May 31, 2002—Identifying and implementing enterprise-wide cost savings to retain investor confidence are among the leading challenges facing real estate executives this year, according to a report released recently by Deloitte & Touche LLP, a leading professional services firms.
“Real estate firms are finally joining the cost-reduction revolution that has swept through the business community,” according to Dennis Yeskey, national managing director of the firm’s Real Estate Capital Markets Practice, which issued the report. “With a sagging economy and marketplace concerns still lingering, cost reduction has become a way of life. Rationalizing a firm’s real estate portfolio can reduce total system costs, streamline supply chain and operations, and match capacity to market share.”
Strategic cost reduction strategies currently being utilized include dispersing operations to more distant, lower-cost locations, while seeking incentives from states and localities eager to attract and retain business; renegotiating leases with owners anxious to keep well-known corporate tenants rather than have their building subleased to a series of smaller firms; using technology to automate management and reporting; purchasing online to reduce procurement costs; taking advantage of lower rates to lower interest costs through refinancing; and contesting assessments that have lagged behind the decline in market values.
Property insurance is also discussed in the report:
As property insurance rates continue to skyrocket, the ability to successfully navigate through the current market turmoil is also proving to be a critical for the industry. An inability to gain needed coverage could potentially place borrowers in violation of their lending agreements both on whole loans and, more importantly, on mortgage-backed securities. The current turmoil in the property insurance market may eventually calm over time. Meanwhile, firms will be looking at alternative approaches such as self-insurance for certain risks and employing off-shore captive insurance subsidiaries.
To request a copy of Deloitte & Touche’s “2002 Real Estate Capital Markets Top Ten” report, contact Chris Faile via phone at 212/436-5170 or e-mail.
