Corporate Finance, 5th Edition

Chapter 51 Managing operational real estate

Fifty shades of rent

Methods for managing operational real estate differ from group to group. Some prefer to remain the king of the castle and own their operational real estate, while others consider these blocked assets as frozen cash that could be better used in developing the group’s core business more rapidly. Even within a given sector, strategies differ from one player to another, over time, or within the same group.

There are, however, three facts that are clear: managing operational real estate is a real issue, which has become increasingly sophisticated under the influence of private equity firms and real-estate professionals. Often within the company, the different departments all have their own opinion on real estate – the finance department of course, but also legal, human resources and operations. An internal real-estate department or an external advisor is indispensable for consolidating all of the views of all of these departments and providing general management with rational proposals that are solely in the interest of the company.

The problem of managing real estate is certainly more acute in sectors where real estate plays a key role (the hotel, retail, restaurant, health and leisure sectors) than in others, but it impacts on all companies, even if only in terms of their headquarters.

Finally, this chapter does not concern real-estate assets which have a very specific purpose, such as a nuclear power plant or ...