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Operating Firms Owning Non-Strategic CRE?

WALNUT CREEEK, CA—Does it make economic and investment sense for a public operating company to sink large amounts of capital in its own real estate like Zynga and Google? Check out this EXCLUSIVE column on the topic.

By Joseph Ori, executive managing director of Paramount Capital Corp. | Updated on October 06, 2014

WALNUT CREEEK, CA—Many public companies have substantial sums invested in commercial real estate that it owns and uses in their business. The real estate can be a headquarters office building, industrial warehouse property, retail store site or restaurant building. Dillard’s and Sears/Kmart, two department store operators, own many of their own stores. Cracker Barrel, Bob Evans Farms and Ruby Tuesday, three restaurant chains, also own a large number of their restaurant buildings and sites. Zynga, the online game maker that went public in December 2011, bought its headquarters building in San Francisco’s South of Market Neighborhood in 2012 for $228 million. Google, a technology company, bought its 2.9 million square foot New York headquarters building in 2011 for $1.9 billion.

Commercial real estate is considered a capital intensive asset and includes four main property types, office buildings, retail centers, industrial warehouses and apartment buildings. Each type of property (except apartments) is subject to a lease contract that typically has a base rent,  additional rent for the property operating costs like real estate taxes and maintenance, a term of three years to 10 years and options for renewal. The base rental rate varies depending on the location and market of the property, age of the building, lease terms and credit of the tenant.

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