Assets that don’t support key business objectives like your company’s business strategy, operational efficiencies, talent acquisition and retention, or even financial goals are not only burdensome—they’re preventing you from propelling your business forward.
We refer to these as unsupportive assets, or any assets that do not aid your business operations. Unlike supportive assets, which add value to your organization, unsupportive assets create barriers to achieving financial and operational objectives.
Sometimes, once well-aligned assets lose their value and call for elimination from your portfolio. Companies might find that their assets are unsupportive for a variety of reasons, such as:
- Growth. Perhaps organizational growth led to a need for a larger space.
- Downsizing. In some cases, restructuring might result in a headcount reduction, requiring less space.
- Operational or geographic needs. Oftentimes, companies will relocate to be closer to employees, customers, suppliers or partners.
While it’s in an organization’s best interest to eliminate its unsupportive assets as soon as reasonably possible, some situations may bring more challenging and complex hurdles. That’s why turning to an experienced real estate advisor when disposing of these unsupportive assets is always a wise choice. Advisors can help you navigate the following strategies for unsupportive asset disposition.
First, what is a disposition strategy?
A disposition is the act of selling or “disposing” of an asset or security. In this case, we’re referring to owned real estate—an important note since strategies can vary greatly between owned and leased assets (which we’ll discuss in a later post). Keep reading to discover the three main options you have when eliminating owned assets.
Asset Disposition Option #1: Real Estate Preparation for Sale
Selling real estate is one of the most common ways organizations dispose of unsupportive assets. However, the process isn’t always so straightforward. A broker can help organizations prepare for a sale in various ways, including:
- Valuation. Giving an expert opinion on what they believe the property is worth.
- Marketing. Collecting client information on the property for marketing purposes.
- Professional advice. Whether it’s small enhancements to the space to increase value or other advice, having an advisor help you through the process is always beneficial.
While a real estate broker is an invaluable resource in preparing for a sale, they may need the seller’s assistance to perform their due diligence. Though these steps may vary between companies’ unique situations, common items include:
- Conducting surveys.
- Receiving environmental site assessments.
- Scheduling property/building inspections.
- Reviewing utility costs.
- Researching zoning.
- Updating the title of the property.
These steps ensure that there are no surprises for either the seller or the buyer when the property is placed on the market.
Unlike selling a home, the seller is not expected to make any major repairs or upgrades beyond the possible clean-up or paint. Most often, the buyer factors any repairs, upgrades, or modifications into the purchase price. This price is negotiated but stems from the broker’s suggested listing price that is set in the initial valuation. In addition to any repairs, recent transfers and competing properties will help determine an appropriate asking price.
It’s important to note that an asking price is not always required. If the asset has multiple uses or a developer plans to purchase it to demolish structures and rebuild, the property may go to market with an undisclosed price.
Asset Disposition Option #2: Lease the Asset
Sometimes, selling isn’t the best solution or an immediate option. Rather than sitting on an unsupportive asset and losing money, an organization can lease its property.
Before an organization considers this option, however, they’ll need to evaluate their space to provide accurate information to potential renters, such as:
- Included furnishings and other features.
- Interior and exterior conditions.
- Necessary upgrades.
- Operating costs and utilities.
- Possible uses and limitations on operations.
- Accurate square footage measurement.
Asset Disposition Option #3: Sale-Leaseback
A sale-leaseback is an arrangement that enables an organization to sell its asset and leaseback that same asset from the purchaser. In this case, the details are determined at the same time and as a component of the asset’s sale. Essentially, the seller becomes the lessee, and the buyer becomes the lessor for an agreed-upon period of time.
While it may sound cumbersome, sale-leasebacks often enable a higher purchase price over a few years’ time. In the case of an unsupportive asset, it can be used as a short-term solution for both the tenant and landlord. It is essentially an exit strategy for the tenant and provides additional cash while giving the landlord more time to find a new tenant for the building. This arrangement is ideal for a seller to consider when there are financial issues or constraints affecting the organization or when a lease on the property, even for a short term, will help sell the asset.
Get Expert Real Estate Broker Advice from Allegro
Disposing of unsupportive assets is essential for organizations seeking to optimize their portfolios and streamline operations. For more information on how Allegro Real Estate Brokers and Advisors can help you navigate the disposition process, download our free guide, Corporate Real Estate Portfolio Strategy: Your Business’ Competitive Advantage.