The barter system is alive and well, according to Cushman & Wakefield, the global real estate services firm, and Western Trading, an affiliate of The Interpublic Group (IPG) of media services companies. But it's getting complex. The two organizations have formed a joint venture called Western Trading/Cushman & Wakefield LLC (WT/CW) designed to help companies maximize the value of their real estate assets and improve shareholder value -- using barter. But barter is not the point; it is simply a means to an end. The purpose of the venture is to offer clients of both entities a new trade finance mechanism.

"The trade finance business has been going on for a long time in the area of excess inventory," says Peter C. Haeffner, Jr., senior director, financial services at Cushman & Wakefield. "Companies would liquidate the inventory and write it off, or they trade it for goods and services. The media industry has been the primary service industry that clients spend money on that has been receptive to using this form of trade."

Volatility and excess capacity in the media business allows trading companies to provide electronic and other media services for a lower cost. (National network programming and newspaper advertising transactions typically are not considered tradable media services.) Reducing such fixed costs and improving the real estate inventory situation enables companies to strengthen their balance sheets and increase shareholder value.

Most large corporations outsource the purchasing of media, in part because "Media services are priced all over the lot, depending on numerous variables," says Haeffner. "Western Trading's affiliated company is the largest media buyer, and they buy in bulk for a variety of clients -- they have purchasing power and a lot of clout in the media-buying world."

Closing the Value Gap
In essence, WT/CW issues trade credits that corporate clients can use to reduce the cost of purchasing media or other services. Here's how it works. Trade credit finance is a form of leverage that can be used to eliminate the gap between bid and asked in such real estate transactions as property subleases, lease buyouts, sale-leasebacks, sales, acquisitions, financings and loan sales applications. Western Trading issues trade credits as partial or full consideration for the real estate interest; the client then uses the credits to buy services at a reduced rate.

"We've simply taken the principles the industry has used to move excess inventory and equated it to real estate; the inventory is excess space," Haeffner elaborates. "It's an alternative mechanism for corporations to deal with the gap between investment value, or book value, and market value when it's negative. The trading company creates the necessary leverage through their buying of the media the company would have bought anyway."

The majority of trade credits in use at present are in the media field, but that will change. "There are many other industries that have similar attribute to media," says Haeffner, "meaning excess capacity and a very variable pricing model driven by providers seeking market share. We see that happening in telecommunications, printing and energy, for instance. We have simply identified trade credits as a financing vehicle, rather than as a pure barter vehicle."

At press time, the joint venture had completed six deals, and the key principals were in the midst of presenting the program to corporate clients. "This program assists the firm's brokers and corporate services people in solving some real estate financing problems for corporate clients," says Timothy K. Hart, also a senior director, financial services, at Cushman & Wakefield. Adds Haeffner, "We've tried to take this idea from the finance and investment sales area into the realm of corporate services. As we do more and more for corporations, we must do more and more upfront, strategic development thinking with them and then execute transactions. This program won't solve every problem, but it addresses a myriad of problem real estate situations and opportunities."     SS