Andy Graiser and Emilio Amendola: Retailers and wholesalers can better cope with the post-pandemic business cycle by selling non-core properties, revisiting leases and conducting sale-leasebacks
MELVILLE, N.Y., Nov. 9, 2022 /PRNewswire/ — Furniture companies should consider using their real estate to generate cash, lower expenses and seize new opportunities, advise the co-presidents of A&G Real Estate Partners in a piece for FurnitureToday.com.
Being strategic about real estate holdings can help them cope with “higher interest rates, rising inflation and domestic and international volatility, all of which directly affect consumer spending patterns,” write A&G’s Andy Graiser and Emilio Amendola. “In this challenging environment, success depends on having enough liquidity and the right cost structures to fuel the go-forward strategy.”
In the piece (“How to bolster liquidity by rethinking real estate“), Graiser and Amendola give furniture retailers and manufacturers a basic roadmap for strengthening their real estate performance.
The first step is to have real estate experts analyze leases, visit sites, huddle with network contacts and run analytics on the portfolio. “The real estate team can identify properties that are the strongest candidates for optimization,” the executives note. “The process routinely saves retail and wholesale clients millions of dollars.”
In the past two years alone, A&G, for one, saved more than 90 clients $2.3 billion. But Amendola and Graiser counsel that, given the pace of change today, furniture companies need to make these assessments at least once a year.
Their goal should be to understand whether occupancy costs are in line with both current and projected sales. Based on what the assessment finds, new real estate strategies could include:
- restructuring or terminating leases;
- selling owned assets to raise immediate cash; and
- conducting sale-leaseback transactions, which can improve liquidity while preserving access to important properties.
As furniture companies pursue the strategies outlined above, they need to remember that such actions do not take place in a vacuum. Landlords, too, are facing higher construction and capital costs; serious supply-chain challenges; building and permitting delays; lender issues and more, Graiser and Amendola advise.
“Professional real estate consultants … can give furniture companies a solid understanding of which landlord ‘asks’ are reasonable based on the histories of productive and successful lease negotiations.”
On the financial side, furniture companies need to ensure they are never paying more than necessary for leased stores, warehouses, offices or distribution centers. In addition, the analytics team should run comps of similar properties in this ever-changing market and crunch the numbers on the value and performance on each location in the company’s portfolio.
“The goal should be to negotiate lease terminations on unprofitable or marginal locations and take a tough-but-realistic approach to securing lower rents and/or more favorable lease terms on both core and non-core locations,” they advise.
Even as they generate much-needed liquidity, a variety of negotiation strategies can yield both savings and more optionality. This makes it easier for furniture companies to take advantage of better-located stores, offices or warehouse/distribution centers, whether relocated or new. Portfolio reviews also can identify opportunities to relocate and downsize stores.
Graiser and Amendola encourage furniture companies to consider selling non-core real estate assets identified in the portfolio review. Many in the industry have been in business for decades and have different real estate needs today, they observe.
Lastly, the 30-year real estate veterans point to the benefits of sale-leaseback transactions. In the piece, Graiser and Amendola cite a hypothetical case in which, back in the 1930s, the patriarch of a furniture business had acquired a downtown showroom and office.
“The current generation has watched the value of that property increase year after year,” they write. “By conducting a sale-leaseback transaction, management stands to generate millions of dollars while still retaining access to that core piece of real estate.”
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SOURCE A&G Real Estate Partners