Spare room anyone?

I have slept in many spare rooms over the past seven months.  I sold up just before Christmas and have had plenty of time to regret it… having languished in an eternal property chain of hell which has broken down twice– each time right at the final hurdle when my hopes were highest…!

So, apart from staying in London in the week – I’ve been trying out an array of spare rooms – belonging to an assortment of regularly rotated friends and family members.  I have become a connoisseur of the spare room!  I know and appreciate a good one – but just like the B&Q advert I have found all too often that people do genuinely neglect their spare rooms – dumping boxes or items they have no real use for, leaving them undecorated and so forth.  These rooms are usually consigned as ‘future projects’ – but are often not the main priority in people’s busy lives.

So, where am I going with this I hear you ask? Well – it occurred to me that often corporates find themselves in a similar position where they are in receipt of a significant level of spare room (surplus office space) which they may have picked up over time as a result of exiting various properties. Just like the spare rooms in people’s houses the surplus office space in portfolios is often neglected, albeit in terms of management time or resource spent on it and can too easily become a real drain on a company.

For these corporates lease liabilities can represent a major problem. IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ requires all corporates to take a provision for their onerous lease liabilities as well as take a hit to their profit and loss account  for the provision that has been taken. Liabilities can be significant.

There is a well-trodden path of tried and tested effective strategies for dealing with surplus space – however I will not deal with all of these here. The one I wish to highlight is a relatively recent but growing trend – the bundling up and disposal of surplus leasehold liabilities. What we have seen over the past few years is the rise of a lease liability market – an emergence of a number of specialist companies, prepared to relieve corporates of entire portfolios of lease liabilities in exchange for payment of that provision.

We, at Jones Lang LaSalle have acted on a number of these deals, the most notable being the acquisition by Legacy Portfolio (in 2010) of 163 leases and 14 freeholds from Wolseley which carried a gross liability to expiry of over £70m. We have also recently acted for a corporate where a disposal of £35m of gross liabilities was achieved in a 2 months’ timescale and we are currently appointed on 2 different portfolios for different organisations – one is retail and the other is provincial offices.

Looking ahead, this really is an emerging market and I would expect to see further deals of this type.  This can be an incredibly attractive option for corporates who can see all of their liabilities disappear in one go. The risk can be removed from them, potentially their balance sheets and can also save them significant time and resource – allowing them to focus on their core business.

Returning to the start of this blog – some good news…   This week I have heard that the property chain has suddenly sparked back into a frenzy of action and I could be in my new house (I say new but actually its very old) within 4-6 weeks.  Third time lucky I hope… Of course I plan to decorate here and there – I especially have high hopes for the spare room…!