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Financial Strategy: The Dialogue (Finally) Begins … May 24, 2011

Posted by Bob Cook in Financial Planning & Analysis.
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Mark the date:  May 3rd, 2011.  That’s when, at the Corenet Global Summit in Chicago, the long overdue dialogue began.   The Breakout Session title was: “Money Talks: How Corporate Language Drives Corporate Real Estate”.   It was a freewheeling discussion … some may say “too freewheeling” … about how companies do and should … two distinctly separate ideas … go about doing financial analysis for real estate decisions.

Some panelists spoke of a need for a type of “doctrine” that would set how companies should do analysis.  Others spoke about how analysis needs to be situation-dependent, even participant-dependent … given the realities of how companies work.   A panoply of words were spoken:  net present value, discount rate, weighted average, incremental, cost of capital, cost of debt, cost of borrowing  … to name a few.  There were differing opinions.   The discussion fell short of being a full-on debate … twasn’t nothing like the Lincoln-Douglas debates which occured in the same State of Illinois 150-some years earlier.  There was, though, an accusation of contrarianism on the part of some panelists …  which, I think, was a tribute to the organizers. 

It’s a good start but a lot of discussion … maybe even sometimes heated … needs to happen before interested corporate real estate professionals can begin to understand the complexities of financial analysis and how textbooks (and MCR classes) cannot provide an all-occasion cookbook recipe of how to do financial analysis but instead can only provide the foundational tools needed to decide which tool(s) are appropriate in any given situation.   We need a robust, broader debate to ensue in the profession.  The “Money Talks” session was a great beginning.

Kudos to Jane Mather and Richard Podos for organizing this session.  For way too long, Corenet Summits have neglected serious discussion about financial decision-making.  While financial analysis is deeply embedded in the Master of Real Estate (MCR) curriculum, it’s been notably absent from the Summits.  The Summit agenda has been dominated by other topics such as alternative workplace strategy, alignment with business operations, economic development and sustainability.   

Witness the guide to this past Summit which offered a “Topic Key” that organized the breakout sessions into topic categories:  Social Dynamics, Optimizing Resources, Workplace Strategies, Leading Issues, Economic Development, Sustainability, Technology, Industry Sectors, Advancing Skills, and Service Delivery.   Note: no mention of finance. 

The “Money Talks” session was categorized under “Optimizing Resources”, a topic that included sessions devoted to other-than-finance subjects.  Shouldn’t finance be important enough to merit its own topic category?  Aren’t there enough finance related subjects to populate such a category with enticing sessions?  Some of the many possibilities:  transaction structuring, financial analysis tools, finance methodologies and case studies, funding of real estate resources, new accounting pronouncements.

Related to the last of these, the new lease accounting standard forthcoming from FASB and IASB will force Corenet membership to strengthen their financial acumen.  Corenet, as the leading association serving the profession of corporate real estate, needs to help them do so.   When millions of dollars … and in some cases, billions of dollars … of liabilities go onto balance sheets, real estate execs are going to be called upon, by their Controllers, Treasurers, CFO’s and even CEO’s,  to explain their real estate financial strategy.  Own-vs-lease, funding of tenant improvements, term-structure of the lease porfolio and lease duration are just some of the issues likely to be raised.  Many real estate execs will not be ready to have those discussions.  To participate one must be able to intelligently and knowledgeably converse about finance matters.  Real estate execs will need to understand, in depth, the meaning of the words that were spoken at the “Money Talks” session and the concepts surrounding those words.  They’ll need to articulate their financial strategy and, of course, as a precursor to articulating it, develop it.   

In fact, if corporate real estate execs don’t step up to the financial-acumen challenge posed by the new lease accounting, they could find their recent promotion to the outskirts of the “executive suite” … and in some cases, into the suite, itself … to be in jeopardy.  Rightly or wrongly, the new lease accounting is going to force corporate real estate execs to become expert in financial strategy, lest their position in their companies be usurped by others who are.

I’m hoping future Corenet Summits elevate “finance” to being a topic area.  The discussions begun at “Money Talks” need an outlet, need to be heard, need to blossom.  Let the talks … even some debates … begin.

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Comments»

1. Richard L. Podos - May 24, 2011

“Too freewheeling” ??!!

🙂

I thought it was a lot of fun, and a great kick-off to this overall discussion. Contrarians very much appreciated!

More comments on another day. Thanks, Bob, for your participation on the panel, and for postings here on your blog and on the LinkedIn SPP group.

And yes, we are doing all that we can to increase the proportion of finance and REAL ESTATE discussions at CoreNet.

RLP

2. Kevin Kearns - May 25, 2011

I’m hoping that this kind of dialogue, as well as the necessity of CORE to understand finance, will open up college programs with dedication or specialization in CORE.


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