APC Trainer on... real estate strategy (T079 Strategic Real Estate Consultancy)

This week’s question focuses on real estate strategy (T079 Strategic Real Estate Consultancy), and poses a scenario at Level 3 to test the candidate’s ability to offer reasoned advice to a client. An organisation’s real estate portfolio ranks alongside personnel as the most valuable asset of an organisation, yet typically does not reflect current or future business needs. Real estate is often viewed as under-utilised and underperforming in its contribution to business value, thereby creating a need for realignment with organisations’ overall business strategy.

Level 1

Question Can you give me an overview of the objectives of an organisation’s real estate strategy?

Sample response
The candidate should seek to demonstrate an understanding of the fundamental deliverables of an organisation Real Estate Strategy. Key points to cover include:

• Business strategy The RE strategy should always be aligned to support the main business strategy and act as an appropriate enabler for the principal business objectives
• Operational efficiency The RE strategy should be viewed as an opportunity to enhance the operational efficiency of the organisation
• Cost savings The RE strategy should seek to realise cost savings and achieve cost efficiencies
• Return on Capital Employed The RE strategy should seek to optimise the return on the capital employed in the estate

Level 2

Question When acting in advisory capacity to a major corporate client, apply your knowledge and understanding of that business to demonstrate the range of services on which a strategic real estate consultant could provide advice.

Sample response
The candidate should demonstrate awareness of the range of services which a strategic real estate consultant could provide advice. These could include:

• Portfolio strategy and evaluation
• Benchmarking analysis of occupancy costs
• Asset optimisation planning
• Portfolio ownership/financial structuring
• Site-specific relocation and rationalisation planning
• Freehold vs leasehold analysis
• Acquisition and disposal planning
• Due diligence
• Sustainability
• Redevelopment/refurbishment analysis
• Development feasibility analysis
• Site inspections audits
• Management of surplus properties
• High-level continuity of business planning related to premises issues
• Dilapidations assessments and negotiations

• Site-specific location selection
• Optimising location for business operations
• Market research
• Demographic studies, to include availability of suitable qualified staff, transport links, local housing information
• Location-specific risk assessments, for example flood risk assessments

• Workspace and work-style advice
• Appropriate space design/layout/utilisation advice, including remote working, hotdesking, flexible working, off- and near-shoring

• Review of the corporate real estate management/delivery process
• Management organisation and service delivery process
• Property information systems
• FM service provision, in-house vs outsourced, contract bundling opportunities
• Finance and budgeting
• Funding restructuring
• Monetisation analysis
• Financial planning and budgeting including CapEx vs. OpEx analysis and optimising use of capital while preserving operational flexibility

Level 3

Question Provide evidence of reasoned oral and written advice on the principles and application of strategic real estate knowledge when developing a disposal strategy for surplus building stock.

Sample response
The candidate should demonstrate the key areas of opportunity and risk when developing a disposal strategy for surplus building stock. The candidate should recognise occupation of premises is broken down into two categories, freehold and leasehold, which require different strategies to efficiently reduce the surplus building stock.

• Freeholds

Together with simply vacating and selling the premises, the candidate should recognise the other opportunities which are available for the disposal of freehold assets.
These include “sale and lease back” opportunities, which will allow the business to remain in the premises whilst releasing/injecting capital. Downsides of this strategy must also be recognised, ie the loss ownership of the asset from the organisation, an increase in fixed/operating costs, ie rent, the necessity for future provisions for dilapidation obligations. The future flexibility of the organisation can be reviewed both as an opportunity or a risk, as it will have lease break opportunities to vacate, set against opportunities the landlord may plan for the premises, ie redevelopment.
Opportunities for sub-leasing freehold premises may also exist which, while offsetting operating costs, will involve the organisation becoming a landlord, which may not be compatible with the overall business strategy.

• Leaseholds

The candidate should recognise the risks and opportunities when disposing of leasehold premises. These will include rent review provisions, lease expiry dates and break options. Candidates should highlight the dilapidation obligations, budget provisions for these obligations and the availability of the original schedule of conditions attached to the lease. Care should also be taken with termination obligations, particularly to ensure methodology for serving the termination notices prescribed within the lease, is adhered to.
The candidate should recognise the other opportunities that may be contained within the lease with regard to the alienation provisions, ie sub letting and assignment of the lease to third parties.
Attention should also be drawn to the assignment of any warranties attached to the premises.

To summarise, the candidates need to establish the total liabilities and risks associated with any disposal strategy.