Commercial Investment Real Estate September/October 2019 | Page 13

helping tenants approach the market differently today, focusing on how to build flexible space for growth, without adding square footage. We continue to structure leases with options to respond to business drivers over the life of their lease.” 5. Recognize real estate is an unavoidable and somewhat fixed capital expense. Current economic conditions are ideal for conducting a full-scale evaluation of real estate assets. The technology sector has evolved to the point where data collection, synthesis, and application have provided a strategic advantage for tenants. Pay Attention to Economic Cycles Historically, when the market experiences a slowdown, corporations quickly reach for options to help maintain profitability and shareholder confidence. What areas are hit? Research and development? Marketing and advertising? Layoffs might provide a quick fix, but how does that impact an organization’s overall morale? “I’m witnessing a large investment in activities and amenities that drive corporate culture,” says Vik Bangia, CEO of VERUM Consulting in Minneapolis. “Clients who demonstrate a concerted effort to foster their corporate culture are experienc- ing the greatest growth and will be in better competitive position to weather any pending economic storm.” With today’s low unemployment rate, some say the war for talent is driving the need for increased employee engagement and amenity-rich spaces. Flexible space can help companies remain light on their feet as employee populations fluctuate. Rolling the Dice Is Not a Strategy Because no two recessions are exactly alike, how might a downturn affect your portfolio? What are some steps a commercial real estate professional might consider doing now? • Partner with a company’s financial team to understand the market outlook and impact on the business (cash flow, credit rating, etc.). • Create an enterprise plan that spans your portfolio. • Identify immediate, midterm, and long-term opportunities to optimize the portfolio. • Develop three to five planning scenarios for various market conditions (hot, warm, and cold). • Identify tactics for each condition. • Balance strategic scenario planning against the human/cultural side of things. Everything begins and ends with customers (both internal and external). When the market contracts, customer behavior shifts — in terms of confidence, lacking funds, shifting priorities, and other factors — and strong businesses acknowledge that the game has fundamentally changed. While it may seem incongruous to plan for the worst when times are good, the best CRE professionals will. They will be in tune to their lines of business and understand how the work, the worker, and the workplace may change. They look at how to adapt spaces if a tenant or part of their organization moves out, and they know how long the investment can be carried if a downturn becomes extended. You do not have to be a trained economist, but you need to understand and act when it comes to up and down cycles. As a result, you’ll will be able to create a more well thought-out commercial real estate investment strategy. Start the conversation on planning for the worst, even if you remain bullish about the investment market. Christopher LaPata, MCR, is a client leader for Cincinnati-based BHDP Architecture, a firm that works with commercial real estate developers/investors and occupiers. Contact him at [email protected]. CIREMAGAZINE.COM September | October 2019 11