The commercial real estate market is heating up again after experiencing a pandemic chill. Property sales worth over $25 million in the first half of this year totaled $135 billion, a record amount not seen since pre-recession days, and a number that jumped more than 60% from the first half of 2020. Commercial sales for smaller sub-$25 million properties rose 60% from the first half of last year, totaling $25 billion.
The booming sales market is not just a result of a perceived pandemic recovery but is also due to the evolving lifestyle changes inspired by COVID-19. As more people continue to work from home, multifamily units are high in demand. People are also dining out again. The need for health care facilities and warehouses is skyrocketing.
Maintaining this momentum will not be an easy feat, however. As companies adopt a hybrid format for employees, the need for office space is sinking. With many people ordering everyday items online, the demand for big-box stores or shopping malls may continue to decline. And major logistical wrenches, such as a lack of skilled workers and delays in the global supply chain, also threaten this rising success.
It’s vital to be on top of your game when those potential pitfalls drop. Strengthening your financial model, re-evaluating your operations and utilizing risk management are just a few ways you can prepare for any unforeseen challenges and be ready for new opportunities.
Strengthening Your Finances
Analyzing your financial planning process can help you gain deeper insight as you venture into unprecedented uncertainty. The use of financial dashboards and dynamic reporting helps with this strategy. Reworking your financial reporting function to provide a real-time look into models, forecasts, and cash flow can inform future efforts. It also helps test the potential impact of business scenarios that should arise. For instance, if there are ever performance issue concerns, providing a flexible, assumption-driven 12-month financial forecasting model and summary to stakeholders would be valuable to gain trust with transparency.
With potential tax changes on the horizon, it’s crucial to have a robust tax function in place. One way to tackle a changing tax landscape is to integrate external expertise with your internal team, allowing more bandwidth to address emerging tax needs. Utilizing this approach will enable your company to stay compliant, take advantage of new tax provisions and focus on value-add activities. Recognizing tax savings will also help remediate past errors and issue filings on time without adding to your full-time equivalent headcount.
Re-evaluating Your Operations
Running a commercial real estate business requires many moving parts, and it requires specific knowledge in many different areas, from finance to marketing. Finding employees with fine-toothed expertise doesn’t happen overnight, especially in a competitive talent pool. Using qualified, experienced interim staff can provide you with top talent while your department searches for a permanent solution. Whether remotely or on site, interim staffing can provide seamless service during transitions, transactions or transformations.
Another challenge commercial real estate businesses face is that lenders are more cautious with new loan opportunities to ensure companies have financially recovered from the pandemic. Tapping into a broader pool of potential bankers can connect your organization to a loan solution with more advantageous terms and conditions. An “insider” view of the bank underwriting process also helps your business access a loan that may be less expensive and structured more effectively for you.
Preparing for a New World of Risk
One of the easiest ways to prepare your organization for unforeseen challenges is by retooling your internal audit approach. Last year, the exhaustive impacts of COVID-19 caused organizations to cut internal audit budgets, putting themselves at risk more than ever. Organizations should consider incorporating internal audit resources to help with IT, fraud and enterprise risk management to navigate the changing risk field and its flux of new demands.
In parallel, the number of cyber breaches is heightening, and the cost to remedy those attacks gets heftier by the day. Seeking external guidance to assess your information systems and potential vulnerabilities can identify realistic and effective cybersecurity safeguards. It’s vital to identify issues before a breach occurs to reduce time, expense and the extent of potential damage.
There are several moving parts to consider when securing your business’ success while preparing for unforeseen risks. Check out our complete resource guide for CFOs, which may help with those difficult decisions and strategy adjustments, our guide to managing business disruption to help you plan for the unexpected, or connect with a member of our team for more insights.