How To Prepare for the Workplace of the Future
JEFFREY C. NEWMAN, CPA, JD
Businesses both large and small have faced many unexpected changes due to pandemic-related disruptions, and these have made lasting impacts on the workplace. The lessons learned have prepared market leaders to prioritize flexibility and agility in planning for the workforce and workplace needs. Achieving these objectives requires unbiased support. Numerous studies indicate that real estate brokerage companies may not represent their clients’ best interests in all instances and their recommendations can result in businesses entering costly, inflexible leases. Instead, it helps to leverage support from experienced, conflict-free advisors who can ensure your organization’s best interests guide any decisions and actions.
Your organization has an opportunity to create a competitive advantage by positioning to capitalize on new market conditions and workforce trends. Using predictive forecasting tools and scenario modeling can help devise practical portfolio optimization strategies that will enable you to act decisively. By taking a proactive approach to your real estate and facility planning, you can respond rapidly to operational changes, unlock significant productivity enhancements and achieve material cost reductions.
Increasing agility and preparing for the road ahead calls for assessing specific aspects of your organization to identify potential improvements. Review the checklist below to measure what stage your organization is at in preparing for the workplace of the future.
- Assess the efficiency and continuity of running your operations with a remote workforce.
- Evaluate the potential tax implications of a remote workforce.
- Measure and compare pre-COVID and current portfolio performance.
- Gain clear visibility into total occupancy costs.
- Understand the changes to office space you need in the near term.
- Complete contract audits of material occupancy costs, including Integrated Facilities Management (IFM) contracts, lease audits and high category spend items.
- Conduct a ‘Voice of the Employee Survey’ to gather data on their needs and preferred ways of working.
- Plan for office safety and sustainability upgrades when employees return to the office.
- Update the business resilience and continuity plans.
- Implement a market test process for validating current outsourced partners’ costing and services.
- Complete financial, supply-and-demand and occupancy modeling to produce a comprehensive view of potential outcomes. Engage objective, experienced experts to facilitate that modeling.
- Develop a prioritization matrix to close, consolidate and renegotiate or restructure locations and validate the locations needed.
- Create a market view for specific key locations.
- Avoid conflicted advice that could lead to suboptimal decisions and actions.
- Build a project plan to manage prioritized opportunities.
- Outline the business case for change that identifies cost to achieve savings and ROI.
- Implement a Project Management Office (PMO) to ensure savings and outcomes are driven, measured and achieved.
- Evaluate organizational structure across the enterprise, including Real Estate/Facility Organization.
- Reexamine the current operating model to determine core services and functions with the potential for outsourcing.
- Analyze needed roles, responsibilities and capabilities—as well as spans and layers—within the CRE organization to leverage skills and eliminate redundancy.
- Review and optimize currently outsourced or out-tasked functions (number of vendors, vendor spends, cost category spends, service levels, etc.).
- Determine the best go-to-market strategy to capture economies of scale for desired outsourcing requirements and bid process management.
- Leverage independent expertise in optimizing the operating model structure and outlining alternatives.
- Examine selling, general and administrative (SG&A) costs across all spend categories to assess supply and demand and reduce cost for improved contract lifecycle management.
- Test market conditions with a formalized outreach plan for existing landlords to understand potential lease restructures.
- Review current-state technology across the organization.
- Improve the digital experience by rolling out concierge apps, advanced portfolio analytics, dashboard reporting and more.
- Implement digital capabilities that support operations for critical supply chain impact areas.
- Track utilization through IoT sensors and provide real estimate data analytics.
ORBA’s Real Estate Group is here to help with your future workplace optimization process. For more information, contact Jeff Newman at firstname.lastname@example.org or 312.670.7444. Visit ORBA.com to learn more about our Real Estate Group.
Applying for Construction Loans Today
TAMARA PARTRIDGE, CPA, MST
As the economy recovers from the COVID-19 pandemic, real estate investors and developers may need construction loans. Below is an overview of the financial and non-financial information that lenders will consider as they evaluate your loan application.
While lenders secure regular commercial loans with existing cash flow, they secure construction loans with unfinished collateral. The collateral’s value depends on the appraised land value, the project’s completion and its estimated economic viability.
Risk is another important consideration. It is natural for lenders to seek assurances that a developer will manage construction risk from the project’s start. They also want to ensure that developers have enough money invested in the venture to overcome construction problems and complete the project successfully.
Lenders look for red flags when sizing up a project. For example, is land value based on its purchase price or its current market value? If you list the land value as higher than the purchase price due to improvements, expect lenders to question that claim. A higher value may be justifiable if the developer assembled several parcels to form the development site, but it will not be justified for costs incurred while demolishing an existing building.
Generally, lenders require developers to have at least 20% equity in the project. This equity can be in the form of cash or lien and debt-free land. In some situations, lenders may require higher contributions from developers, along with personal guarantees. Either way, a down payment of less than 20% may result in private mortgage insurance, which is an additional cost to consider.
Before approaching lenders, review the following financial metrics to see how your project measures up against others:
Loan-to-Value (LTV) Ratio
In a tight credit market, the project’s LTV ratio is critical. It is calculated by dividing the loan amount by an appraiser’s projection of the fair market value of the completed and occupied project. Conventional lenders look for an LTV that is not higher than 75% to 80%.
Loan-to-Cost (LTC) Ratio
The project’s LTC ratio equals the loan amount divided by the total project cost from the time of acquisition to project completion. Because lenders are often wary of preconstruction appraisals, they may look to the LTC in their underwriting evaluation.
Predevelopment project costs include all expenses before construction, such as architectural, engineering, survey, legal and permit work. They can also include land acquisition and demolition costs. Development costs encompass expenses from site preparation through construction, including materials, labor, insurance and taxes.
This measures a borrower’s ability to use its available cash flow to repay all its debt obligations. Lenders will calculate it by dividing the borrower’s annual net operating income by its annual debt service.
Your loan amount should not exceed your net worth. Be prepared to explain where preconstruction money was spent and the sources for those funds.
Beyond the numbers
Lenders may require various conditions and provisions in both the construction and loan documentation to ensure the project is constructed well, within budget and on time. This includes contract time provisions, use of the property, detailed costs, and caps on change orders and cost overruns. The lender may also want copies of the builder’s insurance certificates to ensure they are insured, qualified and licensed.
For larger projects, some lenders will require periodic site visits by an independent engineer, an accounting professional or both. These visits help ensure that the project is progressing as planned and the percentage of costs incurred is in line with the project’s percentage of completion.
In addition, lenders will often seek provisions that include a dispute resolution clause and bonding for contractors. Finally, lenders look for assignable contracts to facilitate the completion of the work in case of default.
Related Read: What You Need To Know About Construction Loans
Seek professional guidance
During the application process, lenders will make a thorough review of your financial situation, scrutinizing your prior actions in the relevant market. If you have dealt with the financial institution in the past, they will also consider your track record with them. To facilitate the application process and put your best foot forward, consult with your legal advisors and CPA to review all paperwork that you will present to the lender.