September 20th, 2013, By Don Catalano
Mergers and acquisitions can provide synergy throughout both merging organizations. However, they can also pose a range of logistical challenges.
Managing a corporate real estate portfolio in the face of a merger is especially challenging: the needs of the company organically change and the portfolio has to be actively managed to serve those changes. While every merger is different, here are five things to think about as you manage your company’s space after a merger.
Leasing or owning corporate real estate typically requires short periods of furious activity to handle acquisitions and dispositions or leases and expirations, punctuated by long periods of relative inactivity as the space gets managed.
Unless you have to make quick decisions with spaces that are rolling over or you need to refinance owned-property mortgage balloons, keeping the portfolio as-is while the merger shakes out might cost some money in the short-term, but can lead to better long-term strategic decisions.
When you have to make a decision quickly, try to do it in a way that gives you more flexibility. Instead of signing a long term lease, see if your landlord will allow you to sign a one-year or even a month-to-month agreement. With owned building balloons, consider taking out an adjustable rate loan with little or no prepayment penalty and without defeasance to give you the ability to quickly transition, if necessary.
In markets where your company’s combined space needs are likely to shrink, consolidating two spaces into one can yield the greatest cost reduction in your corporate real estate portfolio. When choosing between two spaces, there are a few factors that you can choose:
• Lowest total occupancy cost
• Least unused space after consolidation
• Best access for employees and customers
When a market is performing well enough that you don’t need to shut down offices or shrink staff, walking away from locations could harm your business by reducing your market coverage. Instead, look at each of the spaces in your corporate real estate portfolio to see if you can reduce their individual occupancy costs. In the near term, you may be able to wall off a part of the space and lease it to another tenant or give it back to the landlord. In the longer term, you might need to move to a new, smaller space.
Merging your corporate real estate portfolios can put you a good position in growing markets or in markets where space is tight. Holding on to all of your space enables you to grow without having to go back to the market to lease spaces at future, potentially higher, rents. If your consolidation leaves you with space that you don’t need right now, consider subleasing it on a short-term basis so that you can expand back into it.
Implementing your corporate real estate merger gradually is important. Any office move will cause some slow downs in work and gradually making moves leaves you with more time to manage each one and ensure that it’s done right. Here are some things to think about with each move:
• Start lease negotiations at least 6 months early to give time for construction.
• Pre-order furniture and store it nearby so that delays don’t affect you.
• Hold multiple “clean up” days to purge unnecessary files and other material, reducing moving costs.
• Pre-test IT and telephone systems the week before you move.
• Schedule moves for the weekend, starting Friday night, to minimize downtime.