Less is More by Walt Batansky, CEO and Co-Founder of PointLine, Inc.
Practical advice, case studies, cutting-edge theories, and humorous musings on how corporations can create value, reduce expenses, and make quantum leaps in productivity by implementing aggressive strategies to use real estate as a competitive advantage.
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Monday, February 15, 2010 at 12:39PM 
Just a quick mention in case you have not yet read your recent issue of CFO Magazine that had an article titled, Balance Sheet Blues, you can read it here.
Every finance executive and corporate real estate manager should be following and preparing for the upcoming change of operating lease to capital lease classification. See my prior posts.
Monday, January 25, 2010 at 4:39PM As a follow up to my previous post regarding the upcoming reclassification by FASB of operating leases to capital leases, which you can read here, I'll outline a general strategy that companies can use to minimize the reporting impact and unpleasant surprises. Here's what I recommend as a checklist of Top Ten Operating Lease to Capital Lease Actions:
Monday, November 9, 2009 at 10:50AM For the last 35 years, public companies in the U.S. have reported lease obligations differently that other countries, not unlike the way that we stubbornly hang on to English measurements while most of the rest of the planet uses the Metric system. That is about to change, and change can be painful.
Here is the premise of the change: Virtually all leases will be treated as Capital Leases rather than Operating Leases. Lessees must account for their right to use a leased item as an asset and their obligation to pay future rental installments for that item as a liability. Simple enough, right? Remember, this is written by the Financial Accounting Standards Board. They do nothing simple. Fortunately they also move with all the speed of, well, the government. This will give proactive corporations the opportunity to position themselves to avoid pitfalls and structure their future transactions to their advantage. The discussion paper, which you can view here, is over 100 pages thick.
I warned of the impending issue back in 2007, in my article titled, The Death of Operating Leases. Here are some considerations:
Sunday, August 23, 2009 at 7:25PM I had lunch last week with Harry Dent, the Harvard MBA economist and NY Times bestselling author, to discuss the impact that the age shift of the population will have on commercial real estate. For those of you not familiar with Harry's work, he's written a number of books including The Great Boom Ahead in 1993, The Roaring 2000's in 1999, and The Next Great Bubble Boom in 2004. Each of these books detailed well in advance the enormous gains in both stock and real estate markets that we experienced and their eventual collapse. While predicting the confluence of so many forces on the economy is not an exact science, Harry nailed the overall concepts and general timing of both the run up and downfall of these markets. Unfortunately for the U.S. economy, the title of his latest book, The Great Depression Ahead, gives away a bit of the plot of what is in store for us.
Tuesday, July 28, 2009 at 8:44PM Even when the economy was absolutely booming, we advocated a lean and mean approach to real estate. That's why this blog is titled, "Less is More". Now however, many political obstacles to reaching Lean & Mean objectives have been removed. The corporate real estate director (in virtually all corporations large enough to have corporate real estate directors), now likely has complete buy-in from both the finance and operations executives AND field staff.
Thursday, April 16, 2009 at 7:11PM Many companies believe that either 1) They must live with whatever terms are stated in their existing lease until it expires or, 2) They can go to their landlord, tell them that they can't afford to pay their existing high rental rate, and the landlord will willingly drop their rent to current market rates. Which is correct? Well....generally neither, exactly as described. Here's how to get the most benefits:
Sunday, April 5, 2009 at 4:08PM In three separate incidents that I've witnessed recently, landlords have demonstrated their growing financial desperation. Two of the cases involved clients moving out of a property and debate over the "reasonable wear and tear" condition of the premises on vacating. The other issue involved a proposed new lease with a rider describing the required condition in which the space must be returned - in essence describing most of the preparation that a landlord would typically do to prepare a space for a new tenant.
The underlying issue here is not about the tenant's treatment of the space, it is about the landlord's increasing financial pressure to preserve precious cash.
Tuesday, March 10, 2009 at 9:47PM It is a great time to be a tenant, and here is another example. Because almost all lease renewal options are written with the assumption that rental rates will climb forever upwards, we're seeing some interesting effects as rates tumble. Like many stock options, some renewal options are literally not worth the paper they were written on. However, declining markets have made some usually unattractive renewal options have new value. Here's why:
Monday, February 23, 2009 at 7:57PM Here's a simple technique that has saved several dozen of our clients literally millions of dollars in lease costs, and is very applicable to the changes happening in today's market. I call it the Tape on the Floor Option.
Tuesday, June 24, 2008 at 9:40PM As you might guess, recently we've been much more active on both sides of subleasing transactions. Almost every market search includes a sublease option or two, perhaps more. If you are looking for space, should you bite? They may not be worth the trouble. Read on.
Tuesday, May 6, 2008 at 9:20PM Recession, recession, recession! There, I said it. We're in one. Don't let the government or the landlord reps mislead you.
It doesn't effect all business directly, and is certainly selective in its targeting of particular industries. Anyone with interests related to residential real estate is getting hammered, and the trickle-down effect is reaching out to financial markets, retailers, and distributors. The government is trying to bolster home prices and lessen the effects of oil inflation, and the jury is still out on the long term forecast.
Here's what I like about it:
Sunday, December 30, 2007 at 3:16PM In his recent book,The Age of Turbulence
It is easy to fall into a "real estate rut" just like that farmer. Are you using your facility the same way a businessperson might have used a similar property in the 1920's? Perhaps it is time to scrap your steam-engine equivalent and gain some efficiency.
Tuesday, October 2, 2007 at 8:07PM The world is experiencing rapid globalization and merging of economies and cultures. In his book, The World is Flat, Thomas Friedman discusses how the internet, modern travel, and communications are commoditizing just about everything. Where globalization is not happening quite so quickly is in real estate which is still, very much, a local business. As citizens of the United States, we take property rights for granted. Ownership is black and white - you either own something or you don't, right? Well, not necessarily once you leave our borders.
Monday, August 20, 2007 at 7:58PM For 31 years, public companies have used a rule known as FAS 13 to classify most real estate lease transactions (virtually all leases 15 years or less) as Operating Leases. Unlike a Capital Lease, the Operating Lease does not appear on the company's balance sheet.
The governing Federal Accounting Standards Board, affectionately known as FASB (pronounced Faz-bee), is currently in the process of scuttling this provision in favor of a new Sarbox-friendly full disclosure plan that will eliminate or greatly reduce the qualifications for Operating Lease classification.
I can see many of the non-accountants out there falling asleep. So what, right? WAKE UP! This is a big deal.
Tuesday, August 7, 2007 at 9:30PM Whenever I have speaking engagements, I always end with a Q&A session and inevitably someone will ask, "How will the merger between CBRE and Trammell Crow impact the industry?" My response is usually, "Which part of the industry?" I'd like to address it here in the hopes that the next person who might ask will read it and save me the time of repeating myself.
The impact to real estate development and investment segments will be significant in that CBRE now has the development resources to support the supply of investment capital that it has raised, and they've moved into position as one of the top ten owners (not just third-party landlords - actual owners) of office properties.
Thursday, June 21, 2007 at 9:42PM An article in the April 2007 issue of CFO Magazine titled "Cleaning up Carbon" addresses the pressure that most corporate users will soon have to face regarding CO2 emissions. Peter Breitstone, the CEO of insurance giant AON's Environmental Services Group, says "Each company is going to have to deal with some sort of [CO2] regulation. We know that it is coming." The Investor Network, a coalition of enviro-friendly investors with more than $200 billion in assets recently published a list of 10 major offenders. The list includes the usual energy company suspects, plus a few you might not expect such as Wells Fargo (the group says that unlike JP Morgan and Bank of America, WF hasn't come up with a plan to reduce carbon emissions from their everyday business practices), and Bed, Bath, and Beyond (Investor Network says the retailer hasn't disclosed its strategies on how to improve energy efficiency). So has YOUR firm disclosed your strategies on how to improve energy efficiency? No? Read on.
Monday, May 14, 2007 at 9:48PM Not too long ago, almost all of my high tech clients would build a server room with raised flooring, Liebert (another client) 24 hour air conditioning, and UPS systems the size of a Hummer. More often that not, those build outs now look as dated as a wood-paneled earth-toned space with 8' ceilings. Computing is getting faster, cooler, and frequently, remote. And the absolute best remote data storage service that I've seen is a simple service called...Mozy.
Thursday, April 12, 2007 at 9:31PM Spalding Sports is the largest producer of basketballs in the world. A few years ago, they asked us to help them expand their west coast distribution center. At the time, Spalding had 180,000 SQFT of space and estimated that they needed about 40K more for a total of 220K SQFT. We asked a question: Why?
Wednesday, March 28, 2007 at 10:03PM What is as large as four shopping malls, has 17 miles of paved roadway, and is 75' below the ground? The Underground Business Center in Louisville, KY is a warehouse and storage facility with almost four million square feet housed in a former limestone mine.
Wednesday, February 14, 2007 at 8:38PM When Albert Einstein was a child, he read a book that described the experience of sitting on a train and watching another train moving outside the window. You may have had this experience yourself. If the other train is moving and yours is still, or vice versa, it is very difficult to tell which is the moving train because the appearance is based upon your perspective.