GlobeSt.com: Why Is Financial Analysis So Important?

Joyce: Naturally, the stakes are high to begin with, as real estate remains the second biggest corporate expense, after labor. The challenge is to control costs by doing due diligence with financial analysis, which can mitigate risks and save companies hundreds of thousands of dollars. The process involves educating tenants so they have a full and transparent understanding of their real estate costs, including hidden expenses that can bite them if not recognized upfront. For example, tenants must anticipate scenarios such as increases in rent, operating expenses, parking costs, etc. If not, tenants may find that they have under-budgeted for their real estate expenditures.

GlobeSt.com: How does it work exactly? What are the steps? What is the process a company should take in coming up with their financial analysis?

Joyce: Financial analysis should be an integral part of the transaction management and project management process. To help clients during negotiations and in their long-term financial planning, firms should provide a comparative lease analysis. In addition, they should provide sublease recovery modeling, lease-versus-purchase analysis, and other models to help tenants understand the financial impact of their real estate decisions. Based on specific client needs, financial advisors will customize proprietary financial models. The goal isn't to produce spreadsheets with lots of difficult-to-understand numbers; rather, the analysis should present sophisticated-yet-simple models that tenants can digest and present to their board or executive team.

Financial analysis also involves integrating costs from the project management group and contractors to show how locations may require additional capital improvement expenses. For instance, a tenant may think that since one location has a lower rental rate, it may be less expensive, but when additional costs such as office buildouts are factored in, that is not always the case.

In addition, financial analysts help tenants maximize available concessions. In this light, landlords often offer concessions such as tenant improvement allowances, rental abatement, and phased-in rent structure. These savings can be significant, and financial modeling illuminates how these concessions positively affect tenants' real estate costs.

GlobeSt.com: What Should You Consider in Moving Forward?

Joyce: Often, when working with rapidly growing companies, it is necessary to structure deals to save them upfront costs, and effective modeling reveals how this will work and fit into budgets. Of course, financial analysis is also important to established companies that want to limit their exposure and contain their costs.

In any event, whatever the type or size of the company, if financial modeling is included throughout the negotiation process, tenants will maximize their leverage and negotiate the best-possible terms. And the money saved in real estate costs can be used in revenue-generating operations within the business.

GlobeSt.com: Next Steps? How does one get started?

Joyce: While most companies have financial professionals on staff, they usually don't have the requisite level of expertise for sophisticated financial analysis. For this reason, this service is often outsourced to real estate firms. When considering such firms, make sure that financial analysis is part of an integrated, conflict-free service approach that is provided at no additional cost.

Financial analysis is just one piece in the transaction management process. While other factors go into a company's decision on where to locate and how to rehab, the financial impact is certainly key in ensuring your protection and guarding against unwelcome surprises.

So, to established companies in many sectors along with the tech giants and the startups waiting to be the “next big thing,” here's one thing to keep in mind: Don't go too far too fast. As you look toward the stars, don't forget to protect the bottom-line.