Cascades own Jack Keating was published in the March 2008 edition of CFO Magazine responding to an article about the commercial real estate market in six cities. As Jack was quick to point out, there are a myriad of factors to be considered when selecting a location beyond just lease rates.
CFO Magazine March 2008 Issue, Letter to the Editor from Jack Keating of Cascades Advisory Group
Thinking about the Box
Your article on real estate markets ("A Tale of Six Cities," December 2007) was accurate, but it oversimplified corporate real estate decisions. In our experience, many companies have not considered the full impact of real estate deals beyond a lease rate and a broker's market analysis.
Your story cites a clever CFO who negotiated a fixed purchase option on a lease and turned a handsome profit. A fixed purchase option potentially creates a capital lease, which may or may not be in the best interest of the company. Additionally, a fixed purchase option can have an adverse effect on the lease rate because a landlord will price in the risk of giving up value at the option date. Finally, trying to time your business needs to the ups and downs of the real estate market can be a risky proposition.
Corporate leaders should not lose sight of the fact that real estate is more than a box for their operations. There are a number of financial, operational, and strategic issues that must be considered beyond the lease rate and term. More often than not, we find that our clients can get a higher return on investment in their operating business than in their real estate.
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