyst for change in corporate real estate” authored by PricewaterhouseCoopers’ Real Estate Advisory Services National Practice Leader, Xavier Menendez.

I know what you’re thinking, yawn, yawn, yawn, “I’m a CRE professional and this is an accounting issue.” Wrong! I’m hoping this post will get you to sit up and take notice, research the new standard and proactively approach your organization’s CFO/Controller to discuss how your organization might prepare for these changes.

The PricewaterhouseCoopers document highlights that the new lease accounting standard will:

• Eliminate off-balance sheet accounting – assets currently leased under operating leases will be brought onto the balance sheet
• Replace straight-line rent expense with interest expense
• Recognize and carry leases at an amortized cost based on the present value of payment to be made over the term of the lease
• Include optional renewal periods that are more likely than not expected to be exercised and include contingent amounts for percentage rent or CPI increases
• Impact lease renewal and contingent rents by being continually reassessed, and the related estimates trued up as facts and circumstances change
• Require significant systems and process changes at adoption date and maintenance on an ongoing basis
• Not permit pre-existing leases to be grandfathered

The implications will place real estate front and center in the CFO/Controller’s cross hair when the cost and value of these leases are realized. It is likely that many functions now being managed in the RE/FM Department will be assumed by the Finance Department. And, rightfully so given the amount of risk exposure a large leased portfolio has to an organization. The new standard will have a greater impact on retailers and banks that rely heavily on leased facilities to support their operations but it will affect all leased facilities.

Don’t wait to get the memo. Start assembling financial information and lease abstracts, get your information systems in order and document your controls, procedures & processes. Reexamine everything and anticipate how you might alter your corporate real estate strategy to address the tax considerations, operational, economic, regulatory, intercompany, governance, budgetary and financing issues.

What have you heard about these evolving standards? How do you think the new lease accounting standards will impact your corporate real estate strategy?