Are you ready to take advantage?

Global industrial firms hold billions of dollars in idle surplus properties. Also known as redundant properties, surplus properties are owned or leased, vacant, or operational buildings. For instance, a company may need to relocate an automotive manufacturing plant, shut down an outdated oil and gas refinery or consolidate operations.

Surplus properties can expose an organization to enormous financial, social, reputational and political risk. With the industrial real estate market booming in western economies, there has rarely been a better time to dispose of surplus properties. To take advantage of these ideal market conditions, firms need to have right strategic approach.

Arcadis set out to discover what differentiates there more progressive forms and why they succeed where others struggle.

These firms’ surplus property portfolios range in number from dozens of assets across a limited geography to thousands of properties spanning the globe and equate to a total book value of approximately $2 billion (USD).

From the survey, we reveal 10 key findings for how companies approach surplus properties. We also provide six recommendations businesses need to implement now to take advantage of the current robust industrial property market.

3. Environmental liability is relatively low

4. Internal company barriers impede disposal

5. Portfolio size is small

6. Property disposal is not a high priority for executive leadership

7. Individual transactions are favored over portfolio sales

8. One-third of firms do not have well-defined disposal plans

9. Remediating and selling property is favored over redevelopment

10. Annual carrying costs of maintenance and operations are relatively high

Taking Advantage

Our Perspective

Based on the results of this research, our experience in assisting clients in disposing of their surplus properties, and the current robust industrial property market, we strongly believe that now is an ideal time to sell redundant property. To take advantage, businesses can implement the following six steps:

Elevate the issue to the executive level or C-suite

Making the topic of surplus property disposal a routine agenda item for top executives results in swift action and leads to large financial and social benefits.

Empower a senior leader with the authority to dispose of surplus property

The absence of a single, clear authority often leads to internal politics and infighting that prevent timely and effective decision-making.

Set a clear divestment plan with an exit strategy

Successful firms develop clear strategies for the disposal of the bulk of their surplus properties with a well-defined endpoint, normally not more than five years.

Adopt a portfolio strategy

Selling surplus properties solely on an individual basis, rather than in portfolios, is slow and costly. In contrast, the transaction cost of a portfolio is relatively low, and owners can bundle low-value properties with higher-value assets.

Sell environmentally contaminated property

Profit should not be the sole motive for surplus property disposal

When firms focus more on timely and effective disposal rather than on a simple calculation of profit, they are more likely to reduce their portfolios rapidly, lower total cost of ownership significantly, and enable leadership to focus on their core business.

Featured Projects

Divesting of an Oil Refinery

A global energy producer operated three refineries in the Bavarian region of Germany, historically supplying oil and gas to Germany, Austria and Switzerland. In response to declining demand for gasoline and heavy fuel oil, they dismantled the 266-acre site and sold the property in parcels to generate cash that enabled remediation and clearance operations for the remaining parcels. Within two years, the first parcel was decommissioned, remediated and converted into a 16,000-seat stadium. The remaining property was development ready and sold for multiple uses, and the site is now home to a business park and an innovation campus for automotive research and development.

Within two years, the parcel was decommissioned, remediated and converted into a 16,000-seat stadium while the remaining property was development-ready and sold for multiple uses, and the site is now home to a business park and innovation campus for automotive research and development. This project improved the quality of life for residents and contributed to a better bottom line for the company.

Automotive Manufacturing Plants Closed and Sold

A global automotive manufacturer based in the United States faced excess manufacturing capacity and elected to permanently close three manufacturing plants located in multiple countries. Three plants, totaling over 300 acres of land, were considered surplus property, with ongoing carrying costs, environmental liabilities and, in some cases, community disfavor toward the company for the economic impacts of closing the plant.

All three properties were transferred to new owners and are now being redeveloped. The manufacturer was able to generate more than $250 million (USD) from the divestment, providing balance sheet relief for the cash-strapped company.

Gas Station Property Divested

In 2008, large oil companies began to exit the retail gas business. As a result, the low-margin gas stations, and the property they sat on, became surplus property. The decision to divest the surplus properties not only generated cash for the struggling oil and gas sector, but it also allowed them to focus on higher-profit resource production and refinery operations.

Within 8 years, more than 70 percent of the sites achieved regulatory closure. The oil company is now on target to close the remaining properties before 2020. As the highly competitive retail fueling business continues to evolve, this oil company is well positioned to improve profitability, provide higher returns for shareholders and plan for growth.