Good governance: Demystifying the Real Estate Committee (RECOM)
You'll never become a great retailer until you implement some governance measures
The tl;dr
Establishing a Real Estate Committee (REC or RECOM) is a reflection of great governance and, consequently, a step towards becoming a good retailer
However, more governance can also lead to slower timelines and more red tape
The secret to great governance is to nail the most efficient combination of: pre-requisite criteria, attendees, content, and approval guidelines
Aligning on much of this at the beginning of your program’s development will force diligence, accountability, and great process
Read on to copy my tried and true RECOM agenda outline and even access a pre-made and pre-populated presentation template
Instituting governance
Whether you’re implementing more structured governance or just want to add a stronger framework for site selection, establishing a Real Estate Committee (RECOM or REC) is a common operational strategy.
However, simply creating and using a committee to approve stores is not enough; with the wrong voting structure, weak presentation template, and incorrect timing of approval requirements, more governance can slow you down — and in real estate there’s a common saying:
Time kills all deals
What is RECOM?
It usually refers to the committee itself, as well as the meeting that the committee uses to approve or pass on deals. In that sense, its purpose is essentially identical to that of an investment firm’s Investment Committee (IC) where they too approve or pass on investment opportunities.
There are a number of important attributes of a successful RECOM structure:
Objective pre-approval criteria: what qualifies an opportunity to even be brought to the committee for review?
Attendees: who should be there?
Content: what should be presented?
Approval process: what is the approval mechanism?
In general, the RECOM’s purpose is to ensure visibility and accountability.
The pre-approval criteria are just as important as the meeting itself
A successful RECOM ensures that a bare minimum criteria is met before bringing an opportunity to the committee. A 1-hour meeting with 5 executives probably has the economic value of over $1,000,000 of combined salaries, so you better make sure you’re not wasting everyone’s time and have an established understanding of what warrants a committee meeting.
For example, let’s say you’ve identified an exciting new site in Austin, TX on South Congress Street. The broker says it’s available, s/he gives you the rent terms, and the deal seems to be in line with market expectations.
That sounds pretty far along and ready for discussion, but in my opinion it’s not even close. We’ll get to the Content part in a couple steps, but in general I like to think of an opportunity as RECOM-ready if:
The space is confirmed available and the dates work (ie you understand and agree with the timeline to opening)
You understand the space enough to qualify its qualitative attributes (eg size, dimensions, layout, etc.); doesn’t need to be fully vetted, but at least enough to know your team/vendors can make it work
The deal economics are fully agreed with the landlord, or at least their leasing representative/broker (and they feel confident it will get approved — remember, landlords have their own deal approval processes)
The non-economics aspects of the LOI are ~90% finalized (slightly subjective, but once you get a better sense of what the committee cares about, then you’ll know what really matters here; eg co-tenancy protections and early termination rights)
The pro forma business case achieves your target threshold metrics, which requires a final estimate for each of:
Year 1 sales (including bottoms up rationale)
Gross capital budget and opening timeline (ie cash flow timing)
Labor requirements (ie wage rates and operating hours)
OR…
…the deal is literally about to become unavailable, and you truly truly don’t believe a decision can wait.
As you’ll notice, a lot of these criteria also require some pre-work in establishing other criteria. #2 for example (qualitative attributes of the space) requires internal alignment with merchandising and operational teams in terms of the below:
Overall square footage: is the space objectively big enough to fit your minimum assortment?
Storefront: is it wide enough to have the presence you need?
Back of house: is it large enough given the employee base to provide a great employee experience?
HVAC: is it in good enough condition to leave as-is? (as an example of a hypothetical deal breaker due to the potential cost of replacement)
Generally speaking, if you haven’t made enough progress to confidently answer all the above questions, then it’s not worth bringing to RECOM — it won’t look like you’ve done your homework, and you’ll erode the trust that you know what you’re doing (to your internal leaders AND to landlords) if you have to keep going back and forth to answer follow up questions when everyone thought the deal was done.
Your executive audience
In most cases, a Real Estate Committee is comprised of the below at minimum:
CEO: because duh
CFO: to have full visibility into cash flow needs and timing as new stores will influence their forecasting
CMO: to coordinate support for the openings and hear the story of “why we’re going to [Dallas]”
COO: to coordinate all vendors and internal teams around operational needs
Head of Retail/Stores: because duh
Head of Real Estate/Store Development: because they run the meeting
In general, this group of individuals touches every part of the organization and can disseminate deal and location specifics to their teams as needed. As you think about the audience, think critically about who really needs to full story behind why you’re opening somewhere vs who just needs to be informed that a new location is coming up. As a related aside, if you’re running a good program then you likely have other opportunities to disseminate this information that doesn’t unnecessarily drain others’ time.
Organizations in their earlier phases of retail expansion may invite others, but as the organization grows, opinions get more vocal, and timelines become more critical to manage, they typically slowly remove other team members from the meeting — and yes, this typically hurts some egos but is necessary to maintain good process.
Unfortunately, there are some things that may be sensible to raise concerns about in the beginning stages, but are just not important enough as you prioritize process and speed over sweating the small details.
Without a strong agenda, your meeting could get derailed — quickly
I also like to get initial alignment on the contents of the RECOM presentation to prevent any questions like “have we looked at XYZ yet?” My general rule of thumb in a committee is — assuming I’ve aligned on the template ahead of time and iterated enough to feel good about it — that you can’t nix a deal for a reason no one ever brought up before (unless it’s unprecedented and requires such attention). By the time a deal reaches RECOM, you should have had enough strategy and prep sessions beforehand such that the RECOM is more of a formality.
With that said, here’s the outline below that I’ve found most successful. If you’re a brand, you can also download a pre-made template (for free) in the Retail Expansion Community.
My tried and true RECOM outline, and a bit about the approvals mechanics:
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