Geography is Destiny
The most talented entrepreneurs have a way of marshaling even the most mundane resources in strategic ways. The following case studies illustrate how three company builders derived competitive advantage by thinking smartly about commercial real estate.
Sell your building to employees. Neil Prewitt of Thixomat in Ann Arbor, Mich., sold his 1,500-square-foot building to his workers five years ago. After that, employees were much more zealous about general upkeep. When the mortgage came due this year, the lender asked the worker-landlords to pledge personal assets as collateral against a new five-year loan. Instead, they sold the property for a 300% profit, which some reinvested in an employee stock ownership plan. "The only complaint was that people wished that they had invested more," Prewitt says.
Lock up a prime location. The expansion-minded Church of Latter Day Saints would love to oust Salt Lake City apparel retailer Utah Woolen Mills from its prime downtown building. But even though several of Bart Stringham's neighbors have had to move, he plans to stay put. And he can: 25 years ago, when the church last expanded its facilities, his father shrewdly put together a deal wherein the church and the family signed 85-year leases on each other's neighboring properties. "My dad always said you have to own property to keep control," recalls Stringham.
Fund ESOP payouts. SRC Holdings Corp. in Springfield, Mo., has been employee-owned for decades. CEO Jack Stack recognized early on that when the first generation of workers began to retire, he would need a lot of cash on hand to buy back their stock. So Stack invested in real estate -- he can either sell property or borrow against it, as he needs to. The strategy can work just as well for companies that are closely held as it does for those, like SRC, that have very progressive equity structures, he notes. The same trap can "kill family businesses that aren't prepared," says Stack.
Darren Dahl is a contributing editor at Inc. magazine, which he has written for since 2004. He also works as a collaborative writer and editor and has partnered with several high-profile authors. Dahl lives in Asheville, North Carolina.