Last Year’s Auto Dealership May Be This Year’s Grocery
By KEITH SCHNEIDER
WHITEHALL, Mich. — The Ford dealership in this town of 2,800 closed nearly two years ago, one more victim of the recession in a state that was among the hardest hit in the economic downturn. Yet the 30-acre site is once again filled with cars and trucks, as the home of a Save-A-Lot discount grocery store that opened in March.
Since early 2009, said Norm Miller, vice president of analytics for the CoStar Group, some 2,300 auto dealerships have closed around the country, as new car sales plunged more than 40 percent and the government, after taking ownership stakes in General Motors and Chrysler, forced them to end longstanding franchise contracts. The closings put 70 million square feet of buildings and land on the market, according to CoStar, a commercial real estate research company based in Bethesda, Md.
But in the last five quarters, Mr. Miller said, 649 of those shuttered dealerships found new owners and were put to new uses, including the sale of Whitehall Ford here for $1.1 million. In the first quarter of this year, 152 dealerships were sold for a combined total of $300 million, he said. Prices ranged from $500,000 to $9 million, Mr. Miller said, though most sales were for $1 million to $3 million.
The numbers, Mr. Miller said, represent only the first wave of real estate investment in a market segment that was blasted by the recession.
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
“The good news is that there are steady sales. And there are some noticeable trends,” he said. “Schools are buying dealerships and converting them. Lumberyards are buying dealerships. Some are being turned into retail centers.
A number of the best properties are being purchased and redeveloped by other auto dealerships. Closed dealerships are selling at the rate of $200 million to $300 million per quarter.”
The steady pace of sales has not surprised real estate analysts or developers. The transactions represent a pent-up interest in redeveloping the best locations, what Len Bierbrier, president of Bierbrier Development in Lexington, Mass., called “A and B-type” real estate. He said the closed dealerships that were in demand typically offered what Whitehall Ford had here in Michigan: a midsize building and an ample, well-lighted paved parking area along a well-trafficked boulevard.
The Whitehall project, built by LCL Development Company of Belding, Mich., includes a $700,000, 9,000-square-foot addition with space for a Mexican restaurant and three other tenants, and parking for 80 vehicles. Constructing the supermarket cost $1.1 million after the old dealership was demolished.
“There is movement in the market,” said Mr. Bierbrier, who develops small retail centers in the Boston region. “There is competition for the best locations. But it isn’t as easy as you’d think to redevelop these properties.”
In many cases, auto dealerships are covered under zoning laws that restrict uses other than auto-related activities. “Changing uses, particularly here in New England, can take a long time,” he said.
Typically sellers or buyers also are compelled by lenders, as well as state and local regulators, to conduct environmental assessments and clean up chemical compounds and contaminants that seeped from repair shops and parking lots, driving up costs.
In other instances, closed dealerships in good locations span just a few acres, and either are priced too high or do not have enough land for the 25,000- to 50,000-square-foot developments that Mr. Bierbrier builds. He said that over the last year or so he had investigated several closed dealerships in towns along Route 128 outside Boston, and decided not to make an offer.
New uses for closed dealerships are as numerous as the properties. The shuttered 19.3-acre Sheehy Ford dealership along Route 60 in Powhatan, Va., is in the process of being developed under a lease-purchase contract by Weightpack Inc. for use as an office, showroom and light manufacturing and assembly site for its bottling machines.
Chain drug stores are snapping up dealerships because of their locations and ample parking space. In Arlington, Mass., CVS Caremark built a new store on the site of a Buick-Pontiac-GMC truck dealership.
So are schools. The Tulsa Technology Center, a technical school in Oklahoma, spent $3.51 million in March to convert a 31,557-square-foot building and 6.6-acre dealership site to new classroom space. Another school, the Steppingstone School for Gifted Education, paid $1 million to buy 6.5 acres and the 37,500-square-foot showroom and service building from a closed Chevrolet dealership in the Detroit area.
In some cases, automotive-related businesses are supplanting the dealerships. Driven Brands of Charlotte, N.C., the parent company of Maaco Paint and Body, Meineke Car Care Centers and Econo Lube N’ Tune & Brake, is recruiting disenfranchised auto dealers to open new franchises on their properties under one of its three auto service brands.
Under the company’s “Jump Start” program, dealers can buy a Driven Brands franchise for half the normal fee and the company will refund 75 percent of the franchise royalties the first year, 50 percent in the second and 25 percent in the third. A spokesman said 22 dealers in 10 states had accepted the offer, and that Driven Brands believed it could recruit 60 more in the next two years.
It is unclear how many of the closed auto dealerships will find new uses, real estate experts said. As recently as 2006, there were more than 22,000 new car and truck dealers in the country; today there are just over 18,000, according to the National Automobile Dealers Association. The shrinking numbers are consistent with the grim plunge in new-vehicle sales in the United States, which last year sank to 9.87 million, down from 17 million cars and trucks sold in 2005, according to manufacturers.
This year, auto analysts forecast, sales could recover to just under 12 million vehicles sold. Ford, where sales gained 22 percent in May, is recording profits. Chrysler and General Motors are paying back parts of the billions of dollars lent to them by the United States and Canada.
For more than a year, the old Ford dealership’s empty showroom and parking lot in Whitehall, on the eastern shore of Lake Michigan, were a daily reminder of the depths of the recession. Roughly 30 jobs at the dealer, many paying an average of about $40,000, were lost, as were the sales tax receipts that were higher than any other retail business in this community.
But more than 200 Whitehall residents stood in line at the March 29 opening of the Save-A-Lot, as much to take advantage of the promotional free products and prize drawings as to express some relief that a new business was starting.
John Leppink, the manager of LCL Development Company, said he negotiated the property sale at a 26 percent discount from the asking price, figuring that it would cost just $100,000 more to construct a new building than to remodel the old showroom and service center.
“Our market research showed that a new store would work well in that area,” Mr. Leppink said. “The car dealership is a good site. They fit the size of our buildings and the traffic to the store.”
Wednesday, June 30, 2010
Bank Recovery Still Uncertain
As published in CFO Magazine
By Vincent Ryan
Has the banking industry recovered from its long, global nightmare? Not by a long shot, says the Bank for International Settlements, "the bank for central banks," in its annual report published Monday.
Much of the discussion around the health of banks now focuses on the imposition of new regulations, which will be phased in gradually. But the BIS says financial institutions have plenty of other hurdles to overcome in the meantime, all while adapting to a new business model. In particular, the BIS is worried about where future banks will come from; the industry's large, imminent funding needs; and the continuing deterioration of commercial real estate portfolios.
While bank balance sheets worldwide have improved, aided by $1.24 trillion in new capital raised by mid-April, and tier 1 capital ratios are at their highest levels in 15 years, the sustainability of bank profits is questionable, said the BIS report. Indeed, the BIS went as far as to call banks "fragile."
For one, many of the profits from European and U.S. banks in 2009 came from fixed-income and currency-trading markets, which tend to be volatile. In addition, financial markets are still hazy about whether European and U.S. banks have written down all of their crisis-related losses.
Will Harris, a director in the financial services practice of AlixPartners LLP, calls the hidden risks on banks' books "a financial iceberg." "Most of it is not visible, and the banks have not been forced to recognize the real value of many assets," Harris says. "The values don't reflect reality."
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Uncertainty in Europe may be reduced by the results of bank stress tests, published next month by eurozone banking supervisors. But commercial real estate lending losses could continue to blow holes in bank balance sheets in Europe and the United States. Worldwide, on average banks had 32% of their loan portfolios in commercial real estate at the end of the first quarter, according to an analysis by CFO of data provided by Capital IQ.
In the United States, more than 100 community and retail banks have a ratio of commercial real estate to total loans of more than 50%. Delinquency rates on these loans rose to more than 8% in the U.S. last year, double the rate a year ago. Congress is even considering inserting a provision in the financial reform bill that gives 7,800 banks permission to spread their losses on real estate loans over a 6-to-10-year period.
The BIS is doubtful that banks will be able to refinance their huge funding needs, given that funding maturities for banks are at their shortest in 30 years, and banks will be competing against sovereigns in the capital markets. Loan-to-deposit ratios for large international banks have fallen worldwide. And about 60% of banks' long-term debt flows come due the next three years, the BIS says. This year and next year alone, $3 trillion of bonds are maturing.
Ending their reliance on government support will also crimp banks' performance, says the BIS. In the United States, for example, hundreds of small banks have yet to repay Troubled Asset Relief Program funds, and some have also failed to make required dividend payments to the government. Government pullouts may also affect bank credit ratings. Worldwide, according to the BIS, public backstops and liquidity measures were worth three notches of credit-rating upgrades for the 50 largest banks last year. Moreover, central banks still hold bucketfuls of risky assets that they bought to support specific financial markets in the crisis.
Once government measures to inject liquidity into financial markets wind down, there will be incredible pressures on banks' profit margins, says Harris. Government actions, for example, have kept the London Interbank Offered Rate low for an extended period. "The spread between LIBOR and what banks are actually charging consumers for mortgages represents one of the largest profit margins banks have had for a long time," says Harris. "They can't assume that will continue."
As a means of improving the performance of banks and making them more resilient, the BIS clearly favors stronger capital requirements and less leverage. Proposals by the Basel Committee on Banking Supervision include tighter rules for core tier 1 capital, an increased capital requirement for trading books, and a borrowing ratio that caps bank assets relative to tier 1 capital.
BIS studies indicate that the resulting lower return on equity would actually be a "desirable outcome" for long-term investors and the entire economy. "In light of recent experience, equity holders will arguably require lower but more stable returns . . . that are likely to translate into higher profits in risk-adjusted terms," the report says. "A more stable performance would [also] imply a reduced incidence of financial crisis."
By Vincent Ryan
Has the banking industry recovered from its long, global nightmare? Not by a long shot, says the Bank for International Settlements, "the bank for central banks," in its annual report published Monday.
Much of the discussion around the health of banks now focuses on the imposition of new regulations, which will be phased in gradually. But the BIS says financial institutions have plenty of other hurdles to overcome in the meantime, all while adapting to a new business model. In particular, the BIS is worried about where future banks will come from; the industry's large, imminent funding needs; and the continuing deterioration of commercial real estate portfolios.
While bank balance sheets worldwide have improved, aided by $1.24 trillion in new capital raised by mid-April, and tier 1 capital ratios are at their highest levels in 15 years, the sustainability of bank profits is questionable, said the BIS report. Indeed, the BIS went as far as to call banks "fragile."
For one, many of the profits from European and U.S. banks in 2009 came from fixed-income and currency-trading markets, which tend to be volatile. In addition, financial markets are still hazy about whether European and U.S. banks have written down all of their crisis-related losses.
Will Harris, a director in the financial services practice of AlixPartners LLP, calls the hidden risks on banks' books "a financial iceberg." "Most of it is not visible, and the banks have not been forced to recognize the real value of many assets," Harris says. "The values don't reflect reality."
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Uncertainty in Europe may be reduced by the results of bank stress tests, published next month by eurozone banking supervisors. But commercial real estate lending losses could continue to blow holes in bank balance sheets in Europe and the United States. Worldwide, on average banks had 32% of their loan portfolios in commercial real estate at the end of the first quarter, according to an analysis by CFO of data provided by Capital IQ.
In the United States, more than 100 community and retail banks have a ratio of commercial real estate to total loans of more than 50%. Delinquency rates on these loans rose to more than 8% in the U.S. last year, double the rate a year ago. Congress is even considering inserting a provision in the financial reform bill that gives 7,800 banks permission to spread their losses on real estate loans over a 6-to-10-year period.
The BIS is doubtful that banks will be able to refinance their huge funding needs, given that funding maturities for banks are at their shortest in 30 years, and banks will be competing against sovereigns in the capital markets. Loan-to-deposit ratios for large international banks have fallen worldwide. And about 60% of banks' long-term debt flows come due the next three years, the BIS says. This year and next year alone, $3 trillion of bonds are maturing.
Ending their reliance on government support will also crimp banks' performance, says the BIS. In the United States, for example, hundreds of small banks have yet to repay Troubled Asset Relief Program funds, and some have also failed to make required dividend payments to the government. Government pullouts may also affect bank credit ratings. Worldwide, according to the BIS, public backstops and liquidity measures were worth three notches of credit-rating upgrades for the 50 largest banks last year. Moreover, central banks still hold bucketfuls of risky assets that they bought to support specific financial markets in the crisis.
Once government measures to inject liquidity into financial markets wind down, there will be incredible pressures on banks' profit margins, says Harris. Government actions, for example, have kept the London Interbank Offered Rate low for an extended period. "The spread between LIBOR and what banks are actually charging consumers for mortgages represents one of the largest profit margins banks have had for a long time," says Harris. "They can't assume that will continue."
As a means of improving the performance of banks and making them more resilient, the BIS clearly favors stronger capital requirements and less leverage. Proposals by the Basel Committee on Banking Supervision include tighter rules for core tier 1 capital, an increased capital requirement for trading books, and a borrowing ratio that caps bank assets relative to tier 1 capital.
BIS studies indicate that the resulting lower return on equity would actually be a "desirable outcome" for long-term investors and the entire economy. "In light of recent experience, equity holders will arguably require lower but more stable returns . . . that are likely to translate into higher profits in risk-adjusted terms," the report says. "A more stable performance would [also] imply a reduced incidence of financial crisis."
Monday, June 28, 2010
JP Morgan Subleasing More Space ?
As reported in New York Post
A juicy set of office moves are teeing up at 245 Park Ave., where JPMorgan Chase is apparently going to vacate its nearly 600,000 square feet.
The bank's goal, "tellers" say, is to consolidate at the 1.76 million square foot 277 Park Ave. where it already rents over 725,000 feet and has had many of its own floors up for sublease. There are also several contiguous floors available if the bank needs to fill in further.
Chase is being represented by a CB Richard Ellis team, which had no comment.
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large financial organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers banks and financial institutions a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
The opening at 245 Park is creating an opportunistic play for tenant Société Générale, which appears to be landing in some 400,000 feet of the Chase space. The space had 10 years left on its lease.
SPACE RACE: JPMorgan Chase may be consolidating its offices at 245 Park Ave. to 277 Park Ave., which has 1.76 million square feet of space.
While some sources say the sublease is close to being signed, SocGen could still renew its current lease for 10 floors totaling 536,600 feet at 1221 Ave. of the Americas.
Read more: http://www.nypost.com/p/news/business/realestate/commercial/chase_eyes_move_CodHASHBPTcJgp0mOny5JM#ixzz0sB0tCakc
A juicy set of office moves are teeing up at 245 Park Ave., where JPMorgan Chase is apparently going to vacate its nearly 600,000 square feet.
The bank's goal, "tellers" say, is to consolidate at the 1.76 million square foot 277 Park Ave. where it already rents over 725,000 feet and has had many of its own floors up for sublease. There are also several contiguous floors available if the bank needs to fill in further.
Chase is being represented by a CB Richard Ellis team, which had no comment.
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large financial organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers banks and financial institutions a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
The opening at 245 Park is creating an opportunistic play for tenant Société Générale, which appears to be landing in some 400,000 feet of the Chase space. The space had 10 years left on its lease.
SPACE RACE: JPMorgan Chase may be consolidating its offices at 245 Park Ave. to 277 Park Ave., which has 1.76 million square feet of space.
While some sources say the sublease is close to being signed, SocGen could still renew its current lease for 10 floors totaling 536,600 feet at 1221 Ave. of the Americas.
Read more: http://www.nypost.com/p/news/business/realestate/commercial/chase_eyes_move_CodHASHBPTcJgp0mOny5JM#ixzz0sB0tCakc
PNC Chairman Discusses Bank Branch Conversion
PNC Chairman and CEO Jim Rohr spoke to the Pittsburgh Business Times, a sister publication of the DBJ, about the completion of its conversion of National City branches.
PNC (NYSE: PNC) acquired National City Dec. 31, 2008, for $5.6 billion, essentially doubling PNC’s size and taking its footprint deeper into the Midwest. Pittsburgh-based PNC is Dayton's second-largest bank, with local deposits of about $2.63 billion, according to June 2009 figures from the Federal Deposit Insurance Corp.
The branch conversion process occurred in four phases beginning in November 2009. It concluded the weekend of June 11-13, with the fourth segment covering 1.6 million customers and 390 branches in Illinois, Missouri, Wisconsin and parts of Indiana.
All told, the process involved more than 6 million customers and 1,300 branches. It ranks among the four largest bank branch conversions in United States banking history and certainly was the largest for PNC. It was completed more than six months ahead of PNC’s initial projections.
PNC said the conversion was completed without any major issues: how did this come out so well?
“We had a team that was half PNC, half National City. It really brought together people who knew what they were doing. There was a lot of planning, a lot of training — five million training hours. When we had the first conversion wave (Western Pennsylvania, Florida and Columbus, Ohio, in November 2009), we figured what we could do differently and what went wrong. We had that discipline after each wave. Everyone was in the game: We have the buddy system on conversion weekends where people from other markets go over and spend the weekend with the converted market to make sure we got it right.”
Prior to converting branches, you visited the markets and PNC announced many charitable donations and initiatives. Did this help to get your name out and to give regions a better understanding of PNC?
“You can do that a lot faster than you can do the conversions. We give the local troops in each market a budget because they understand which charitable organizations are valuable in their community. Banks are community organizations, at least in our minds, and it’s important for us to focus on the community. It’s critical that you do business with people in the community, we’re inextricably linked.”
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Cleveland, National City’s headquarters city, was in the second wave of conversions. Was that difficult?
“We were welcomed in Cleveland. I will tell you that National City was having a difficult time and the community and newspapers knew it, so there was an understanding that National City was not going to remain independent. For the most part, (PNC) didn’t have anything in Cleveland, just two people in a small office.”
Cleveland is your hometown, so was there any personal significance for you to have operations there?
“The night we shook hands and signed the deal, it was a serendipitous moment. The National City headquarters building was across the street from where my grandfather had his restaurant and a block and a half from my father’s restaurant. So we signed the deal at 1 a.m., and I was standing on Ninth Street and thinking, ‘Oh, my Lord, what have I done?’ It just struck me, standing on that spot, so many years later.”
E-mail dayton@bizjournals.com. Call (937) 528-4400.
Read more: PNC Financial Services Group CEO Jim Rohr Q&A about National City conversion - Dayton Business Journal
PNC (NYSE: PNC) acquired National City Dec. 31, 2008, for $5.6 billion, essentially doubling PNC’s size and taking its footprint deeper into the Midwest. Pittsburgh-based PNC is Dayton's second-largest bank, with local deposits of about $2.63 billion, according to June 2009 figures from the Federal Deposit Insurance Corp.
The branch conversion process occurred in four phases beginning in November 2009. It concluded the weekend of June 11-13, with the fourth segment covering 1.6 million customers and 390 branches in Illinois, Missouri, Wisconsin and parts of Indiana.
All told, the process involved more than 6 million customers and 1,300 branches. It ranks among the four largest bank branch conversions in United States banking history and certainly was the largest for PNC. It was completed more than six months ahead of PNC’s initial projections.
PNC said the conversion was completed without any major issues: how did this come out so well?
“We had a team that was half PNC, half National City. It really brought together people who knew what they were doing. There was a lot of planning, a lot of training — five million training hours. When we had the first conversion wave (Western Pennsylvania, Florida and Columbus, Ohio, in November 2009), we figured what we could do differently and what went wrong. We had that discipline after each wave. Everyone was in the game: We have the buddy system on conversion weekends where people from other markets go over and spend the weekend with the converted market to make sure we got it right.”
Prior to converting branches, you visited the markets and PNC announced many charitable donations and initiatives. Did this help to get your name out and to give regions a better understanding of PNC?
“You can do that a lot faster than you can do the conversions. We give the local troops in each market a budget because they understand which charitable organizations are valuable in their community. Banks are community organizations, at least in our minds, and it’s important for us to focus on the community. It’s critical that you do business with people in the community, we’re inextricably linked.”
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Cleveland, National City’s headquarters city, was in the second wave of conversions. Was that difficult?
“We were welcomed in Cleveland. I will tell you that National City was having a difficult time and the community and newspapers knew it, so there was an understanding that National City was not going to remain independent. For the most part, (PNC) didn’t have anything in Cleveland, just two people in a small office.”
Cleveland is your hometown, so was there any personal significance for you to have operations there?
“The night we shook hands and signed the deal, it was a serendipitous moment. The National City headquarters building was across the street from where my grandfather had his restaurant and a block and a half from my father’s restaurant. So we signed the deal at 1 a.m., and I was standing on Ninth Street and thinking, ‘Oh, my Lord, what have I done?’ It just struck me, standing on that spot, so many years later.”
E-mail dayton@bizjournals.com. Call (937) 528-4400.
Read more: PNC Financial Services Group CEO Jim Rohr Q&A about National City conversion - Dayton Business Journal
Thursday, June 24, 2010
Bed Bath & Beyond Cost Savings Lead to Profits
First-quarter results for Bed Bath & Beyond showed an impressive 53% increase in profits that was larger than Wall Street's estimates. This was even more impressive considering the challenging consumer spending environment.
The retail chain's profit was $137.6 million, or 52 cents per share, for the three months ended May 29, up from 34 cents a year ago. Net sales increased to $1.9 billion up from $1.7 billion the period.
Despite the solid report, shares of Bed Bath & Beyond ( BBBY - news - people ) fell 4.8%, or $1.98, to $39.48, in New York Thursday.
One analyst said the company's cost saving efforts, prudent inventory management, debt-free balance sheet and potential to gain market share should pave the way to meet or exceed earnings forecasts for the next year.to meet or exceed earnings forecasts for the next year.
The company expects EPS between 59 cents and 63 cents for the second quarter, and they predict a total increase of approximately 15% for fiscal 2010, but the guidance, which was boosted to the higher end of the range previously issued by management, did little for the retailer's shares Thursday.
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
The retail chain's profit was $137.6 million, or 52 cents per share, for the three months ended May 29, up from 34 cents a year ago. Net sales increased to $1.9 billion up from $1.7 billion the period.
Despite the solid report, shares of Bed Bath & Beyond ( BBBY - news - people ) fell 4.8%, or $1.98, to $39.48, in New York Thursday.
One analyst said the company's cost saving efforts, prudent inventory management, debt-free balance sheet and potential to gain market share should pave the way to meet or exceed earnings forecasts for the next year.to meet or exceed earnings forecasts for the next year.
The company expects EPS between 59 cents and 63 cents for the second quarter, and they predict a total increase of approximately 15% for fiscal 2010, but the guidance, which was boosted to the higher end of the range previously issued by management, did little for the retailer's shares Thursday.
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Lease Accounting Rule Changes May Be A Game Change
We continue to follow this important issue for CFOs. This article appeared in the New York Times.
The Financial Accounting Standards Board, which sets American standards, has been working with the International Accounting Standards Board to merge its generally accepted accounting principles, or GAAP, with international standards. One major piece of the puzzle is the accounting for leases.
The two boards have come up with a new standard, which will be completed next year and enacted in 2013, that will require companies to book leases as assets and liabilities on their balance sheets. Currently, American and foreign companies list many leases as footnotes in their financial statements. As a result of the change, public companies will have to put some $1.3 trillion in leases on their balance sheets, according to estimates by the Securities and Exchange Commission. Because many private companies also follow GAAP accounting, the number could be closer to $2 trillion, experts said.
“It is going to get ugly,” said Mindy Berman, a managing director of corporate capital markets at the real estate services company Jones Lang LaSalle. “On the day the standard gets implemented, all these companies will suddenly have to record much higher rent, and they are going to have to record this as a significant liability on their balance sheet.”
There will be no grandfathering clause when the rule takes effect, so any active lease will have to be recorded on the balance sheet. Companies will record as a liability the cost of rent over the remaining term of the lease and record as an asset their right to use the space.
This could have several implications, including weakening companies in the eyes of investors and activating debt covenants with lenders. It could also affect credit ratings. While ratings agencies say they already take into consideration rent obligations, the new standard requires additional disclosures that could shed new light on lease terms.
The accounting change is meant to stop “significant off-balance-sheet activity for leases,” said Russell G. Golden, the technical director of FASB. The board expects to issue a new draft document outlining the changes this summer. This follows a months-long period in which nearly 300 companies sent letters commenting on the proposal.
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Among those most heavily affected by the changes will be companies that are already struggling under heavy debt loads, as well as large retailers that have hundreds, if not thousands, of leases. Commercial banks with multiple branches may also be severely hit in 2013, especially if that industry is still recovering from the recession.
“We are busy preparing clients to make them aware of the changes and help them analyze how it might impact them,” said Barry M. Gosin, chief executive at Newmark Knight Frank, the real estate services firm. “There are so many complicating factors that will make this an administrative nightmare.”
The new standard is expected to have ripple effects in the leasing market. One of the chief changes is to remove many of the differences in the way companies account for property that they own and property they lease. This may cause more companies to buy their offices and drive down demand for leased space, experts said.
There may also be an impetus to shrink the length of a lease. “If you have a 10-year lease, it will mean putting twice as much debt on the balance sheet as a five-year lease, so some companies may want to go short term,” said Dale F. Schlather, an executive vice president for the commercial real estate company Cushman & Wakefield and chairman of the New York chapter for the industry group CoreNet Global.
Further complicating matters is the accounting for lease renewals. Many companies sign leases with renewal terms, like a 10-year lease with an option to renew for another five years. Under the new rules, if it is likely that the company will execute the renewal option, they must account for the lease as if it were actually 15 years. Because this will mean adding more debt to the balance sheets, renewal options could become less popular.
In addition, some industries, including most retailers, sign leases with so-called contingent rents, which are based on a percentage of sales. Under the new standard, companies with these agreements will have to estimate their sales numbers over the entire term of the lease to book it on their balance sheet.
“Retailers are going nuts right now,” said Brant Bryan, a managing principal at Cresa Partners, a real estate advisory firm. “They have the daunting task of having to estimate their sales way into the future, and to make it worse, they will have to reassess these estimates over and over at every reporting period.”
Landlords will also see new accounting treatments. Mr. Golden of the standards board said that as the new rules were written now, landlords would record as a liability the obligation to provide space and record as an asset the rents they received. And while landlords currently book all of their revenue as rental income, under the new standard the rents will be recorded partly as interest income and partly as a reduction in the obligation to provide space.
But it isn’t all bad news. Under the new standards, companies that lease space are considered to be buying the right to use that space for a certain amount of time. So, not unlike a home buyer who begins with a large mortgage but then reduces it as the principal is paid down, companies will record their rent as a major liability at the start, but will eventually reduce this debt over the term of the lease.
While many companies say they support recording their leases on their balance sheets in the interest of transparency, what is controversial is how to enact this change. Having to estimate the likelihood of a renewal option or future sales, for example, “requires forecasting what you are going to pay rather than the legal obligation of what you will have to pay,” said John Hepp, a partner at the advisory firm Grant Thornton. “Accounting is supposed to be pragmatic, but now we are being asked to think more like economists. That is a whole different ballgame.”
The Financial Accounting Standards Board, which sets American standards, has been working with the International Accounting Standards Board to merge its generally accepted accounting principles, or GAAP, with international standards. One major piece of the puzzle is the accounting for leases.
The two boards have come up with a new standard, which will be completed next year and enacted in 2013, that will require companies to book leases as assets and liabilities on their balance sheets. Currently, American and foreign companies list many leases as footnotes in their financial statements. As a result of the change, public companies will have to put some $1.3 trillion in leases on their balance sheets, according to estimates by the Securities and Exchange Commission. Because many private companies also follow GAAP accounting, the number could be closer to $2 trillion, experts said.
“It is going to get ugly,” said Mindy Berman, a managing director of corporate capital markets at the real estate services company Jones Lang LaSalle. “On the day the standard gets implemented, all these companies will suddenly have to record much higher rent, and they are going to have to record this as a significant liability on their balance sheet.”
There will be no grandfathering clause when the rule takes effect, so any active lease will have to be recorded on the balance sheet. Companies will record as a liability the cost of rent over the remaining term of the lease and record as an asset their right to use the space.
This could have several implications, including weakening companies in the eyes of investors and activating debt covenants with lenders. It could also affect credit ratings. While ratings agencies say they already take into consideration rent obligations, the new standard requires additional disclosures that could shed new light on lease terms.
The accounting change is meant to stop “significant off-balance-sheet activity for leases,” said Russell G. Golden, the technical director of FASB. The board expects to issue a new draft document outlining the changes this summer. This follows a months-long period in which nearly 300 companies sent letters commenting on the proposal.
CFO Best Practice Sponsor:
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Among those most heavily affected by the changes will be companies that are already struggling under heavy debt loads, as well as large retailers that have hundreds, if not thousands, of leases. Commercial banks with multiple branches may also be severely hit in 2013, especially if that industry is still recovering from the recession.
“We are busy preparing clients to make them aware of the changes and help them analyze how it might impact them,” said Barry M. Gosin, chief executive at Newmark Knight Frank, the real estate services firm. “There are so many complicating factors that will make this an administrative nightmare.”
The new standard is expected to have ripple effects in the leasing market. One of the chief changes is to remove many of the differences in the way companies account for property that they own and property they lease. This may cause more companies to buy their offices and drive down demand for leased space, experts said.
There may also be an impetus to shrink the length of a lease. “If you have a 10-year lease, it will mean putting twice as much debt on the balance sheet as a five-year lease, so some companies may want to go short term,” said Dale F. Schlather, an executive vice president for the commercial real estate company Cushman & Wakefield and chairman of the New York chapter for the industry group CoreNet Global.
Further complicating matters is the accounting for lease renewals. Many companies sign leases with renewal terms, like a 10-year lease with an option to renew for another five years. Under the new rules, if it is likely that the company will execute the renewal option, they must account for the lease as if it were actually 15 years. Because this will mean adding more debt to the balance sheets, renewal options could become less popular.
In addition, some industries, including most retailers, sign leases with so-called contingent rents, which are based on a percentage of sales. Under the new standard, companies with these agreements will have to estimate their sales numbers over the entire term of the lease to book it on their balance sheet.
“Retailers are going nuts right now,” said Brant Bryan, a managing principal at Cresa Partners, a real estate advisory firm. “They have the daunting task of having to estimate their sales way into the future, and to make it worse, they will have to reassess these estimates over and over at every reporting period.”
Landlords will also see new accounting treatments. Mr. Golden of the standards board said that as the new rules were written now, landlords would record as a liability the obligation to provide space and record as an asset the rents they received. And while landlords currently book all of their revenue as rental income, under the new standard the rents will be recorded partly as interest income and partly as a reduction in the obligation to provide space.
But it isn’t all bad news. Under the new standards, companies that lease space are considered to be buying the right to use that space for a certain amount of time. So, not unlike a home buyer who begins with a large mortgage but then reduces it as the principal is paid down, companies will record their rent as a major liability at the start, but will eventually reduce this debt over the term of the lease.
While many companies say they support recording their leases on their balance sheets in the interest of transparency, what is controversial is how to enact this change. Having to estimate the likelihood of a renewal option or future sales, for example, “requires forecasting what you are going to pay rather than the legal obligation of what you will have to pay,” said John Hepp, a partner at the advisory firm Grant Thornton. “Accounting is supposed to be pragmatic, but now we are being asked to think more like economists. That is a whole different ballgame.”
Wednesday, June 23, 2010
Changes at JP Morgan
As reported in New York Times
JP Morgan emerged from the financial crisis as one of the strongest banks on American soil. Now it wants to make up lost ground overseas, Eric Dash reports in The New York Times.
The bank’s chief executive, Jamie Dimon, announced a series of management changes toward that end on Tuesday, appointing one of his closest lieutenants to a new position with a mandate to start a global corporate banking business and scout out opportunities in Europe, Latin America and Asia.
The executive, Heidi G. Miller, was named president of the bank’s international operations and chairwoman of a new global advisory committee made up of about a dozen senior bankers and regional business heads. The new role should further cement Ms. Miller’s standing as one of the most powerful women on Wall Street.
Ms. Miller’s appointment set off other changes to the bank’s organizational chart. Michael J. Cavanagh, JPMorgan’s chief financial officer, will take over for Ms. Miller as head of the bank’s Treasury and Securities division, which focuses on back-office recordkeeping and securities lending for big institutional investors like hedge funds and pension funds.
Douglas L. Braunstein, 49, the head of investment banking for the Americas, will succeed Mr. Cavanagh, 44. Mr. Braunstein’s successor has not been nam
JP Morgan emerged from the financial crisis as one of the strongest banks on American soil. Now it wants to make up lost ground overseas, Eric Dash reports in The New York Times.
The bank’s chief executive, Jamie Dimon, announced a series of management changes toward that end on Tuesday, appointing one of his closest lieutenants to a new position with a mandate to start a global corporate banking business and scout out opportunities in Europe, Latin America and Asia.
The executive, Heidi G. Miller, was named president of the bank’s international operations and chairwoman of a new global advisory committee made up of about a dozen senior bankers and regional business heads. The new role should further cement Ms. Miller’s standing as one of the most powerful women on Wall Street.
Ms. Miller’s appointment set off other changes to the bank’s organizational chart. Michael J. Cavanagh, JPMorgan’s chief financial officer, will take over for Ms. Miller as head of the bank’s Treasury and Securities division, which focuses on back-office recordkeeping and securities lending for big institutional investors like hedge funds and pension funds.
Douglas L. Braunstein, 49, the head of investment banking for the Americas, will succeed Mr. Cavanagh, 44. Mr. Braunstein’s successor has not been nam
Monday, June 14, 2010
New Survey Show Cost Containment Still Key In Recovery
CFO Magazine has published an overview of survey results that show the recovery is slowing and financial officers need to take note. Their take is to conserve cash and perhaps hold off on increasing sales and marketing expenses. Reporting by David Katz:
Worsening credit conditions and tightened cash flow among customers stalled the nation's economic recovery in May, the findings of the most recent Credit Managers' Index suggest. While the CMI dipped less than a point last month, from 56.5 to 55.9, it was the first time the index recorded a decrease since January 2009.
Similarly, after six months of rising, the score for the amount of credit extended, a favorable factor, flattened out in April at 61.3 and then dropped to 60.2 in May. And for the first time since August 2009, the credit managers recorded a decreased score (62.1 to 59.7) for the dollars they collected from creditors between April and May.
To be sure, the scores were merely small drop-offs from several months of nascent recovery. "I don't think we're in a real crisis situation," says Chris Kuehl, economic adviser to the National Association of Credit Management, the organization that prepares the index each month. "It's really a sense of that we were growing pretty aggressively, and now we've flattened out." The numbers reinforce "the notion of a slow recovery," he adds.
The big takeaway for finance chiefs? "Resist entreating the sales and marketing departments to spend money," says Kuehl. "It's still a good time to be a conservative, count-your-pennies CFO."
Particularly indicative of the need for parsimony was the drop from 55.7 to 51.8 in the CMI score for the dollar amount of customer deductions from their billings. While that decrease between April and May did not reverse a long-term trend — the scores in January, February, and March bounced from 52.5 to 51.2 to 51.7, respectively — it did indicate some cash-flow problems among customers, says Kuehl.
The drop in customer deductions suggests that customers need to hold on to cash rather than pay off all their debt. That, in turn, is leading creditors to hold back on aiding other debtors with better terms or deductions. "Many of the companies, whether they are expanding are not, are saying, 'Now we need the consumer to come in and consume some of the inventory we've built,'" says Kuehl.
Based on a survey of about 1,000 trade-credit managers near the end of each month, the CMI is a compilation of scores based on whether respondents are seeing improvement, deterioration, or no change in the factors discussed above, as well as in sales, new credit applications, accounts placed for collection, and other factors.
http://www.cfo.com/article.cfm/14502312?f=home_featured
Sponsor: Cambridge Consulting Group are specialists in helping large financial contain costs by reviewing commercial real estate leases. Many firms are wasting millions of dollars paying landlords for commercial real estate they no longer use. Cambridge has developed a new strategy for companies facing cash flow issues from excess real estate- negotiated Lease Buyouts. Using their expertise Cambridge Consulting Group has saved Bank of America, Key Corp, Ford Motor Credit and other Fortune 500 firms, millions of dollars by reducing their real estate leasing payments. For more informtion please visit their website, www.ccgiweb.com
Worsening credit conditions and tightened cash flow among customers stalled the nation's economic recovery in May, the findings of the most recent Credit Managers' Index suggest. While the CMI dipped less than a point last month, from 56.5 to 55.9, it was the first time the index recorded a decrease since January 2009.
Similarly, after six months of rising, the score for the amount of credit extended, a favorable factor, flattened out in April at 61.3 and then dropped to 60.2 in May. And for the first time since August 2009, the credit managers recorded a decreased score (62.1 to 59.7) for the dollars they collected from creditors between April and May.
To be sure, the scores were merely small drop-offs from several months of nascent recovery. "I don't think we're in a real crisis situation," says Chris Kuehl, economic adviser to the National Association of Credit Management, the organization that prepares the index each month. "It's really a sense of that we were growing pretty aggressively, and now we've flattened out." The numbers reinforce "the notion of a slow recovery," he adds.
The big takeaway for finance chiefs? "Resist entreating the sales and marketing departments to spend money," says Kuehl. "It's still a good time to be a conservative, count-your-pennies CFO."
Particularly indicative of the need for parsimony was the drop from 55.7 to 51.8 in the CMI score for the dollar amount of customer deductions from their billings. While that decrease between April and May did not reverse a long-term trend — the scores in January, February, and March bounced from 52.5 to 51.2 to 51.7, respectively — it did indicate some cash-flow problems among customers, says Kuehl.
The drop in customer deductions suggests that customers need to hold on to cash rather than pay off all their debt. That, in turn, is leading creditors to hold back on aiding other debtors with better terms or deductions. "Many of the companies, whether they are expanding are not, are saying, 'Now we need the consumer to come in and consume some of the inventory we've built,'" says Kuehl.
Based on a survey of about 1,000 trade-credit managers near the end of each month, the CMI is a compilation of scores based on whether respondents are seeing improvement, deterioration, or no change in the factors discussed above, as well as in sales, new credit applications, accounts placed for collection, and other factors.
http://www.cfo.com/article.cfm/14502312?f=home_featured
Sponsor: Cambridge Consulting Group are specialists in helping large financial contain costs by reviewing commercial real estate leases. Many firms are wasting millions of dollars paying landlords for commercial real estate they no longer use. Cambridge has developed a new strategy for companies facing cash flow issues from excess real estate- negotiated Lease Buyouts. Using their expertise Cambridge Consulting Group has saved Bank of America, Key Corp, Ford Motor Credit and other Fortune 500 firms, millions of dollars by reducing their real estate leasing payments. For more informtion please visit their website, www.ccgiweb.com
Dashboard Metrics for CFOs
Access to the right kind of information on a real time basis is important for any decision. I found the following article from Ken Kaufmann with CFOWise on using dashboards is very informative. Developing dashboards fro key metrics would be an important step from most organizations.
"There seems to be a lot of buzz around businesses having a dashboard. Even Intuit has jumped on board and tried to provide this functionality in QuickBooks with its Snapshot Center. For those unfamiliar with this concept, a dashboard is one place a business owner should be able to look to see all of the key metrics and performance indicators of their business. To learn more about this concept, please visit my blog post: The Key Business Metrics Every Entrepreneur Must Know.
I need to preface what I am about to say with the disclaimer that I think every business should have a dashboard that outlines the key business metrics every business should measure, with some customization by industry and company, in a timely and accurate fashion. I take no issue with the concept of dashboards – in fact, I fully endorse it. My issue is related to programs and tools that are built to fulfill the dashboard function and how they are deployed. Most dashboard programs and tools are totally ineffective and fall far short of the sales pitch that caused them to be purchased in the first place. Why? Here are the two main reasons, as well as my suggestion for how to get the most value out of the “dashboarding” process.
1. WE DON’T KNOW WHAT WE NEED TO KNOW
Regardless of how well you think you know your business, your model, or your key metrics, I guarantee you will not get the needs of your dashboard right the first time. An inevitable part of the “dashboarding” process is you quickly learn what information is helpful and what information is not. It also forces you to ask additional questions that leads to better and more effective metrics. The challenge with most SaaS and off-the-shelf “dashboarding” programs is that they all require time, effort, and energy to set them up so they will work. It is hard to make any changes without feeling like you have to start all over again. Yes, I hope there will be some dashboard companies that will dispute this statement, but I have yet to see any of them fulfill on the commitment that the dashboards are easy to change once they get up and working.
Please visit the CFOWise website for the full article-http://www.cfowise.com/part-time-cfo/the-2-problems-with-dashboards/
Sponsor: Cambridge Consulting Group provides financial institutions with information on their commercial real estate assets and their impact on the bottom line profits. Managing excess real estate costs is crucial to containing costs and positioning your company for future growth. Cambridge Consulting Group is not a real estate firm- they are financial/tax experts that can save your firm millions of dollars by reducing your exposure to commercial real estate leasing costs. For more information please visit their website at www.ccgi.com.
"There seems to be a lot of buzz around businesses having a dashboard. Even Intuit has jumped on board and tried to provide this functionality in QuickBooks with its Snapshot Center. For those unfamiliar with this concept, a dashboard is one place a business owner should be able to look to see all of the key metrics and performance indicators of their business. To learn more about this concept, please visit my blog post: The Key Business Metrics Every Entrepreneur Must Know.
I need to preface what I am about to say with the disclaimer that I think every business should have a dashboard that outlines the key business metrics every business should measure, with some customization by industry and company, in a timely and accurate fashion. I take no issue with the concept of dashboards – in fact, I fully endorse it. My issue is related to programs and tools that are built to fulfill the dashboard function and how they are deployed. Most dashboard programs and tools are totally ineffective and fall far short of the sales pitch that caused them to be purchased in the first place. Why? Here are the two main reasons, as well as my suggestion for how to get the most value out of the “dashboarding” process.
1. WE DON’T KNOW WHAT WE NEED TO KNOW
Regardless of how well you think you know your business, your model, or your key metrics, I guarantee you will not get the needs of your dashboard right the first time. An inevitable part of the “dashboarding” process is you quickly learn what information is helpful and what information is not. It also forces you to ask additional questions that leads to better and more effective metrics. The challenge with most SaaS and off-the-shelf “dashboarding” programs is that they all require time, effort, and energy to set them up so they will work. It is hard to make any changes without feeling like you have to start all over again. Yes, I hope there will be some dashboard companies that will dispute this statement, but I have yet to see any of them fulfill on the commitment that the dashboards are easy to change once they get up and working.
Please visit the CFOWise website for the full article-http://www.cfowise.com/part-time-cfo/the-2-problems-with-dashboards/
Sponsor: Cambridge Consulting Group provides financial institutions with information on their commercial real estate assets and their impact on the bottom line profits. Managing excess real estate costs is crucial to containing costs and positioning your company for future growth. Cambridge Consulting Group is not a real estate firm- they are financial/tax experts that can save your firm millions of dollars by reducing your exposure to commercial real estate leasing costs. For more information please visit their website at www.ccgi.com.
Thursday, June 10, 2010
Companies Should Avoid Subleasing Office Space
THE TRUTH ABOUT SUBLEASING
Subleasing is not the Solution for Surplus Office Space
WHY IS SUBLEASING THE ONLY RECOGNIZED OPTION FOR
MITIGATING THE LOSS OF SURPLUS OFFICE SPACE?
Up until the savings and loan scandal of the eighties, real estate developers enjoyed some latitude with lenders as to the value and potential pro-forma of their office projects. Since that time regulations on lending practices have forced developer/landlords to a much tighter qualification process. Before, developer/landlords had more latitude in deciding the best alternatives for empty space, the lenders leaving much to the discretion of the landlords.
Today, lenders almost exclusively base the quality of their loans on the “income approach” to valuation. Therefore, to lose a percentage of a loan’s income can, and will de-value the loan forcing the lender to require additional equity in the project – or justify the loss to their stockholders.
Since then, landlords have required tenants who no longer need or are using space in their buildings to “sublease” the space themselves. This gives the landlord the luxury of maintaining the income and guarantees from the tenant, even if they find a subtenant. It also creates a tremendous loss for the tenant needing to sublease the space.
If your company has surplus space and time remaining on the lease, what are you to do? If you call your landlord you are likely to receive the answer – “Sublease it”. They will probably offer their own brokers services which will seem reasonable. But the landlord’s broker works for your landlord. The landlord will see to it that any potential tenants are shown their own empty space before yours.
Once You Begin The Sublease Odyssey – Keep This in Mind:
1. A Surplus Lease Is Not A Real Estate Issue – It's A Cash-Flow Issue.
Finding a subtenant is not the issue at hand. Timing and speed of execution are the true issues. Every month the space sits vacant costs your company thousands in lost after-tax income. The goal should be to find the fastest and least expensive method of mitigating this loss. Subleasing is neither.
2. A Sublease Is Perceived By The Market As A "Fire Sale"
According to the Business Post, “Most commercial real estate brokers will advise a potential tenant wanting to sublease their space that their space will trade in the 50 cents on the dollar range.” (Business Post, Subleasing Can Be Painful, February 2005). After leasehold improvement allowances, broker commissions, and numerous other costs – some known and some hidden, a sublease will rarely return more than 37 cents on the dollar – and that’s a best case scenario.
3. Subleasing Attracts Bottom Feeding Tenants
High credit companies do not seek sublease space. Subleases attract cash and credit poor tenants who usually are unable to qualify for a new lease. Also, once their sublease ends – the new tenant is subject to a new rental rate which the landlord controls. But more importantly, what happens when your new subtenant can't pay the rent?
4. Financial Regulations Specifically Target Sublease Accounting
According to GAAP financial rules (FASB 13 – Interpretation 27), surplus space must be written off at the time you intend to vacate the space. If you sublease the space and the subtenant defaults, you may be required to immediately write off the entire remaining lease balance including all anticipated costs including the furniture, fixtures and equipment you may have installed. Furthermore, if you are trying to sublease and your reported sublease income expectations are below your expectations, you may be required to immediately write off that additional loss.
5. A Sublease Requires You To Put Up "AT RISK" Capital
A sublease typically requires an up front cash investment for leasehold improvements as well as your broker’s commission. These standard out-of-the-gate expenses are needed to attract what often ends up being a poor credit subtenant who is at great risk of default, essentially making it more of a gamble than an investment.
6. A Sublease Puts You In The Real Estate Management Business
Subleasing means you are now a landlord since the sublease is between your company and your new subtenant – not the landlord. Therefore any of your subtenant’s office building requests and requirements must be handled by you first, not the landlord. All requests for repairs and maintenance, collecting rent, parking lot accident liability, etc. are your responsibility. When the toilet backs up the subtenant must call you, not the original landlord – who is no longer directly liable for such repairs. This takes a lot more time and money than most expect and is a “dirty little secret” of subleasing.
7. The Value Of Your Sublease Decreases With Every Day
Every month that your space sits vacant it becomes less attractive to prospects. Subtenants know that shorter term subleases mean they will soon face large rent increases once the sublease terminates. History shows that opportunities to sublease fall dramatically when the lease term remaining drop below 36 months.
Alternatives to Subleasing:
20 years ago, Cambridge Real Estate Consulting pioneered a “new science” – A Professionally Negotiated Lease Buy-out. This “science” is based on the ability of the negotiator to “un-lock” the value of the vacant space – and then show it to the landlord.
Lease buy-out negotiation is a specialized exercise that requires a unique and expert knowledge of real estate leases; finance and investor expectations. But most importantly, it requires years of experience in this type of negotiation.
Surplus space can have great value to the landlord, which is often overlooked – even by the landlord. The landlord can earn far more for your space than you can under a sublease. They have the ability and expertise to more profitably market the property.
The challenge is to convince the landlord that it is in their interest to take back your space with a small cushion of cash now rather than leave the space vacant or have a less than desirable subtenant there.
A SUCCESSFULLY NEGOTIATED LEASE BUY-OUT:
A TYPICAL NEGOTIATED LEASE BUY-OUT PROCESS:
1. A SITUATION ANALYSIS
We dissect your lease; all additional bills and correspondence to determine the exact future obligation and any anticipated or written changes. We then develop a presentation outlining our findings.
2. PRE–PROCESS PLANNING
The most important and time consuming part of the buy-out process is pre-process planning. The reason for this planning is to gain knowledge of the landlord’s unique financial and market position. Once given the “go ahead”, we meet with the landlord to explain the situation and determine their financial and investor issues.
3. STRATEGY DEVELOPMENT
Once understanding your lease and business situation; meeting with the landlord and determining market conditions – we work directly with you to develop a strategy that fits your budget and timing.
4. TACTICAL NEGOTIATIONS
A negotiated buy-out is not just a simple meeting to convince the landlord to let you out of a large financial obligation. It requires several tactical negotiations to find the “buttons” that will help the landlord recognize the potential gain – or at least no potential loss.
5. EXECUTE THE BUY-OUT
This is the most critical and delicate part of the process. More buy-outs are lost during the final legal negotiations and documentation than any other part of the process. We actively participate in this process through execution.
Although considered the “tried and true” method for dealing with surplus space – subleasing is also the most futile in mitigating the loss from surplus space. There are alternatives which can more quickly and less expensively END the liability.
To learn more about Cambridge’s services, call 888.472-5656. Or visit our web site www.ccgiweb.com. We will happy to give you a free consultation on your situation and give you options that save money now.
Subleasing is not the Solution for Surplus Office Space
WHY IS SUBLEASING THE ONLY RECOGNIZED OPTION FOR
MITIGATING THE LOSS OF SURPLUS OFFICE SPACE?
Up until the savings and loan scandal of the eighties, real estate developers enjoyed some latitude with lenders as to the value and potential pro-forma of their office projects. Since that time regulations on lending practices have forced developer/landlords to a much tighter qualification process. Before, developer/landlords had more latitude in deciding the best alternatives for empty space, the lenders leaving much to the discretion of the landlords.
Today, lenders almost exclusively base the quality of their loans on the “income approach” to valuation. Therefore, to lose a percentage of a loan’s income can, and will de-value the loan forcing the lender to require additional equity in the project – or justify the loss to their stockholders.
Since then, landlords have required tenants who no longer need or are using space in their buildings to “sublease” the space themselves. This gives the landlord the luxury of maintaining the income and guarantees from the tenant, even if they find a subtenant. It also creates a tremendous loss for the tenant needing to sublease the space.
If your company has surplus space and time remaining on the lease, what are you to do? If you call your landlord you are likely to receive the answer – “Sublease it”. They will probably offer their own brokers services which will seem reasonable. But the landlord’s broker works for your landlord. The landlord will see to it that any potential tenants are shown their own empty space before yours.
Once You Begin The Sublease Odyssey – Keep This in Mind:
1. A Surplus Lease Is Not A Real Estate Issue – It's A Cash-Flow Issue.
Finding a subtenant is not the issue at hand. Timing and speed of execution are the true issues. Every month the space sits vacant costs your company thousands in lost after-tax income. The goal should be to find the fastest and least expensive method of mitigating this loss. Subleasing is neither.
2. A Sublease Is Perceived By The Market As A "Fire Sale"
According to the Business Post, “Most commercial real estate brokers will advise a potential tenant wanting to sublease their space that their space will trade in the 50 cents on the dollar range.” (Business Post, Subleasing Can Be Painful, February 2005). After leasehold improvement allowances, broker commissions, and numerous other costs – some known and some hidden, a sublease will rarely return more than 37 cents on the dollar – and that’s a best case scenario.
3. Subleasing Attracts Bottom Feeding Tenants
High credit companies do not seek sublease space. Subleases attract cash and credit poor tenants who usually are unable to qualify for a new lease. Also, once their sublease ends – the new tenant is subject to a new rental rate which the landlord controls. But more importantly, what happens when your new subtenant can't pay the rent?
4. Financial Regulations Specifically Target Sublease Accounting
According to GAAP financial rules (FASB 13 – Interpretation 27), surplus space must be written off at the time you intend to vacate the space. If you sublease the space and the subtenant defaults, you may be required to immediately write off the entire remaining lease balance including all anticipated costs including the furniture, fixtures and equipment you may have installed. Furthermore, if you are trying to sublease and your reported sublease income expectations are below your expectations, you may be required to immediately write off that additional loss.
5. A Sublease Requires You To Put Up "AT RISK" Capital
A sublease typically requires an up front cash investment for leasehold improvements as well as your broker’s commission. These standard out-of-the-gate expenses are needed to attract what often ends up being a poor credit subtenant who is at great risk of default, essentially making it more of a gamble than an investment.
6. A Sublease Puts You In The Real Estate Management Business
Subleasing means you are now a landlord since the sublease is between your company and your new subtenant – not the landlord. Therefore any of your subtenant’s office building requests and requirements must be handled by you first, not the landlord. All requests for repairs and maintenance, collecting rent, parking lot accident liability, etc. are your responsibility. When the toilet backs up the subtenant must call you, not the original landlord – who is no longer directly liable for such repairs. This takes a lot more time and money than most expect and is a “dirty little secret” of subleasing.
7. The Value Of Your Sublease Decreases With Every Day
Every month that your space sits vacant it becomes less attractive to prospects. Subtenants know that shorter term subleases mean they will soon face large rent increases once the sublease terminates. History shows that opportunities to sublease fall dramatically when the lease term remaining drop below 36 months.
Alternatives to Subleasing:
20 years ago, Cambridge Real Estate Consulting pioneered a “new science” – A Professionally Negotiated Lease Buy-out. This “science” is based on the ability of the negotiator to “un-lock” the value of the vacant space – and then show it to the landlord.
Lease buy-out negotiation is a specialized exercise that requires a unique and expert knowledge of real estate leases; finance and investor expectations. But most importantly, it requires years of experience in this type of negotiation.
Surplus space can have great value to the landlord, which is often overlooked – even by the landlord. The landlord can earn far more for your space than you can under a sublease. They have the ability and expertise to more profitably market the property.
The challenge is to convince the landlord that it is in their interest to take back your space with a small cushion of cash now rather than leave the space vacant or have a less than desirable subtenant there.
A SUCCESSFULLY NEGOTIATED LEASE BUY-OUT:
- COSTS FAR LESS THAN A SUBLEASE
- CAN BE ACCOMPLISHED IN 60 TO 90 DAYS
- ELIMINATES ALL RISK AND FUTURE LIABILITIES
- REQUIRES NO “AT-RISK” CAPITAL
A TYPICAL NEGOTIATED LEASE BUY-OUT PROCESS:
1. A SITUATION ANALYSIS
We dissect your lease; all additional bills and correspondence to determine the exact future obligation and any anticipated or written changes. We then develop a presentation outlining our findings.
2. PRE–PROCESS PLANNING
The most important and time consuming part of the buy-out process is pre-process planning. The reason for this planning is to gain knowledge of the landlord’s unique financial and market position. Once given the “go ahead”, we meet with the landlord to explain the situation and determine their financial and investor issues.
3. STRATEGY DEVELOPMENT
Once understanding your lease and business situation; meeting with the landlord and determining market conditions – we work directly with you to develop a strategy that fits your budget and timing.
4. TACTICAL NEGOTIATIONS
A negotiated buy-out is not just a simple meeting to convince the landlord to let you out of a large financial obligation. It requires several tactical negotiations to find the “buttons” that will help the landlord recognize the potential gain – or at least no potential loss.
5. EXECUTE THE BUY-OUT
This is the most critical and delicate part of the process. More buy-outs are lost during the final legal negotiations and documentation than any other part of the process. We actively participate in this process through execution.
Although considered the “tried and true” method for dealing with surplus space – subleasing is also the most futile in mitigating the loss from surplus space. There are alternatives which can more quickly and less expensively END the liability.
To learn more about Cambridge’s services, call 888.472-5656. Or visit our web site www.ccgiweb.com. We will happy to give you a free consultation on your situation and give you options that save money now.
Wednesday, June 9, 2010
Cash Is King
With Treasuries at all-time lows and bank lending still declining, companies are reorganizing their treasury operations in record numbers as they strive to increase efficiency, reduce costs and make best use of their internal cash. According to a recent survey by JP Morgan Treasury Services, 61 percent of companies polled had either just completed a treasury restructuring, were in the process of restructuring, or were building the business case for a restructuring.
The poll of 182 treasury executives—primarily from large corporations--found that 35 percent were implementing systems that would allow the company to get a global cash balance, 25 percent were reorganizing their bank account structures to reduce their number of banking partners, and 19 percent were restructuring their cash concentration programs to make use of extra cash for self-funding or debt repayment.
The need to make more efficient use of existing cash balances has been a growing theme throughout the crisis and continues to be a big driver of corporate treasury reorganization, as we discussed last week. Swiss logistics company Panalpina, for example, recently went through a restructuring and treasury refocusing to reduce group-wide operating costs and better manage FX and interest rate exposures in the current market. The firm underwent a full review of its foreign exchange management and investment policies in order to more efficiently manage counterparties and instrument tenors, and better hedge FX exposures. The next step, according to the company, is to move to a single global treasury management system that is integrated with its ERP.
http://www.cfozone.com/index.php?option=com_myblog&show=Companies-restructure-treasury-to-reduce-costs.html&Itemid=713&newsletter=06092010_cfo
Blog Sponsor
The poll of 182 treasury executives—primarily from large corporations--found that 35 percent were implementing systems that would allow the company to get a global cash balance, 25 percent were reorganizing their bank account structures to reduce their number of banking partners, and 19 percent were restructuring their cash concentration programs to make use of extra cash for self-funding or debt repayment.
The need to make more efficient use of existing cash balances has been a growing theme throughout the crisis and continues to be a big driver of corporate treasury reorganization, as we discussed last week. Swiss logistics company Panalpina, for example, recently went through a restructuring and treasury refocusing to reduce group-wide operating costs and better manage FX and interest rate exposures in the current market. The firm underwent a full review of its foreign exchange management and investment policies in order to more efficiently manage counterparties and instrument tenors, and better hedge FX exposures. The next step, according to the company, is to move to a single global treasury management system that is integrated with its ERP.
http://www.cfozone.com/index.php?option=com_myblog&show=Companies-restructure-treasury-to-reduce-costs.html&Itemid=713&newsletter=06092010_cfo
Blog Sponsor
Sponsor:Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Mutual Of Omaha Expanding Number of Locations
Going Against the Grain
US Banker | June 2010
By David Lagesse
Mutual of Omaha isn't the first or largest insurance company to venture into banking, but it could soon be the most visible.
While competitors like Nationwide and State Farm rely heavily on the Internet and their own agents to generate deposits and loans, Mutual of Omaha Bank is building its customer base in a more traditional way: through acquisitions and de novo branching.
Just three years old, the bank already has $4.1 billion of assets and nearly 40 branches in six states, and it isn't done yet. Jeffrey Schmid, the bank's chief executive, says his goal is to create a brick-and-mortar franchise stretching from Washington State to the Carolinas, and with the backing of a deep-pocketed parent, he has the resources to do it.
"We're in a position now where we can look at every deal that becomes available," Schmid says.
Still, building a nationwide banking franchise one deal at a time is one thing, managing it profitably is another. Mutual of Omaha Bank's strategy is less about establishing critical mass in a handful of states than it is having small branch networks in multiple states. That's not always the most efficient way to run things, as several banking companies have painfully discovered.
And the bank's long-term plans to cross-sell banking products to insurance customers, and vice versa, is alsoeasier said than done, observers say.
Yet perhaps more than most acquisition-minded companies, Mutual of Omaha can afford to be patient; as a mutual owned by its policy holders, it's under less pressure than publicly traded firms to generate profits quickly.
With strong name recognition—particularly in the Midwest—it is also positioned well to take advantage of growing customer dissatisfaction with big banks. Mutual of Omaha is an iconic brand, untainted by a financial crisis that has sullied the reputations of so many financial firms.
"The thing that gives us a huge amount of momentum is the brand," Schmid says. "We don't have to spend a lot of time telling people that they should trust us."
Mutual of Omaha Bank is the brainchild of Schmid's boss, Daniel Neary, the chairman and CEO of Mutual of Omaha Insurance Co.
Neary, a lifelong insurance industry executive, had studied banking up close as a director at Commercial Federal Bank in Omaha and was struck by the similarities with the insurance business. Both pay interest on money taken in from customers, collect interest on money loaned to others, and try to profit on the margin. Neary also saw that banks were becoming a key channel for selling insurance, while insurers were starting to offer bank products, such as certificates of deposit, loans and credit cards, to their policyholders.
http://www.americanbanker.com/usb_issues/120_6/going-against-the-grain-1019451-1.html
Sponsor:Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
US Banker | June 2010
By David Lagesse
Mutual of Omaha isn't the first or largest insurance company to venture into banking, but it could soon be the most visible.
While competitors like Nationwide and State Farm rely heavily on the Internet and their own agents to generate deposits and loans, Mutual of Omaha Bank is building its customer base in a more traditional way: through acquisitions and de novo branching.
Just three years old, the bank already has $4.1 billion of assets and nearly 40 branches in six states, and it isn't done yet. Jeffrey Schmid, the bank's chief executive, says his goal is to create a brick-and-mortar franchise stretching from Washington State to the Carolinas, and with the backing of a deep-pocketed parent, he has the resources to do it.
"We're in a position now where we can look at every deal that becomes available," Schmid says.
Still, building a nationwide banking franchise one deal at a time is one thing, managing it profitably is another. Mutual of Omaha Bank's strategy is less about establishing critical mass in a handful of states than it is having small branch networks in multiple states. That's not always the most efficient way to run things, as several banking companies have painfully discovered.
And the bank's long-term plans to cross-sell banking products to insurance customers, and vice versa, is alsoeasier said than done, observers say.
Yet perhaps more than most acquisition-minded companies, Mutual of Omaha can afford to be patient; as a mutual owned by its policy holders, it's under less pressure than publicly traded firms to generate profits quickly.
With strong name recognition—particularly in the Midwest—it is also positioned well to take advantage of growing customer dissatisfaction with big banks. Mutual of Omaha is an iconic brand, untainted by a financial crisis that has sullied the reputations of so many financial firms.
"The thing that gives us a huge amount of momentum is the brand," Schmid says. "We don't have to spend a lot of time telling people that they should trust us."
Mutual of Omaha Bank is the brainchild of Schmid's boss, Daniel Neary, the chairman and CEO of Mutual of Omaha Insurance Co.
Neary, a lifelong insurance industry executive, had studied banking up close as a director at Commercial Federal Bank in Omaha and was struck by the similarities with the insurance business. Both pay interest on money taken in from customers, collect interest on money loaned to others, and try to profit on the margin. Neary also saw that banks were becoming a key channel for selling insurance, while insurers were starting to offer bank products, such as certificates of deposit, loans and credit cards, to their policyholders.
http://www.americanbanker.com/usb_issues/120_6/going-against-the-grain-1019451-1.html
Sponsor:Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Tuesday, June 8, 2010
Forbes Article on Need for HQ Office Space
Commentary
Why Companies Don't Need Headquarters
David F. Carr, 06.03.10, 6:00 AM ET
James Sinclair, head of the hospitality industry turnaround firm OnSite Consulting, says one of the biggest challenges his employees have had adapting to the way he runs his business is answering the question, "But where is your company based?"
The answer: Wherever the work needs to be done. "We have 65 people, and we have no office," Sinclair explains. Headquarters is a post office box; he also has an Internet-based phone and unified communications system.
Sinclair used to have an office. "Sure, we picked out a nice office with a conference room and people working away. But our clients don't want to see our office, don't want to see the conference room. They want us to come to them," he says.
OnSite is in the business of reviving restaurants, hotels and casinos that are in trouble, sometimes on the verge of bankruptcy. In past years the company has bought and rehabilitated some facilities, but today it focuses on working with current owners on overhauling management and operations. Sinclair himself has long been a road warrior, and was rarely in the office anyway. When he did come in, he believed employees felt obliged to pepper him with issues they had been managing just fine while he was away. Or he saw them doing busywork solely to impress him with their industriousness.
About 18 months ago Sinclair decided to send all his employees into the field, where they could be more productive. That made a lot of sense for consultants and salespeople. But Sinclair went further, also dispersing his administrative workers. The person who handles billing, for example, now has a desk at the site of a longtime client.
"At first a couple of clients did say something like, 'Let me get this straight: You gave up your office so you can use our office for free?'" Sinclair concedes. But he convinced them that any employee he parked at their location could at least serve as a point of contact, helping ensure a smoother working relationship.
Although employees found the "Where is your headquarters?" question awkward at first, Sinclair likes to turn it around, telling potential clients the OnSite consultants will be, well, on site 90% of the time, precisely because they don't have an office to retreat back to.
The technologies Sinclair uses include Microsoft's Office Communications Server for Internet call-routing and integration with other communication modes, such as e-mail and instant messaging. He also relies on Microsoft SharePoint for collaboration and BlackBerry Enterprise Server for mobility. OnSite has no IT staff of its own, so the technology is all managed and hosted under contract with 123together.com.
I heard a similar story from Doane Hadley, president of BizTech Solutions. I'm never quite as impressed when technology companies turn out to be showcase users of the technologies they promote, and BizTech had been a longtime beta tester for Microsoft SharePoint before adopting Office Communications Server.
Still, when Hadley decided to get rid of the firm's office in New Jersey, he did it for his own reasons. Once his company had adopted unified communications, it became easier to tell people it was OK to work at home more--especially as gas prices spiked or the weather was bad. When his office manager announced she was moving to North Carolina, Hadley decided she could work from home.
"It got to the point where there weren't a lot of people in the office anyway, and there didn't need to be," Hadley says. So he did away with it, and now all his employees work from home or from client sites.
Hadley has an agreement with a shared office facility in New Jersey, where he has one person stationed more or less full-time, and where he can have the use of a conference room if he needs it. But instead of running servers in his own data center, he now rents space in a commercial data center. "At the end of the day it's better, because we have guaranteed uptime and higher connectivity," he says.
OnSite's Sinclair believes the decision to do away with his office has been worth more than $1 million in savings, supplemented by the increased business he has netted from a more productive workforce.
One of the side benefits is that people who were formerly confined to back-room tasks are now in contact with customers, giving them the opportunity to prove their worth. And employees are happier as a result, Sinclair says. "Some of them are earning double what they were a couple of years ago--because they've proven that they should be."
David F. Carr is Forbes' columnist on technology for small to midsize businesses. Contact him at david@carrcommunications.com.
Why Companies Don't Need Headquarters
David F. Carr, 06.03.10, 6:00 AM ET
James Sinclair, head of the hospitality industry turnaround firm OnSite Consulting, says one of the biggest challenges his employees have had adapting to the way he runs his business is answering the question, "But where is your company based?"
The answer: Wherever the work needs to be done. "We have 65 people, and we have no office," Sinclair explains. Headquarters is a post office box; he also has an Internet-based phone and unified communications system.
Sinclair used to have an office. "Sure, we picked out a nice office with a conference room and people working away. But our clients don't want to see our office, don't want to see the conference room. They want us to come to them," he says.
OnSite is in the business of reviving restaurants, hotels and casinos that are in trouble, sometimes on the verge of bankruptcy. In past years the company has bought and rehabilitated some facilities, but today it focuses on working with current owners on overhauling management and operations. Sinclair himself has long been a road warrior, and was rarely in the office anyway. When he did come in, he believed employees felt obliged to pepper him with issues they had been managing just fine while he was away. Or he saw them doing busywork solely to impress him with their industriousness.
Sponsor:Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
About 18 months ago Sinclair decided to send all his employees into the field, where they could be more productive. That made a lot of sense for consultants and salespeople. But Sinclair went further, also dispersing his administrative workers. The person who handles billing, for example, now has a desk at the site of a longtime client.
"At first a couple of clients did say something like, 'Let me get this straight: You gave up your office so you can use our office for free?'" Sinclair concedes. But he convinced them that any employee he parked at their location could at least serve as a point of contact, helping ensure a smoother working relationship.
Although employees found the "Where is your headquarters?" question awkward at first, Sinclair likes to turn it around, telling potential clients the OnSite consultants will be, well, on site 90% of the time, precisely because they don't have an office to retreat back to.
The technologies Sinclair uses include Microsoft's Office Communications Server for Internet call-routing and integration with other communication modes, such as e-mail and instant messaging. He also relies on Microsoft SharePoint for collaboration and BlackBerry Enterprise Server for mobility. OnSite has no IT staff of its own, so the technology is all managed and hosted under contract with 123together.com.
I heard a similar story from Doane Hadley, president of BizTech Solutions. I'm never quite as impressed when technology companies turn out to be showcase users of the technologies they promote, and BizTech had been a longtime beta tester for Microsoft SharePoint before adopting Office Communications Server.
Still, when Hadley decided to get rid of the firm's office in New Jersey, he did it for his own reasons. Once his company had adopted unified communications, it became easier to tell people it was OK to work at home more--especially as gas prices spiked or the weather was bad. When his office manager announced she was moving to North Carolina, Hadley decided she could work from home.
"It got to the point where there weren't a lot of people in the office anyway, and there didn't need to be," Hadley says. So he did away with it, and now all his employees work from home or from client sites.
Hadley has an agreement with a shared office facility in New Jersey, where he has one person stationed more or less full-time, and where he can have the use of a conference room if he needs it. But instead of running servers in his own data center, he now rents space in a commercial data center. "At the end of the day it's better, because we have guaranteed uptime and higher connectivity," he says.
OnSite's Sinclair believes the decision to do away with his office has been worth more than $1 million in savings, supplemented by the increased business he has netted from a more productive workforce.
One of the side benefits is that people who were formerly confined to back-room tasks are now in contact with customers, giving them the opportunity to prove their worth. And employees are happier as a result, Sinclair says. "Some of them are earning double what they were a couple of years ago--because they've proven that they should be."
David F. Carr is Forbes' columnist on technology for small to midsize businesses. Contact him at david@carrcommunications.com.
Monday, June 7, 2010
CMBS Market Will Impact landlords
Securitized office mortgages, which initially were somewhat insulated from the market distress, are increasingly being dragged down as well.
Deteriorating office loans were the impetus behind big spikes last month in special-servicing and delinquency rates for commercial MBS loans.
The percentage of CMBS loans in special servicing, by balance, jumped to 11.7% at the end of May, from 11.3% a month earlier, according to Trepp. Meanwhile, the 60-day delinquency rate soared by 49 bp, to 7.97%, Fitch reported. The increases dashed hopes in April that the measures of credit deterioration were starting to peak.
The amount of office mortgages in special servicing climbed by a net $2.3 billion last month, or 12%, to $21 billion. That accounted for three-fifths of the overall $3.7 billion increase in special-servicing volume. For the first time in this cycle, office loans are the largest category of loans in special servicing, exceeding retail mortgages, whose total declined by 3.4%, to $20.2 billion, because some loans to General Growth Properties were removed after modifications.
And the actual amount of office loans in special servicing is much higher. Late in May, a massive $4.9 billion mortgage was transferred to special servicing, according to Fitch. That transfer occurred too late to be included in the servicer reports that Trepp uses to compile its figures. Also, about $800 million of a $2.7 billion loan to Beacon Capital Partners hasn't yet shown up in the figures. Counting those loans, the amount of office mortgages in special servicing skyrocketed by $8 billion, or 43%, from the end of April, to $26.7 billion.
Office loans also drove the rise in delinquencies. Fitch's index now includes $6.6 billion of office mortgages, up $1 billion, or 19%, from the end of April. The agency said 44 office loans were classified as 60 days past due in May, including 14 with balances exceeding $20 million.
Sponsor:Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Office mortgages are the dominant category of CMBS loans, accounting for $213.6 billion, or 30.1%, of the $709.4 billion of outstanding mortgages. But so far during the downturn, they have represented a disproportionately small portion of the loans in special servicing. The reason: Office buildings tend to have long-term leases that have provided some protection from the struggling economy.
But Trepp and Fitch have long predicted that office mortgages would face growing distress as leases rolled over. Now that is coming to pass.
"As expected, office-loan delinquencies have begun to increase and will continue to rise well into next year," said Mary MacNeill, a Fitch managing director. "Landlords are being pressured by tenant downsizing and must offer significant concessions and reduced rent to maintain their existing tenant bases."
Office loans now account for 25.4% of the loans in special servicing, by balance, up from 17.8% at the end of last year. And 9.8% of all securitized office mortgages are in special servicing - almost double the 5.5% rate at yearend.
The $4.9 billion mortgage that was transferred to special servicing in late May is backed by office properties that a Blackstone Group fund assumed via its $39 billion takeover of Equity Office Properties in 2007. The loan, which had an original balance of $6.9 billion, was securitized via a stand-alone deal (GS Mortgage Securities Corp. II, 2007-EOP).
The Blackstone loan and the $2.7 billion Beacon loan, which is backed by office properties in Seattle and Washington, D.C., are still current on their payments. But Fitch noted that if the loans become delinquent, the office delinquency rate would soar by 400 bp, from the current 4.59% level, and the overall delinquency rate would climb by 135 bp.
The largest office mortgage classified as 60-days delinquent in May was a $380 million loan to Beacon on the 1.5 million-square-foot Columbia Center complex in Seattle. Morgan Stanley securitized that loan via a $2 billion pooled deal (Morgan Stanley Capital I Trust, 2007-HQ12).
Other big office loans that turned delinquent included a $181 million mortgage on the so-called DRA-CRT Portfolio 1, which encompasses 16 properties in Florida, Maryland and North Carolina, and the $165 million senior portion of a $200 million loan to Maguire Properties on the 566,000-sf building at 550 South Hope Street in Los Angeles. The DRA-CRT loan was securitized via a $2.7 billion pooled offering (J.P. Morgan Chase Commercial Mortgage Securities Corp., 2005-CIBC13). The Maguire loan was securitized via a $7.6 billion offering (GS Mortgage Securities Trust, 2007-GG10).
The $3.7 billion net increase in special-servicing volume last month was the largest since the $4.3 billion spike in February, reversing a downward trend. The number of loans in special servicing rose by 175, or 4%, to 4,627 - the biggest jump since the 341 increase in February.
The delinquency rate also rose for other property types last month, but to smaller degrees. The rate climbed to 18.63% for hotel loans (up 21 bp), 13.65% for multi-family mortgages (up 5 bp), 6.03% for retail loans (up 20 bp) and 5.07% for industrial loans (up 47 bp).
The overall delinquency rate has climbed virtually nonstop from a low of 0.27% in January 2008, reaching levels not seen since Fitch began maintaining the data on a monthly basis in 2004.
The delinquency index tracks loans in U.S. securitizations rated by the agency that are overdue by at least 60 days or in foreclosure. At the end of May, 2,938 loans totaling $35.4 billion were in that category - up from 2,885 loans totaling $33.5 billion a month earlier. Another $4.2 billion of loans were delinquent by 30-59 days at the end of May, up from $3.6 billion a month earlier. Overall, Fitch rates $443.8 billion of U.S. CMBS transactions backed by about 40,000 commercial mortgages.
Deteriorating office loans were the impetus behind big spikes last month in special-servicing and delinquency rates for commercial MBS loans.
The percentage of CMBS loans in special servicing, by balance, jumped to 11.7% at the end of May, from 11.3% a month earlier, according to Trepp. Meanwhile, the 60-day delinquency rate soared by 49 bp, to 7.97%, Fitch reported. The increases dashed hopes in April that the measures of credit deterioration were starting to peak.
The amount of office mortgages in special servicing climbed by a net $2.3 billion last month, or 12%, to $21 billion. That accounted for three-fifths of the overall $3.7 billion increase in special-servicing volume. For the first time in this cycle, office loans are the largest category of loans in special servicing, exceeding retail mortgages, whose total declined by 3.4%, to $20.2 billion, because some loans to General Growth Properties were removed after modifications.
And the actual amount of office loans in special servicing is much higher. Late in May, a massive $4.9 billion mortgage was transferred to special servicing, according to Fitch. That transfer occurred too late to be included in the servicer reports that Trepp uses to compile its figures. Also, about $800 million of a $2.7 billion loan to Beacon Capital Partners hasn't yet shown up in the figures. Counting those loans, the amount of office mortgages in special servicing skyrocketed by $8 billion, or 43%, from the end of April, to $26.7 billion.
Office loans also drove the rise in delinquencies. Fitch's index now includes $6.6 billion of office mortgages, up $1 billion, or 19%, from the end of April. The agency said 44 office loans were classified as 60 days past due in May, including 14 with balances exceeding $20 million.
Sponsor:Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Office mortgages are the dominant category of CMBS loans, accounting for $213.6 billion, or 30.1%, of the $709.4 billion of outstanding mortgages. But so far during the downturn, they have represented a disproportionately small portion of the loans in special servicing. The reason: Office buildings tend to have long-term leases that have provided some protection from the struggling economy.
But Trepp and Fitch have long predicted that office mortgages would face growing distress as leases rolled over. Now that is coming to pass.
"As expected, office-loan delinquencies have begun to increase and will continue to rise well into next year," said Mary MacNeill, a Fitch managing director. "Landlords are being pressured by tenant downsizing and must offer significant concessions and reduced rent to maintain their existing tenant bases."
Office loans now account for 25.4% of the loans in special servicing, by balance, up from 17.8% at the end of last year. And 9.8% of all securitized office mortgages are in special servicing - almost double the 5.5% rate at yearend.
The $4.9 billion mortgage that was transferred to special servicing in late May is backed by office properties that a Blackstone Group fund assumed via its $39 billion takeover of Equity Office Properties in 2007. The loan, which had an original balance of $6.9 billion, was securitized via a stand-alone deal (GS Mortgage Securities Corp. II, 2007-EOP).
The Blackstone loan and the $2.7 billion Beacon loan, which is backed by office properties in Seattle and Washington, D.C., are still current on their payments. But Fitch noted that if the loans become delinquent, the office delinquency rate would soar by 400 bp, from the current 4.59% level, and the overall delinquency rate would climb by 135 bp.
The largest office mortgage classified as 60-days delinquent in May was a $380 million loan to Beacon on the 1.5 million-square-foot Columbia Center complex in Seattle. Morgan Stanley securitized that loan via a $2 billion pooled deal (Morgan Stanley Capital I Trust, 2007-HQ12).
Other big office loans that turned delinquent included a $181 million mortgage on the so-called DRA-CRT Portfolio 1, which encompasses 16 properties in Florida, Maryland and North Carolina, and the $165 million senior portion of a $200 million loan to Maguire Properties on the 566,000-sf building at 550 South Hope Street in Los Angeles. The DRA-CRT loan was securitized via a $2.7 billion pooled offering (J.P. Morgan Chase Commercial Mortgage Securities Corp., 2005-CIBC13). The Maguire loan was securitized via a $7.6 billion offering (GS Mortgage Securities Trust, 2007-GG10).
The $3.7 billion net increase in special-servicing volume last month was the largest since the $4.3 billion spike in February, reversing a downward trend. The number of loans in special servicing rose by 175, or 4%, to 4,627 - the biggest jump since the 341 increase in February.
The delinquency rate also rose for other property types last month, but to smaller degrees. The rate climbed to 18.63% for hotel loans (up 21 bp), 13.65% for multi-family mortgages (up 5 bp), 6.03% for retail loans (up 20 bp) and 5.07% for industrial loans (up 47 bp).
The overall delinquency rate has climbed virtually nonstop from a low of 0.27% in January 2008, reaching levels not seen since Fitch began maintaining the data on a monthly basis in 2004.
The delinquency index tracks loans in U.S. securitizations rated by the agency that are overdue by at least 60 days or in foreclosure. At the end of May, 2,938 loans totaling $35.4 billion were in that category - up from 2,885 loans totaling $33.5 billion a month earlier. Another $4.2 billion of loans were delinquent by 30-59 days at the end of May, up from $3.6 billion a month earlier. Overall, Fitch rates $443.8 billion of U.S. CMBS transactions backed by about 40,000 commercial mortgages.
Thursday, June 3, 2010
FASB and IASB Change Dates On Accounting Changes
U.S. and international accounting rule makers said on Wednesday they are developing a "modified strategy" to come up with a single set of global accounting rules.
The chairmen of the U.S. Financial Accounting Standards Board and London-based International Accounting Standards Board sent a letter on Wednesday to the G20 group of industrialized and emerging countries, which set a June 30, 2011, target for the boards to align major areas of accounting.
In the letter, FASB Chairman Robert Herz and IASB Chairman Sir David Tweedie said they will keep a June 2011 target date for many projects where converged accounting rules are "urgently required," but said a few projects will extend into the second half of 2011.
Sponsor:Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
The chairmen of the U.S. Financial Accounting Standards Board and London-based International Accounting Standards Board sent a letter on Wednesday to the G20 group of industrialized and emerging countries, which set a June 30, 2011, target for the boards to align major areas of accounting.
In the letter, FASB Chairman Robert Herz and IASB Chairman Sir David Tweedie said they will keep a June 2011 target date for many projects where converged accounting rules are "urgently required," but said a few projects will extend into the second half of 2011.
Sponsor:Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Wednesday, June 2, 2010
FASB Changes Could Have Huge Impact on Banks
From CFO.com
The Financial Accounting Standards Board's new exposure draft on accounting for financial instruments, if adopted, could have adverse consequences for commercial banks, according to lobbyists and bank CFOs who are assessing its ramifications. Almost immediately after the proposal was published last Thursday, bankers began questioning its logic, particularly the requirement that even plain-vanilla loans held for collection be marked to market. Bankers say the ripple effects are numerous and include damping origination of long-term, variable-rate loans; spooking bank investors; and increasing procyclicality in the financial system.
"This is really a jaw-dropping proposal," says Donna Fisher, senior vice president of tax and accounting at the American Bankers Association.
The proposed accounting changes, which would take effect in 2013 for banks with assets of more than $1 billion, would force companies to use market prices to value almost all financial instruments, including loans to corporations and consumer loans like credit-card debt, and record any changes on the balance sheet. That's a significant departure from current accounting practice for banks, which record held-to-maturity loans on the balance sheet at amortized, or historical, cost. The changes to fair value will not flow to net income, FASB says
To read rest of article-.http://www.cfo.com/article.cfm/14502294/?f=rsspage
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
The Financial Accounting Standards Board's new exposure draft on accounting for financial instruments, if adopted, could have adverse consequences for commercial banks, according to lobbyists and bank CFOs who are assessing its ramifications. Almost immediately after the proposal was published last Thursday, bankers began questioning its logic, particularly the requirement that even plain-vanilla loans held for collection be marked to market. Bankers say the ripple effects are numerous and include damping origination of long-term, variable-rate loans; spooking bank investors; and increasing procyclicality in the financial system.
"This is really a jaw-dropping proposal," says Donna Fisher, senior vice president of tax and accounting at the American Bankers Association.
The proposed accounting changes, which would take effect in 2013 for banks with assets of more than $1 billion, would force companies to use market prices to value almost all financial instruments, including loans to corporations and consumer loans like credit-card debt, and record any changes on the balance sheet. That's a significant departure from current accounting practice for banks, which record held-to-maturity loans on the balance sheet at amortized, or historical, cost. The changes to fair value will not flow to net income, FASB says
To read rest of article-.http://www.cfo.com/article.cfm/14502294/?f=rsspage
Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
200 Wachovia Branches in Atlanta Will Convert to Wells Fargo in October
As reported in Atlanta Business Chronicle
As the leaves change colors this fall, Wachovia’s familiar blue and green logos will change into Wells Fargo’s red and yellow in Atlanta.
San Francisco-based Wells Fargo & Co. (NYSE: WFC) said Wednesday Wachovia signs and systems will convert to Wells Fargo in late October at almost 200 bank branches in Atlanta and nearly 280 locations across Georgia.
After the conversion, Wells Fargo will be the second-largest bank in metro Atlanta with $21.6 billion in deposits and a 19 percent market share. Wells Fargo also noted it has hired more than 200 tellers and bankers across Atlanta and more than 300 across Georgia in a shift to the Wells Fargo model.
Atlanta will remain headquarters for the company’s Southeast region, which includes Alabama, Tennessee and Mississippi. The three neighboring states to Georgia will change to Wells Fargo in late September. Other states in the East will follow.
Wachovia merged with Wells Fargo on Dec. 31, 2008. Wachovia Securities has already become Wells Fargo Advisors and Wachovia Mortgage is now Wells Fargo Home Mortgage.
Wells Fargo’s first-quarter profit dropped 16 percent to $2.55 billion. The company has $1.2 trillion in assets and provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 10,000 stores and 12,000 ATMs.
As the leaves change colors this fall, Wachovia’s familiar blue and green logos will change into Wells Fargo’s red and yellow in Atlanta.
San Francisco-based Wells Fargo & Co. (NYSE: WFC) said Wednesday Wachovia signs and systems will convert to Wells Fargo in late October at almost 200 bank branches in Atlanta and nearly 280 locations across Georgia.
After the conversion, Wells Fargo will be the second-largest bank in metro Atlanta with $21.6 billion in deposits and a 19 percent market share. Wells Fargo also noted it has hired more than 200 tellers and bankers across Atlanta and more than 300 across Georgia in a shift to the Wells Fargo model.
Sponsor:Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com
Atlanta will remain headquarters for the company’s Southeast region, which includes Alabama, Tennessee and Mississippi. The three neighboring states to Georgia will change to Wells Fargo in late September. Other states in the East will follow.
Wachovia merged with Wells Fargo on Dec. 31, 2008. Wachovia Securities has already become Wells Fargo Advisors and Wachovia Mortgage is now Wells Fargo Home Mortgage.
Wells Fargo’s first-quarter profit dropped 16 percent to $2.55 billion. The company has $1.2 trillion in assets and provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 10,000 stores and 12,000 ATMs.
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