Doug Works, lifelong skateboarder and First Vice President at CB Richard Ellis, a global commercial real estate firm – gives us his perspective about the commercial real estate landscape in the U.S. and how it can work in many brands’ favor.

What have been the greatest changes you’ve seen in the national commercial real estate market since the recession began and how can companies leverage this to their advantage?
The biggest change in the overall commercial real estate market is that most markets around the U.S. have experienced a shift from landlord or property owner dominance in many markets to an environment defined by favorable terms and concessions on purchases and leases given the appropriate leverage. Keep in mind that different regions of the United States have been affected differently since the “Great Recession” began in 2007. Simply put, commercial real estate is affected by supply, which has gone up significantly in many areas, and demand, which in some areas has diminished significantly due to a variety of factors. The more facility choices and commercial real estate local market intelligence a business has, the better terms it can achieve on a lease renewal, new lease or building acquisition. That is where I and my global counterparts at CBRE come in, of course. The fact that there are now larger quantities of attractive purchase and lease opportunities throughout the U.S. as a whole than there have been for over a decade has enabled companies to reconsider their former outsourcing strategies in relation to distribution aka Third Party Logistics as well as manufacturing in some cases.

In addition, to the more favorable leasing and purchase concessions that property owners are generally willing to accommodate, there is another critical factor that should be considered when determining where to operate and what functions to outsource. That factor is economic incentives.

Can you explain these economic incentives further?
States across the United States compete to attract, recruit and retain companies that will expand business and investment within their boundaries. Economic incentives can greatly enhance a company’s return on investment and continue to play a significant role in the location and investment decisions. Economic incentives typically fall into two categories: statutory and discretionary. State and federal statutory incentives are “on the books” and available to any business that meets stated criteria. Discretionary incentives are customized and provided by certain cities and only for specific projects on a case-by-case basis. In almost every case, discretionary incentives come into play when a community is trying to attract a large business operation that brings significant investment into that community and will have a substantial impact on jobs created.

How does one identify and capitalize on these state and federal incentives?
Financial incentive availability depends on a variety of factors including the state or community’s needs and the project’s economic impact. In general, incentives are likely to be minimal in prosperous areas unless the project is viewed as highly desirable by local authorities. On the other hand, areas in dire need of new jobs and tax revenue are more likely to offer larger packages. Until all parties meet to discuss the potential size and economic impact of the project, it is difficult to offer a preliminary estimate of incentives to be offered. CBRE actually has a consulting arm called Economic Incentives Group (EIG) that is comprised of professionals that negotiate directly with federal, state and municipal economic development officials throughout the United States. Their services and knowledge of economic development help evaluate, develop and secure meaningful economic incentive programs for the clients they serve. EIG professionals work in conjunction with me and my team of local market experts in each area of consideration.

What advice would you give to companies that are reassessing their current real estate needs?
Rarely will either statutory or discretionary incentives turn a poor location into an acceptable one. Therefore, they should be considered only after a number of locations have been identified that satisfy a company’s key operation requirements. But among roughly equal alternatives, incentives can represent a decisive factor. Incentives should be combined with other factors as part of a “big picture” comparison of contending site locations.

The other advice that I convey to almost all of my clients is to begin with the end in mind. This maxim adopted from Stephen Covey’s Seven Habits of Highly Effective People is especially applicable when making commercial real estate related decisions. Since the commercial real estate market is fluid and ever-changing, it is crucial to lock in terms and negotiate expansion options that are aligned with the client’s growth strategy. For example, if based on conservative projections, a company expects that they will not outgrow a specific building for 7 or more years, it may be appropriate to purchase that building or another of similar size and function pending other terms. It also may be appropriate to consider a shorter term lease on smaller space or a staged take-down of larger space if the business anticipates outgrowing a specific size in just a few years. Since every situation is different and every market is different, we only provide that type of specific advice after completely listening to and understanding the short and long term financial restraints and operational needs of the client.

Statutory and discretionary incentives take numerous forms, including:
• Cash Grants
• Corporate Tax Credits
• Sales Tax Refunds
• Job Fairs
• Recruiting & Screening Services
• Research & Development Tax Credits
• Foreign Trade Zone
• Military Reuse Zone Discretionary Incentives
• Real & Personal Property Tax Abatement
• Cash Grants
• Corporate Tax Credits
• Sales Tax Refunds
• Training Grants
• Building Review and Permit Waiver
• Infrastructure Grants
• Forgivable Loans & Low Interest Loans
• Donated Land
• Free or Subsidized Parking Facilities
• Equipment Grants
• Low Interest Equipment Loans
• Utility Cost Reduction
• Low Interest Bond Offering
• Public Financing

The article below was originally run in Transworld Business.  For the actual article, go to:

http://business.transworld.net/67061/uncategorized/the-domestic-debate-doug-works-of-cb-richard-ellis/

For the perspectives of all who were asked to weigh in on this, go to:

http://business.transworld.net/68237/features/the-domestic-debate-brands-weigh-in-on-production-in-the-us/