Businesses can offload real estate as management strategy

THERE HAVE BEEN allegations and refutations that Guinness Nigeria Plc, a foremost beverage manufacturing company in Ikeja, is exiting Nigeria’s business environment. The “false, malicious, and misleading publication trending on some social media platforms” alleged that Guinness Nigeria Plc is relocating and that the relocation of the company to Ghana resulted in the selling of its Ikeja Brewery site. Guinness Nigeria, “part of the world’s largest premium drinks company, Diageo Plc”, claims “it has confidence in the Nigerian economy” and as it has “done for the past seventy-one years, will remain a major player in the country by continually investing, developing capabilities, growing brands that most suit the consumers’ needs; and contributing positively to lives, communities and the environment.” The company recently (in late 2021) acquired a 25-acre commercial property in the Ogba Industrial area of Lagos, Nigeria, where it recently commissioned a $5 million new additional production line.

Businesses are hubs of making profits through production of goods, products and services. They are entities created to carry on the activities of commercial enterprises (buying, adding to raw materials value-chain and selling). These organisations depend on the profits from their commercial transactions - manufacturing, sales of goods and products or rendering of services to continue to exist. Business organisations are dynamic and creative because the only constant phenomenon in the business world is change. They operate on locations known as business-place, premises or addresses or plants whose sizes are determined by their need, operations and time. In a business environment, adaptation as a strategy of change management must be constantly practised. Business continuity strategies also include loading and unloading investments that generate passive income, especially real estate, as dictated by laws, technology, nature and economy. In some instances, businesses may need to sell and lease-back their real properties (land and buildings) for survival. It may be preferable to taking loans from banks.

It is a good development for corporate organisations to expand and move to bigger and modern offices. More specifically, advantages of expanding a business include: attracting new customers in new markets or with new products and services. A large and diverse customer-base also helps insulate a business against over-reliance on a single client or product. Union Bank moved its head office from 40 Marina, Lagos, to its own building at Stallion Plaza, 36 Marina, Lagos. The advantage of a business being in its own property, apart from better corporate image, is that it can leverage tax advantages such as “Depreciation on Properties” and “Interest Deductions”. While businesses leasing their premises can deduct rent payments from their taxable income, ownership also brings significant tax advantages, including potential depreciation on the property, which lowers the taxable income. Personal property can be custom-built to allow machinery, equipment and furniture fit-in perfectly.

International Brewery at Ilesa, State of Osun, and Nestle Plc at Ilupeju, Lagos State, expanded to Sagamu Interchange in Ogun State. There are many reasons why manufacturing companies can move from old sites to new ones. It is basically a business strategy. The need for expansion of production, modern technology, accommodation for more members of staff, machineries and equipment, easy distribution access, proximity to ports for exportation and combination of industrial area with residential area of workers, are among them. Nearness to market is another reason.

Nestle Plc opened its branch of “Pure Life” bottle water manufacturing plant in Abaji, near Abuja, in the Federal Capital Territory (FCT) and Nigerian Breweries Plc has ten operational breweries from which its products are distributed to all parts of Nigeria. Leadway Assurance Plc moved its head office from Kaduna, where it has its registered office, to Lagos, the commercial heart of Nigeria and where the major business players reside.

Due to government policy, some organisations may decide to relocate within a country. For example, when the Federal Government of Nigeria moved the capital and administrative centre of Nigeria from Lagos to Abuja, companies like Julius Berger Nigeria Plc, SCC Nigeria Limited and Reynolds Construction Company (Nigeria) Limited moved their head offices too to Abuja, to be close to their major source of business. One of the advantages of businesses locating near ministries, departments and agencies (MDAs) where they get jobs is that these businesses have advantages in easy networking and access to information before other organisations, which are far, and the general public. These are good for businesses that plan to grow big. One of the conspicuous changes in the business environment is the widespread adoption of technology. Technology adoption sometimes requires change of premises.

Technological change will have an impact on all organisations, according to James P. Golson in, “The Impact of Technological Change on Organisation Management”, published in 1977. There will be a need for new types of managerial, diplomatic, and social skills and a concomitant need for a new type of decision making process that will not be accommodated by existing organisation structures. Most organisations require more spaces to accommodate their physical growth due to adoption of modern technology and process. In recent times, the debate has been rife for governments to think outside the box and look inward into raising funds for their budget.

Governments, like businesses, have been advised to sell off some of their landed properties, which are lying fallow, to generate income, since real estate is a basic need of individuals, groups, and organisations.

In book-keeping and assets management, in the past, we had two types of assets: (a) current – cash (at hand and in bank) and stock, including work-in-progress and (b) fixed – land and buildings. Now we have current and non-current assets. The lesson here is that there is no asset that is fixed or that cannot be turned into cash in modern business management. Noncurrent assets like land and buildings, operation vehicles, furniture and fittings are assets that an organisation expects to hold over one fiscal year or that cannot be readily converted into cash within a year. Transactional opportunities of real estate should be considered in the debate over businesses deficit finances and debts, apart from loan restructuring, sales and turnover. Andrew Nevins, the chief economist of PriceWaterhouseCoopers, in 2018, stated that the right reforms in land and property ownership could unlock $307 billion dead capital or 81 percent of Nigeria’s Gross Domestic Products (GDPs). Dead capital, which is the capital tied up in unused assets, remains a critical issue as the tendency to invest long term by Nigerians is low.

There are numerous companies culpable of this bad act of tying down capital and allowing their valuable properties to decay instead of offloading them. Government may need to engage the property taxation system to ensure owners of abandoned properties sell them and release the dead capital in them. It is in this light that organisations are urged to be more prudent and sell off their excess real properties to raise funds and reduce cost of maintenance of fallowing properties in their portfolios. This exercise requires the candid opinion of professional estate surveyors and valuers before decision-making.

Olufemi Adedamola Oyedele, MPhil. Construction Management, managing director/CEO, Fame Oyster & Co. Nigeria, is an expert in real estate investment, a registered estate surveyor and valuer, and an experienced construction project manager. He can be reached on +2348137564200 (text only) or femoyede@gmail.com.