July/August 2012: Commercial News Round Up

Why these economic times call for more mergers and how to position yourself as a government contractor.

July 18, 2012

Mergers in the New Normal

With transactions still sluggish and new construction limited, “if you want to grow your company in a meaningful way, you have to merge or acquire other companies,” says Jahn Brodwin, senior managing director of real estate solutions at FTI Consulting Inc. in New York. Perhaps the single largest benefit of a merger or acquisition in a slow market is the ability to cut costs while expanding back-office services for brokers and consultants, says Brodwin. But it’s not the only benefit. Mergers also offer an opportunity for strategic diversification that can help a company gain new resilience in an uneven recovery. For example, a company in a slow-recovery market can stabilize a shaky portfolio by acquiring a firm in a stronger commercial market. Mergers may also make it easier to access capital for growth by creating a larger balance sheet, which is more appealing to lenders, he adds.

Merging when business is slow provides the time to do proper due diligence on prospective partners, says Brodwin. And a less-hectic business climate gives companies time to decide on the best practices from each company and implement them throughout the new organization.

“Merging during slow times allows a company to turn the volume down on the typical turmoil of consolidation and have a well-oiled machine in place when full recovery comes,” Brodwin says.

But in good times or bad, merge only if the merger offers a strategic, incremental addition to overall value. “What you want to look for in any acquisition,” Brodwin says, “is that one plus one should equal three.”

Government Work: “A Marriage of Altruism and Opportunity”

Whether your commercial specialty is brokering vacant land, managing office facilities, or analyzing the highest and best use of a declining retail area,  there’s a government department that could use your services, says John Hentschel, cre, president of Hentschel Real Estate Services in Abingdon, Md. The pay may not be as good as private-sector work; that’s where the altruism comes in.

How you get government business depends on the size and location of your market. “If you live in a smaller city, you can probably just make an appointment with the mayor or the city manager,” Hentschel says. In a large city, you’ll have to go to through a real estate or planning department, but “go as high in the food chain as you can,” he says, since lower-level officials often don’t have the authority to move your proposal forward. It’s also useful to approach the public sector with a vision instead of just asking for an assignment, says Hentschel. Go in with a plan to increase the value of underused or idle properties.

Just as critical as a vision is the understanding of how to present your ideas “within the context of the government’s objective,” says Hentschel.

A government’s goals often aren’t as bottom-line focused as those of the private sector; they may focus on social issues. In addition, many government entities still view real estate as a commodity that’s necessary to do their job, not as a profitable asset. “I tell anyone who wants to work with the public sector that first they have to stop thinking like a businessperson and communicate in terms of benefits instead of profits,” says Hentschel.