Facility Solutions: The Power of Options

“In order to make a choice, you need the power to see there is one.” – Gloria Steinem 

Most of us have been in a place where there do not appear to be choices or options. This can happen for organizations as well, particularly when it comes to group decisions. Boards of directors regularly make decisions critical to a credit union’s prosperity—one of the costliest is facility occupancy, as it is the second highest and least flexible use of resources. 

While occupancy decisions seem like they would be straightforward, often they are not. Bias can be a big influence. In the process of completing a branch network occupancy study, I noted that a $3.5 million investment in a new urban branch would never break even due to its location, lack of surrounding target member segments, limited interest in expanding product lines and high facility cost. The branch was three years old. The board did not want to leave the site due to the big investment they made. They were stuck. But when the study was completed and the board was presented with rational business options, they sold the building, took a loss and relocated to a profitable location with a two- to three-year break-even estimate. They saw choice where they did not before.

The CEO of a mid-size credit union called me a few years ago with this scenario: His credit union had a 125,000-square-foot headquarters, occupied 45,000 square feet, and could not lease out the vacant space. $12 million was invested, but the building was only worth $8 million. The first question to ask might be “How did we get here?” The CEO was not in charge when the decision was made, and the board was not presented with occupancy options. Rather, they were given a building solution on property the CU already owned. The board would likely not have approved the project if due diligence had been completed, including offering alternatives.

“Alice came to the fork in the road. ‘Which road do I take?’ she asked. ‘Where do you want to go?’ responded the Cheshire cat. ‘I don’t know,’ Alice answered. ‘Then,’ said the cat, ‘it doesn’t matter.’” – Lewis Carroll, Alice in Wonderland 

This applies to the situation many boards are in today, with questions like: “What should our combined delivery strategy be today and in five years based on technology and target market preferences?” “We need more space today, but will we tomorrow?” “Is it rational to continue on, or should we merge?” These questions and more complicate the decision process. So how do you make big-dollar decisions that include both a strong direction and flexibility?

We have worked with hundreds of financial institutions with a wide variety of customer/member bases across the U.S. and Canada and have come to the conclusion that the best path is to create strategies based on two elements: well-conceived options and agility to quickly respond to change.

For example, when we present a headquarters occupancy plan, we analyze all potential occupancy scenarios, even if management and the board have an initial bias against them. This often includes seven or more options, such as 1) retaining the building and expanding it, 2) selling the building and leasing it back, 3) retaining the building and leasing additional needed space, 4) leasing all needed space, 5) retaining the building and purchasing another building, 6) selling the building and purchasing another to meet 10- and 20-year occupancy needs, 7) working with a developer for a build-to-suit, 8) purchasing land and building a new facility, 9) evolving organizational culture to allow more remote work to reduce space needs, 10) moving the branch and associated office to another location with better market position and using the vacant space for operations expansion or centralization, and/or 11) selling the building to a developer for tear down and negotiating a long-term lease in a new mid- or high-rise. The 
options can go on based on your credit union’s situation and conditions in the real estate market.

As the options are narrowed down, each is overlaid with all the potential business scenarios to understand the real estate moves necessary to keep occupancy efficient and at the lowest possible cost. These are then noted in the pros and cons.

The best laid plans can be derailed by a lack of due diligence or inaccurate, appraisal resulting in embarrassment at the least and the wasting of resources and firing of senior management at the worst. To help avoid this, ask these questions:

• Is there consensus among members of the board about the credit union’s short- and long-range business strategy before the occupancy analysis begins?
• Do the consultants have the experience to be circumspect about the relationship of credit union business, brand, markets and real estate, and their interrelated impact on occupancy?
• Are all potential options being considered without bias? Do any of the contributing consultants have potential bias? This is sometimes found with real estate agents wanting to sell specific properties or design/build contractors wanting to build rather than remodel a building, etc.
• Are all elements in the options equal?
• Are there elements included or left out of the estimates, such as cabling, computers, furniture, moving, traffic impact fees, staff parking, income generation, etc.?
• Is income from the property realistic? Often credit unions move to larger-than-needed facilities to accommodate short- and long-range growth. What is realistic in terms of lease rates and vacancy levels? How have common area maintenance charges been accounted for? 
• Do any of the property options require such improvements as sprinklers, new roof, windows, insulation or asbestos removal, or have ADA, power or HVAC issues? Do you need a backup generator?
• How will the options impact your staff’s ability to interact, work efficiently and happily, and commute?
• Has comprehensive due diligence been completed on all sites and properties under consideration?
• How do all these options impact your bottom line? I recently completed a study with seven 20-year occupancy options ranging in bottom line occupancy costs from $33 million to $7.5 million. Fortunately, the latter also had the most pros and was chosen.

Occupancy is literally a big deal. With options, agility and savvy analysis, you will enjoy the best facilities at the lowest cost and be able to take full advantage of change.

Paul Seibert, CMC, is an independent facilities and real estate consultant under Paul Seibert Consulting, Seattle.