Four tough questions about real estate: in an era of deeper engagement, look for real estate oversight to occupy more space on the board's agenda.

• Author: Hobstetter, David
• Position: INFORMATION FOR THE BOARD - Company overview

BOARDS REGULARLY REVIEW major real estate transactions. Too often they are presented with a set of facts and projections that may be difficult to analyze if they don't have prior experience that relates to the proposal.

The increased pressure for accountability on board decisions goes beyond high profile topics such as Sarbanes-Oxley and executive compensation to include oversight of real estate matters. In fact, with the increased pressures put on boards in the past few years, real estate is becoming the elephant in the corner of the boardroom--a major issue not always given proper scrutiny.

Facility and property commitments are many companies' second-highest expense on the balance sheet after labor, although IT-heavy industries bump real estate to third position. Commercial property accounts for about 30 percent of real estate assets in the U.S., and corporations control approximately 25 percent of U.S. real estate. In some industries, real estate may account for up to 75 percent of the firm's assets.

What company can afford to have such assets working at sub-par levels? Further, how can the real estate assets optimize the workforce while reducing redundancies and labor costs?

Property transactions are critical to company success but may become an albatross that weighs down the balance sheet. In too many instances, boards have been surprised by real estate issues that jeopardize the company's profits, if not its existence--such as with off-balance-sheet financing tools popularized in the 1980s, the untapped value in the real estate portfolio that fuels a takeover, or just a poorly planned real estate deal gone bad.

In working with organizations to structure ideal real estate developments and transactions, we have developed a list of key questions that are important to answer with every deal.

1. Is it strategic ... or strategic-light?

   How does the new facility or transaction truly match the business plan as well as the organization's core values?

   Company leaders no doubt pursue real estate transactions out of the needs of the business, but here is how the process sometimes unfolds: a reactive single transaction that results from waiting until the firm is bursting at the seams and then quickly finding a facility to accommodate growth. Every real estate decision should be made in the context of short-term and long-term business objectives and goals, with multiple alternatives and scenarios to consider.

   Furthermore, real estate reflects an organization's purpose and culture, not just its operations. When customers enter stores, headquarters, or plants, they immediately form an impression of the company based on the design and architecture that affects how they interact and do business with the firm. Does the design mirror the company's product or service, such as an upbeat space plan for teen shoppers...