It’s complicated: untangling shared real estate in a separation

Corporate separations are on the rise. In 2024 alone, more than 200 global spin-off transactions  raising more than $53.9 billion were announced as companies looked to unlock shareholder value. As the volume of spin-offs, equity carve-outs, divestitures and related separation transactions continues, corporate real estate (CRE) teams need to understand how critical seamless CRE planning and execution will be to the success of the transaction.

Spin-offs among S&P 500 companies are underway at the fastest pace since 2016, building on the 2022 surge of spin-off initial public offerings (IPOs). Typically undertaken to streamline operations and redirect capital and resources to higher-performing business lines, corporate separations also are triggered by trade policies and regulatory changes. Whatever the motivation for a spin-off, divestiture or carve-out, CRE is a key enabler for achieving Day One separation of the two organizations.

A separation is a race to independence. CRE is a critical area of focus during a separation because, in most companies, facilities support every team and every business line. CRE teams face the steep challenge of maintaining business-as-usual to support critical operations and minimize disruptions, while rapidly establishing CRE portfolios, duplicating shared services and creating occupancy strategies for the two separating entities. Throughout, maintaining regulatory compliance typically is an essential focus for the CRE team.

The workload during a separation is a heavy lift for even the most experienced teams, and internal “all hands on deck” resourcing is often a challenge. In addition, the CRE team may need specific kinds of expertise to perform portfolio due diligence, then create and execute a strategic and tactical CRE separation plan.

In contrast to mergers and acquisitions, which occur frequently in many industries, separations are much less common. As a result, CRE teams are not always prepared for the complex and rapid-fire journey to a complete separation. Where mergers and acquisitions often first require CRE strategy, then tactics, separation often begin with a tactical focus that hones in on speed to independence for all operations and facilities.

Seven key principles can help ensure that the CRE is proactive and well equipped for a separation scenario:

1) Look ahead, rather than reacting to business changes. While surprises are inevitable in complex CRE programs, some unexpected scenarios can be avoided if the CRE team adopts a proactive approach. Foresight is especially important in a separation because, as every CRE professional knows, facility dispositions, consolidations and relocations require long lead times.

For example, when a separation is on the horizon, the CRE team can immediately begin due diligence and anticipate which facilities must be duplicated to allow the two separating entities to seamlessly continue their operations. Without some foresight, your CRE team can easily miss dates and milestones. One overdue decision can, in turn, mean a missed opportunity to optimize efficiencies.

2) Add external resources to your CRE team. In the heat of a separation, your CRE team will be challenged to maintain daily operations while also focusing on the separation. One way to accelerate the separation program is to augment your team with a CRE service provider. However, the partnering strategy works best when the service provider team is brought in early to anticipate and resolve separation issues.

Ideally, your CRE service provider will bring leading technologies and practices, along with “boots on the ground,” to provide strategic planning, portfolio optimization, program management, facilities regulatory compliance and many other services. For example, an outsourced project management team can rebrand 200 branch locations in a single weekend for Day One readiness, and also assist with complex de-coupling of operations in data centers or other technical facilities.

3) Lean into regulatory compliance. Myriad complex regulations apply to spin-offs, divestitures and carve-out transactions. Transactions must, of course, be approved by the majority of shareholders and creditors. Assets and liabilities must be properly evaluated to determine the financial structure of the new entity and ensure an equitable distribution to shareholders.

Financial services CRE teams must consider complex regulatory compliance in separations. Beyond the general CRE concerns like property transfers, tax laws and lease agreements, financial services CRE teams also must consider industry-specific issues. Of particular concern are data privacy, cybersecurity, operational continuity, third-party risk and appraisal standards for real estate owned. In the United States, CRE teams also must comply with Financial Crimes Enforcement Network (FinCEN) reporting requirements concerning property transfers. Also, the new entity will need to establish its own internal CRE compliance policies and procedures, or adapt those from the parent company.

4) Anticipate complexity. When a company, for instance, offloads its personal wealth management unit, the separation may largely involve administrative offices, branches and data centers. In contrast, the portfolio of a multinational consumer product conglomerate may encompass headquarters, back-office space, data centers, product development laboratories, warehouses, call centers and more. Products from multiple business lines may be commingled in a single warehouse. Untangling these joint facilities can be very complex and require sustained planning.

5) Don’t short-change CRE portfolio due diligence. In a spin-off or equity carve-out, the CRE team’s goal is to minimize business disruption and quickly establish independent, separate facilities for the two entities. Thorough CRE due diligence is required to address potential compliance infractions, legal risks or physical defects before the transaction closes.

However, errors can happen in the rush of a separation. For example, the CRE team might take a site offline only to learn that it housed critical technical operations, was in a key location for valuable talent or supported regulatory compliance. The CRE team will need to understand exactly where critical operations are performed to avoid accidental shutdowns. A related step is to understand which business lines are leaving the organization versus those that are core, and to uncover which operations and facilities must be duplicated so that both of demerging entities can operate smoothly on post-separation Day One.

6) Pay attention to shared data and services. In a merger, efficiency gains often come from consolidating duplicative support functions. Conversely, both of the entities in a separation may rely upon the same data, systems and resources for IT, finance, HR and even CRE itself. If the technology and shared services are not managed properly, personnel—including CRE personnel—can inadvertently lose access to critical systems. Shared systems typically support compliance and governance controls, too, and a lack of access adds risk to the separation.

7) Implement a change management program to support culture. Productivity typically slips during times of corporate change, whether the disruption arises from a merger or acquisition, a separation, a leadership change or some other initiative. The CRE team can assume a leadership role in helping all employees adapt to the workplace change that accompanies separation. For instance, employees may need to adapt to new work locations and workplaces, and potentially new organizational structures. A demerged organization may want to shape its own unique culture, as well, along with new work processes and philosophies. A thoughtful change management program will help smooth out the productivity dip and retain valuable talent during the separation process, while also supporting culture change.

When a separation is on the horizon, the CRE team has an opportunity to stay a beat ahead as the transaction unfolds. With the key principles in mind, and the right real estate services partner at hand, the CRE team can shine during the most complex and challenging separation.

Is your organization facing a separation? Our professionals can help you plan and execute a seamless transition. Let’s talk >>

Looking for more? Visit  our industry page for additional research and insights.