Help is Close at Hand for Surplus Real Estate Disposition

by ROBERT H. PITTMAN and TUCSON ROBERTS

 

 

 

Ribbon-cuttings for new or expanded corporate facilities are generally festive occasions with balloons, speeches and an assortment of mayors, council members and even governors. On the other hand, disposing of surplus real corporate property is generally a lonely job without all the festivities. A typical approach to dealing with surplus land or buildings is to hire a professional, usually a broker, to market the property and maximize the residual. After the marketing the property is turned over to an outside party, often the tendency is to adopt an “out of sight, out of mind” attitude and move on to the next project. As they are incentivized to do, brokers can get the job done especially for readily marketable properties, but it behooves a company to explore multiple avenues for asset disposition. Expedited disposition not only gets a non-productive asset off the balance sheet (helping ROI and ROA), it can also help avoid negative publicity from a drawn-out process. The purpose of this article is to describe a useful tool or ally available in most communities to help dispose of corporate surplus property in a timely and efficient manner. That ally is the local economic development organization.

Good partnerships are usually based on mutual interests, and it is not difficult to see how a company’s interest in timely disposition of surplus properties aligns closely in two compelling ways with the local economic development agency’s mission of creating more economic opportunity in the community. First, the owner of surplus real estate would generally like nothing better than to see another party purchase or rent the building or site. This implies an economic use for the property, and that generally entails investment and job creation – exactly what the local economic development organization (EDO) wants as well. In addition, a larger inventory of available business/industrial sites and buildings can help attract new firms and retain existing firms which helps the economic development organization. These mutual interests make for a “win-win” situation and a good partnership.

How Can The Local EDO Help?

Economic development organizations are constantly trying to attract investment from new or expanding firms and that means marketing their existing sites and buildings. While a community might hire a broker to market an existing building or site (and hence create or retain jobs), many EDOs market their community and industrial/business properties in ways that often complement broker marketing efforts. Common marketing approaches taken by local EDOs include:

• Maintaining close contact with external prospect lead generators – state departments of economic development, state/regional utilities with economic development departments and regional EDOs are the most common. Good EDOs constantly remind these external lead generators of the good labor force, business climate, quality of life – and available sites and buildings – in their community.
• Listing (and keeping current) available sites and buildings in various property listing databases at the regional, state and even national levels. Most states sponsor a property listings website. This website is often the “go to” location and “first stop” for new or expanding industry.
• Working with existing businesses in the community to help them find expansion or relocation space locally instead of out of the area. This “internal” demand from local business retention and expansion has sold or rented countless local buildings.

In addition to these marketing activities, EDOs sometimes purchase surplus corporate real estate to renovate or repurpose in order to help attract investment and create jobs. In some cases, companies find it easier to simply donate surplus property to the community.

A good example of a purchase can be found in rural Rabun County in Northeast Georgia. Several years ago a large textile plant closed with short notice, idling almost 1,000 workers in Rabun and adjacent counties in the labor shed area. The million square foot plant had been constructed in stages over three decades. Fortunately, the structural characteristics of the building including column spacing and ceiling heights were suitable for most modern production and distribution activities. The building eventually was purchased through an intermediary by the county development authority who undertook a comprehensive interior and exterior renovation. Most of the space is still available (up to 800,000 square feet) but it has attracted several tenants that have created jobs. The surplus building met a critical need for the Rabun County Development Authority while providing the previous owner with some cash and a successful disposition. Consequently, property donation to a local industrial board, EDO, city or county can be beneficial to both public and private entities. Current tax policies treat donations favorably for private donors. Furthermore, public/private EDOs are oftentimes able to market or improve properties in creative ways.

Owners of surplus real estate can take certain steps that will help the local EDO find a new occupant for the property.

• Keep it clean and presentable inside and out.
• Remediate any environmental issues.
• Clearly establish any terms and conditions with the public or EDO prior to them showing the property. Any land use, building restrictions, use by competitors, sale and lease conditions are obviously better known up front.
• Being cooperative and flexible with potential new buyers the EDO brings to you.
• Being honest and open with the local EDO about the assets and liabilities of the facility – full disclosure and access to property records, drawings, etc.
• Taking heed to live by the economic development “rules of the game” (e.g. show up when needed, dress nicely, etc. might even say that owner should take a crash course from EDO in how to attract new buyers or renters – closing a prospect deal.
• Consider authorizing the EDO or public entity to list the property with state or regional ED marketing groups. This may require detailed property dimensions and a reliable sales or lease price.
• Consider creative uses for the property such as multi-tenant use or use as business incubators.

Good Partnerships Facilitate Success

Trust, communication and simplicity between partners make the best partnership. Someone within the company and someone in the community should be designated as spokesmen and points of communication for each. This will ensure consistency and avoid confusion in the marketing process.

Concluding Observations

Companies can benefit in many ways from working with local EDOs to help market their surplus real estate. In addition to solving the disposition problem, a company can create good will by helping find a new owner and purpose for a building and contributing to the economic welfare of the community – a parting gift that will be much appreciated. Establishing such a partnership compliments the strengths of both parties and increases the probability that property will be disposed of successfully.