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FIRMS FINDING HIDDEN ASSETS ON - AND IN - THE GROUND

SHARE FIRMS FINDING HIDDEN ASSETS ON - AND IN - THE GROUND

Just at the moment when many U.S. homeowners are fretting that their real estate may be worth less than they thought, scores of corporations are happily making the reverse discovery. They're finding hidden assets on - and in - the ground.

Traditionally, industry had been content to snooze in a sort of deliberate real-estate slumber, carrying such assets on corporate balance sheets at prices well below the current market value of the properties. Now, though, the focus is on uncovering such "frozen" assets - whose value has been estimated as high as $2.6 trillion - to generate revenues for two newly urgent purposes: fighting off hostile takeovers and bolstering financial health in the bumpy economic environment of the 1990s.Often in recent years, potential raiders spotted such undervalued assets before the company's own management did. Studies indicate that holdings ranging from opulent office buildings to little-used warehouses, idle manufacturing plants and vast tracts of raw land may have been a major factor in the rash of takeovers in the 1980s. In that decade, corporate raiders such as Carl Icahn, Victor Posner, Ronald Perlman and a host of other takeover artists radiated fear among executives of Fortune 500 companies and their medium-size counterparts.

Many of these corporations, which have been described as the passive giants of real estate, retained specialists to re-evaluate properties that were producing little if any revenue. Then the firms swung into action, in the process bringing hundreds of millions of dollars into corporate coffers.

- May Department Stores sold a half interest in 25 shopping malls for $550 million, removing the undervalued assets for a stock buyback that reduced its vulnerability without jeopardizing its key locations.

- Spice manufacturer McCormick sold a vacant building and a vast track of acreage near its Baltimore headquarters, garnering a similar $550 million for a similar defensive stock buyback.

- BankAmerica, strapped for capital, sold its San Francisco headquarters for $660 million.

- General Motors, also in need of working capital, sold its New York office building for $500 million, then transferred many of its executives to Detroit and leased back some space for those who stayed behind.

- Santa Fe Southern Pacific mortgaged its industrial property to finance recapitalization and pare down debt.

On the other hand, just like you and me with our own homes, a raider can sometimes overestimate the value of a target's holdings. Take Federated Department Stores, which is exactly what Robert Campeau did. The Canadian real-estate magnate paid $6.51 billion for the company that owned Bloomingdale's, Stern's and other specialty chains, reportedly using the real-estate assets as collateral to finance the purchase. But the high price paid for Federated forced Campeau into bankruptcy.

Overall, though, industry observers expect the trend toward selling, renting, leasing, or otherwise exploiting corporate real-estate assets to accelerate in the 1990s, despite such cautionary tales and despite the collapse of Drexel Burnham Lambert and other "junk bond" purveyors who financed so many recent takeovers.

Larry Ebert, executive director of the Industrial Development Research Group, a professional association of corporate real-estate executives, thinks that while the takeover cycle will slow, the roughly 22 percent of total business worth represented by real estate has become too tempting an asset. Tapping it, he believes, will increasingly provide a route to upgrading balance sheets and remaining independent.

"Our studies show that when companies unload their surplus assets, they can boost their profits, reduce debt and property taxes, as well as help turn off the would-be raider," Ebert told me. "In fact, our members tell us that their companies have taken a more aggressive role in managing real-estate assets and are rethinking how to use their real-estate holdings to control costs and maximize shareholder equity."

The latest estimated value of all commercial property in the U.S. is $3.5 trillion, of which corporations control a whopping $2.6 trillion, so such a change of emphasis is likely to make important headlines as the decade unfolds. Now, if we can only figure out how to raise cash ourselves out of all that junk in the garage . . .