First in a series

Recently, newspapers themselves have grabbed headlines across the country as one major publication after another has entered into a deal to sell a significant downtown facility. Typically, such properties have been a mainstay of the newspaper’s operations and presence in a community. Is this trend yet another indication that the newspaper industry as we know it is headed for its demise? The answer, in a word, is “no.”

The pages of some media and business publications across the country (and beyond) have been filled with draconian predictions of the death of newspapers. However, the trend in newspaper real estate is consistent with other major trends in the business which are playing out across the country for newspapers large and small, local, regional and national: Because of changes in readership, technology, demographics and the way that news is rendered and consumed, the newspaper industry is and remains in significant transition.

Transition and evolving markets and readership habits have wrought major change to newspapers as well as other printing and media-related industries. Change comes in a number of forms: reduced staffing; greater reliance on technology: a move from paper only to paper/digital hybrid or digital-only publications; rationalization of printing operations/ outsourcing; data mining from the internet; more staff being mobile or working from home or remote offices; a heightened focus on capital structure/use of scarce capital and the best way to survive in an increasingly competitive business; and pressure from industry lenders to maximize available cash flow to service increasingly challenged credit facilities.

Where newspaper owners’ principal concern has been and remains editorial and information-disseminating in nature, the underlying business needs to be rational, profitable and sustainable. As a result, the rationalization trend in newspapers continues. One clear business-related outcome of the technological, human, data proliferation and demographic trends impacting newspapers is clear: a large real estate footprint (leased and owned) is no longer a business necessity or a strategy worth pursuing. In fact, the high cost of owned and leased real estate is one contributing factor in why newspapers have suffered financially. When Digital First Media put 51 buildings up for sale all at once last summer, for example, its president and CEO Steve Rossi said shedding the real estate would free the company “from the constraints of being overburdened with underutilized properties.” Are newspapers different from other businesses in this regard? No. In light of current business realities, non-media industries from retail to restaurants to auto manufacturers to oil and gas are carefully evaluating their real estate portfolios and how big (or small) they actually need to be. Regardless of industry, large real estate footprints tend to occupy a significant portion of the ongoing expenses of an operating business. For owned property, consider the burden of mortgage payments, real estate taxes, ongoing maintenance, and utilities. On the leased side of the analysis, paying rent and some or all of the taxes, utilities and other operating costs of a building can materially impact the bottom line.

As newspaper owners consider the best methods to rationalize their businesses and expense levels, real estate must be a part of the discussion. Many owners continue to struggle with the “optimization/rationalization” question. Consistent fact patterns continue to cross my desk and undoubtedly bedevil many newspaper owners across the country:

“I have newspapers in four states and have offices in 15 locations but I am consolidating the offices regionally and I think I only need nine to ten offices. What should I do?”

“I have decided to outsource my printing to a third party, so I now have four partially-used owned buildings which are too big and too expensive to maintain for the small office crew remaining in these buildings. What should I do?”

“My publisher bought land in Iowa when we were in expansion mode assuming we would have an operation there one day. What should I do?”

“In 2005 we operated in eight distinct markets and owned a downtown building in each market right along Main Street. We now operate in four of those markets and I can’t lease up my empty space. What should I do?”

“We have no real estate department, so our controller makes real estate decisions since she pays the rent. What should I do?”

There is no “one size fits all” solution to these and other myriad real estate issues that companies wrestle with as they try to survive and thrive in a hypercompetitive media landscape. The good news is that there are several optimization strategies to pursue in order to address excess leased and owned real estate as well as the printing press assets that are no longer central to a business’ ongoing operations.

In succeeding articles in this series, we plan to share several strategies that we’ve found successful and can be employed to assist a company in rationalizing their larger fixed and real assets. Ultimately, a more manageable level of fixed/real assets can be a key ingredient to the ongoing success of a media property. By arriving at the right mix of such assets, a media company can improve its financial position and free up ownership and senior management to focus on core editorial and technology issues that will enable the publication to maintain and expand its presence in the market(s) it serves.

David Kirshenbaum is senior vice president and head of the Corporate Services practice at Hilco Real Estate LLC (www.hilcorealestate.com). The company is a unit of Hilco Global, a provider of a wide variety of valuation, monetization and advisory services for the printing and publishing industry (among others), including lease restructuring, real estate sales, property tax advisory, equipment liquidations and asset appraisals. He can be reached at dkirshenbaum@hilcoglobal.com or 847-504- 3220.

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Source: The Inlander