Manufacturing

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Managing the Corporate Real Estate Portfolio: Ignore Incentives at Your Own Peril

18 Dec, 2017

By: Andrew Shapiro

It is now a best practice for companies with multiple sites and operations to periodically undertake an ambitious, wide-angled review of all locations and facilities. By uncovering opportunities to realign their overall footprint and consolidate or expand targeted operations, companies hope to achieve significant operating economies, create opportunities for capital gains from dispositions and optimize the location of key operations. 

If this describes you, then I may have some bad news: you may be missing a terrific opportunity to realize even greater benefits if you disregard the influence that public sector incentives can have on the value of your company’s real estate portfolio and your location decisions. The advantages of an incentives portfolio review can be substantial. 

A portfolio approach can move your company beyond project-by-project incentives efforts toward more wide-angled strategies that may arise from leveraging multiple initiatives and locations. Doing so also may help you avoid missed incentives opportunities due to the time pressures associated with certain real estate decisions. 

The scale of such an effort also can result in lower overall costs required to pursue and secure incentives; one key advantage is the ability to cost-effectively pursue small projects for which incentives might otherwise be infeasible. Moreover, a proactive approach positions you to receive regular alerts regarding new or changing incentives programs in jurisdictions where your company has a substantial presence or in a place that you may be targeting for future projects. And last, the portfolio approach can maximize the value and utility of incentives for new jobs in “receiving jurisdictions” while minimizing potential incentives liabilities in connection with facilities being closed in “exit jurisdictions” when these are bundled as a single initiative typically within the same state (or municipality).

Institutionalizing an incentives system into an already very busy real estate management enterprise entails a focused review of a company’s existing portfolio, the development of action plans around the highest yielding opportunities and smart execution. This process is outlined in some detail below.

Four Steps to Realizing the Benefits of the Portfolio Approach

1. Target: Analyze the portfolio for high-yielding incentives opportunities and/or potential risks

Examine all existing incentives arrangements; correlate those with all anticipated relocations, expansions or consolidations and any other capital spending plans.  

2. Select: Prioritize and choose your incentives targets

Quantify and evaluate each prospective initiative for incentives opportunities (increased benefits) or risks (likely penalties). Choose your incentives targets.

3. Manage: Put processes in place to aid implementation efforts

Ensure that incentives efforts are aligned with real estate transactions, staffing plans, etc. Develop a clear set of protocols to govern all communications with internal and external stakeholders.

4. Implement: Align and execute incentives, real estate and staffing, etc., tasks

For each chosen incentive effort, a) negotiate (or re-negotiate) benefits and obligations, b) prepare and submit applications, c) secure all necessary approvals and d) put compliance systems in place. Synchronize everything with related occupancy and talent acquisition/retention work streams.

The principles embedded in this systematic approach to incentives portfolio analysis are quite well-established and applicable to almost any process designed to optimize outcomes. If your company has a large and diverse footprint, then chances are you have software that tracks owned and leased properties and analyzes the performance of each site by geography, business line, etc. Your incentives advisor can help make these data actionable and ensure that you are focused on only the most impactful opportunities and are ultimately able to capture and preserve the promised benefits.   T&ID

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