Surplus real estate raises costs.

• Author: Diamond, Paul R.
• Position: REAL ESTATE

The propensity for many companies to move jobs overseas, together with the effects of the great recession, have resulted in a marked increase in surplus industrial real estate in the United States. It is incumbent upon businesses to contain the costs of their surplus properties.

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There are extraordinary costs related to these properties. For instance, the City of Chicago now requires that vacant properties be registered with the city and semiannual registration fees be paid--these new requirements have resulted from the failure of some companies to properly maintain their vacant sites.

Security costs also have increased markedly, since vacant buildings are particularly prone to vandalism and the theft of building components. Many cities have modified their ordinances so that merely boarding up vacant buildings is no longer sufficient. Steel materials must be used to seal all points of entry.

Another frequent problem relates to insurance, since casualty and commercial liability insurance coverage may be jeopardized when a building is vacant.

An obvious way for a company to reduce the cost of its vacant buildings is to seek a reduction of real estate taxes based on the vacancy itself. While this is usually a source of cost savings, it should be noted that some cities, such as Baltimore and Palm Springs, have proposed increasing taxes for vacant properties to discourage vacancies and compensate the community for the blight that often results from the vacancy.

While...