Common real estate pitfalls energy companies should avoid (Part 2)

0 CommentsBy

Feb. 8, 2018

By: Bruce Rutherford, International Director, JLL Global Energy Practice Group

This is the second in a three-part series examining common real estate pitfalls energy companies should avoid. JLL’s Global Energy Practice Group will share market insights and real estate expertise with energy companies at the 2018 NAPE Summit, Feb. 8-9, in Houston. Visit us at booth 3111.

Common real estate pitfall #1

NAPE Summit

Common real estate pitfall #2: Nonexistent or unreliable real estate database

A company’s ability to manage its real estate portfolio is only as effective as its real estate information. From a financial standpoint, comprehensive and accessible data can help make sure your businesses have the information to make timely decisions about the facilities they require and make sure they are not wasting money on spaces or facilities they don’t need. Good data is especially important for leased properties. There are many instances of companies with insufficient databases that have paid rent on leases that had long since expired, sometimes paying millions of dollars unnecessarily. Frequently, companies end up having to pay dramatically higher rents because they miss notice dates to renew important leases.

Another critical function of real estate data for an energy company is to ensure safety compliance with the many state and federal regulations affecting their activities, not to mention company policies. For example, there are strict control requirements for functions such as the storage and handling of radioactive and explosive materials used in oil and gas exploration. A modern real estate database should show how these issues are addressed at each facility and whether the facility is compliant or not.

In the most robust systems, financial data is audited and tested for compliance with Sarbanes-Oxley and SEC regulations. This allows you to use that data in your corporate financial statements and other reporting requirements. Although some may balk at the expense of these top-of-the-line systems, they are worth considering, because they usually save more money than they cost.

To help determine whether your current database management system is sufficient, ask yourself:

  • Can I, with a few key strokes, call up the report that tells me how large my leased and owned portfolio is and what type of real estate is in each of my locations and when all of my leases expire?
  • For leased properties, who are the contacts at each location for renewing, expanding, or contracting the lease? When are notices for these options due for each lease?
  • What is the company’s real estate cost per business unit? Per square foot? Per employee? As a percentage of revenue?

Stop by booth 3111 at NAPE to discuss your answers to these questions with one of our energy industry real estate experts.

About the Author

Bruce Rutherford is an International Director within JLL Houston’s Office Tenant Representation group and is also the global leader for JLL’s Energy Practice Group. With more than 33 years of experience, he has applied his expertise in tenant representation and commercial real estate consulting to numerous industries including insurance, banking, law, energy, energy services, and telecom.

Leave a Reply

Your email address will not be published. Required fields are marked *