Rubicon Latest Insights
Rock & Roll and Your HQ Strategy
Stop Making Sense – at least to me – is a great album by the Talking Heads recorded in 1984. Today – nearly forty years after its release – the title seems more timely than ever.
Consider: Less than two years ago, COVID looked like it would crater equity and capital markets for years to come. Instead, while the pandemic lives on, those markets have climbed to record highs. After a huge initial surge in unemployment, businesses are now struggling to fill millions of open jobs. And the bottle-necked international supply chain, combined with inflation pressure, has consumers buying – and not buying – at the same time for different reasons.
In other words, Stop Making Sense.
For credit unions, all of this and more makes it tremendously challenging to determine with confidence whether to pursue change or stand pat – particularly when it comes to one of their most valuable/costly assets: Its headquarters. But, if you understand the pros and cons, this might be the perfect time to turn your long-time owned HQ asset into a catalyst for growth and a tool for staff recruitment and retention.
Here are three options to consider:
Option #1: Sell, Lease and Move
At the pandemic’s outset, it was highly anticipated that the value of office buildings would implode. But lo and behold – again, Stop Making Sense – they haven’t. However, landlords are under pressure to reduce rates, increase incentives and relax deal terms. In other words, COVID-19 has turned a decade-long landlord’s market into a renter’s market.
For credit unions, this provides the opportunity to sell their HQ’s and turn that on-paper equity into liquidity to lease potentially better space while simultaneously accomplishing the following:
- Applying that treasure chest of cash toward expanding their portfolios.
- Enhancing internal operating systems
- Providing additional products to members
- Adding to diverse investments which provide a profitable return.
The net result is lower cost and greater flexibility, along with a strategic location to ideally retain and recruit top talent. And again, access to liquidity to grow in new and sustainable ways.
Option #2: Sell and Lease Back
This option is growing more and more popular to CU’s – especially for those that still find their HQ space to be highly functional for several more years.
In addition to unlocking the equity, the big benefit here is having additional assets for investment without the cost or disruption of physically moving. This is a perfect example of “managing your real estate rather than your real estate managing you.”
As in the case of Option #1, the credit union sells their assets to a new owner while remaining in the exact same location. But instead of a mortgage, property tax bill and never-ending maintenance and capital costs, the credit union pays for rent and – depending on the lease terms – possibly utilities. That’s it.
In short, a Sell/Leaseback strategy delivers liquidity and flexibility without any more major capital costs or operational disruption. And when the time is right to make a move and purchase another asset or sign a great lease, you’re in control.
Option #3: Stay and Right Size
Driven by the pandemic, this option is playing out in real time from coast-to-coast. In some cases, HQ’s are largely empty with the majority of staff working from home. In other cases, it’s business as usual. But in many credit unions, the “hybrid model” is in place with some staff working from home while others have returned to the office.
For a majority of CU’s, the hybrid model may well be the new normal. How long is unknown. That question is leaving managers to read the tea leaves on how and whether to “right size” their space so that employees that are in the office don’t feel like stragglers long after the party has ended.
One example of right sizing is determining how to strategically manage “shifts.” i.e., allowing staff to come in as they please, or requiring their attendance in synergistic groups on designated days.
A model that seems to be gaining traction is organizing teams in two-day rather than random or three-day shifts. In doing so, each team has the benefit of working in proximity twice each week, with an optional “floating day.” In the three-day model, the math doesn’t work effectively. In a random model, who knows?
While there is no significant cash flow benefit to this option, the model may allow a CU to maintain an owned-asset that it likes while optimizing its space for the retention and recruitment of a prized attribute that is becoming harder and harder to find, retain and incentivize: Highly qualified people.
Change is never easy, particularly these days. But as the past two years have proven, opportunity can be often be found when and where we least expect it. But it can only happen if we are open to looking for it. And that is, in the words of Talking Heads lead singer and songwriter David Byrne, “the same as it ever was.”
Corey A. Waite is the leading commercial real estate advisor to the credit union industry. As Founder and CEO of Rubicon Concierge Real Estate Services, Corey works directly with senior Credit Union leadership to deliver strategic plans and transactional services focused on headquarters and branch locations alike. With a clear understanding of the unique mission and challenges of the Credit Union industry, Rubicon’s expertise and service is truly unique and value-added. You can reach the Rubicon Team at +1 (213) 462-2810.
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