When the Worst Happens in your Business – Managing the Real Estate for a Closure

Karen Klein, of BusinessWeek, recently responded to a letter in her Smart Answers column asking for advice on how to close a division of a business.  Knowing that real estate holdings (owned or leased) often must be disposed as part of a closure, I scanned the column for the advice that Klein provided to her faithful reader.  I was not disappointed, nor was I impressed.  Since I appreciate that Klein is not a real estate professional, I applaud her for including a short paragraph in the Tie Up Loose Ends section; however, the advice that she and her forensic accountant interviewee provide stops a bit short.  What follows is my elaboration of their advice.

Review your lease and contact your landlord.  While both are seemingly sound approaches to dealing with what may have become an unnecessary or even painful financial burden, there is a lot more at stake.  Before contacting a landlord, the concerned business owner should contact a real estate advisor.  A good tenant representative broker will help the business owner by reviewing the lease terms, assisting them in understanding assignment/sublet terms, termination or contraction options, and even market trends that may make certain strategies more advantageous and even potentially profitable.  If you still have other divisions that use some of the space, it might even be worthwhile to arrange for a lease restructuring – some sympathetic landlords understand the cost of doing business and will work with you even when times are tough.  After all, as my financial advisors frequently say, if you had two choices and one put more money in your pocket than the other, which is better?  I’ll leave that to the reader to decide, but I think you know where I stand.

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