Corporate Real Estate: Own it or Lease it?

    Every corporate’s investment into its real estate1 can be a corporate’s strength or weakness. Generally a company’ real estate comprises of its real property such as its premises of operation, branches, franchises and other immovable property used by the corporate enterprise. Strategy and management of all these components is imperative or else could result in losses, image and brand deterioration as well as inevitably drops in share prices. Maximising the value of corporate real estate has begun to be emphasized in the past two decades. With the rise of giant corporations such as Time Warner which has subdiary as huge as HBO, MacDonald Coporation having led by example.

    Identification of the functionality, placement and productivity of each asset maintains a company’s competitive edge. It is important that each division, be it a franchise or branch or merely a premises attained by the corporate for retail or manufacture, must perform its allocated function and therefore make its contribution to cash inflow. Often corporates invest in assets that do not themselves continually produce inflows and are merely dormant assets which are believed to be assets on a financial statement and therefore underestimate the impact of depreciation and amortization.

    The purpose of real estate for a company should be to have another stream of revenue even if such an asset is not directly to the core of a company’s trading. Diversity in the enterprises which a company engages in can be an advantage but only if such enterprises are creating durable revenue streams. In countries in Europe and America, corporations have awakened to the need for Corporate Real estate management and have internal departments which are dedicated to this purpose. Despite seeing the rise in corporations investing in Africa such the Wyndham Group, Lafarge and Transcorp Group investing successfully in real estate many other corporations in the East, South America and Africa are still lagging behind in such appreciation. Even so in Europe and America such corporations still underestimate the role of corporate real estate management. The same emphasis placed on profit and loss accounting sheets should be placed on the profitability and viability of a corporate real asset.

    It must be realized that a non- profitable investment into real estate results in not only to an unneccesary allocation of resources in maintaining the asset but also ties up otherwise useful capital and no one can argue the beauty of a corporate’s liquidity. However there is a strange misconception that ownership of as much real property is evidence of a successful enterprise. This ofcourse is not the case, not only because of the base need for liquidity but also because of the fact that property hardly ever realizes its original value when selling. This fact though being relevant to all corporates, should hit home in Africa and South America as and since the value of property rises at a lesser extent than in the markets of America and Europe.