The New Day Project Manager
March 10th, 2010
By Phillip Infelise
Welcome back.
Last month we defined our Project Management paradigm. Project Management in the New Day context is much more than overseeing design and construction efforts. Embracing that, I thought this month we could talk about what it takes to be a New Day Project Manager. It requires an interesting mix of skills that is often hard to define. However, try we must, and with that in mind the high performance Project Manager (PM) must possess all of the following:
- Clear Vision. (and a clear head) To see both the big picture strategy and the most minute details; often hundreds of them simultaneously. A need to know what happened in the rear view, and at the same time, look far over the horizon.
- Consummate Communications Skills. Both verbal and written. The PM needs to be able to describe technical things in layperson’s terms for the client, jump into the techno-speak when the techies talk; reduce a complex issue into a simple memorandum; and craft the perfect PowerPoint presentation to win Board approval.
- Listening Skills. Need to listen intently to needs, constraints, and expectations and translate those to a project strategy, a design approach, and a project result.
- Numbers. Uncanny ability to archive costs in the databanks of our brain, memorizing particularly important ones. We need to have the cost of everything that goes into a facility at the tip of our tongues.
- Sticks and Bricks. While we play more as an advisor/consultant than as a construction manager and downplay the importance of pure construction background, knowing the details of the process and the inner workings of the design and construction interrelationship goes a long way to establishing the credibility needed to manage the process.
- Penny-Pinchability. To protect every client dollar as if it was the PM’s own money, to be spent to enhance project value at every turn.
- Diplomatic skills. Like a UN representative – often negotiating territory between feuding departments and navigating Board and CFO approval.
- Manage both Up and Down. The PM is required to manage a myriad of complex details from the quarterback position to members of the team, but also required to “manage” the expectations of the C-Suite.
- Finesse. When managing a project team, a velvet hammer approach is preferred over the sledgehammer; the approach is required to achieve an “advocacy,” not “adversarial” relationship.
- People skills to empathize across the organization from the C-Suite to the mail room staff and support both extremes through tough decisions and unforeseen surprises.
- Broad Shoulders. For everyone to lean on and get advice and counsel; and to cry on when the trauma of the transition gets to be too much.
- Passion. Given the demands and the trials and tribulations, a PM truly has to love the challenge of this job and relish the results of a happy client in great space that has enhanced the client organization.
Tune in next time. Perhaps we can discuss how to put together the perfect high performance project team.
Cheers.
Posted in Project Management | No Comments »
Real Estate as an “Infraservice”
March 3rd, 2010
By Vik Bangia
In the area of corporate real estate outsourcing, smart service provider firms understand that the purpose behind their engagement is more than just doing what they’ve been told. To understand exactly what comprises a good outsourcing plan depends on the specific needs and challenges of the client’s organization, and that’s often difficult to discern. In most cases, it follows naturally with the size of the company. To get to that level of understanding, real estate has to be considered an infraservice by both the client and the service provider. I define “infraservice” as a service that is key to the entire corporate infrastructure from Human Resources to IT, Operations, and Finance.
As a general rule, smaller organizations from mom-and-pop sized companies to burgeoning start-ups (nano-caps) to micro-cap firms are burdened with resource scarcity, limited cash flow, and survival issues. The outsourcing solutions to smaller firms are best delivered through the use of just-in-time and variable resources, financial portfolio optimization services, and a view towards freeing the company to focus on its core business. These firms can be from less than $50 million to $300 million in market capitalization.
Conversely, medium sized companies, such as those in the Russell 3000, are typically burdened by limited access to capital, recruiting and retention challenges, an overwhelmed infrastructure, unpredictable processes (due in part to their inherent entrepreneurial spirit), and the fact that real estate is not a core competency that has been built in to the organization. These firms benefit from highly consultative partnership models that deliver tactical services along with financial management skills and business controls. Small and Mid Cap companies are defined as firms with market capitalization ranging from $300M to $2 billion and $2billion to $10 billion respectively.
Big companies, such as those in the Fortune 1000, (also defined as those with market caps above $10 billion and extending to the hundreds of billions) have entirely different issues. They are challenged by multiple business lines with varying levels of profitability (if they are profitable at all), underperforming assets, bureaucracies, long-term liabilities, and lack of speed or mobility. In addition to a strong consultative skill set, the service provider has to be willing to step into the fray of organizational politics and competing business unit agendas. The challenge here is that most service providers working for Fortune 1000 companies are relegated to a commodity role because the bigger the organization gets in complexity, the more the purchasing or procurement department exerts its authority on decision making. This lends itself to service models that are based on price and not performance.
Even more challenging for big corporations working in this mode is that there are fewer and fewer alternatives available to engage only one service provider. And service providers working in this mode cannot see real estate as an infraservice while they are engaged as a commodity. A dilemma indeed, but one that bodes well for those firms that are nimble and can provide resources beyond those that think only transactionally.
No matter the size of the company, the real estate service provider’s role is to think like an infraservice provider and input the corporate requirements for HR, Operations, Finance, and IT into the strategic decision for the company.
Question yourself. As a corporate real estate manager, does your real estate service provider team approach their role as an infraservice? Have they understood your unique needs based upon the size of your organization? Are they trying to go beyond the tactical day-to-day service delivery and get into all aspects of your business? Do you consider them the “go to” team for questions ranging from leasing to organizational design to M&A due diligence? Do they approach their role as a business consultant as well as a real estate expert? If the answer to any of these questions is no, consider the fact that your real estate service provider may have already put themselves in a commodity role. If so, you’re not getting good value for your money (but you probably already knew that). Take this as an opportunity to bring in experts who can show you how rethinking the service provider relationship can enhance your relevance to your company’s senior management.
Tags: infraservice, infrastructure, real estate outsourcing
Posted in National Accounts | No Comments »
The Importance of Real Estate in a Company’s Supply Chain
February 24th, 2010
By Rob Wheeler
The separate functional areas of supply chain and real estate are working together like never before. What were once seen as two different domains within an organization are now becoming connected. Companies have realized that proper supply chain planning cannot take place without real estate considerations, and proper real estate decisions cannot be made without a complete supply chain plan.
The supply chain is the backbone of an operationally centered business. Looking at the various nodes of the chain—planning, sourcing, manufacturing, sales, fulfillment, distribution, and service—it is clear how important the supply chain is to the overall success of the organization. Conversely, the right real estate decisions are key to the success of the supply chain, as real estate is the very platform on which the supply chain strategy resides.
In both supply chain and real estate planning it is important to know where a company is now and where it is headed in the future, along with the driving factors that will either help or hinder opportunities for success. As a general rule, all supply chain decisions are made to reduce costs while better servicing the customer base and positioning the company for future growth. Understanding how the real estate and supply chain strategy support the company is, in the language of my trucking friends, where the rubber meets the road.
For all of the interdependencies between the two functions, there are only select times that decision makers can consider real estate and the supply chain simultaneously: when the supply chain network is rationalized, and when a particular site is selected. When the two are not rationalized together, there can be disconnects between the supply chain plan and the market realities of implementing the plan. This puts into jeopardy the objectives an organization is trying to achieve.
Some questions that should be asked when doing supply chain rationalization and site selection are:
-Does the current state of the supply chain support my corporate strategy?
-Are there opportunities to change the network footprint?
-Number of facilities
-Roles of the facilities
-Size of the facilities
-Owned versus leased
-Are there opportunities to change the way in which the network is operated?
-Company-operated or outsource to a third party
-Who controls the real estate in this arrangement?
-Flexibility of the network
-What is the current and future state of the transportation lanes?
-Surface
-Air Cargo
-Intermodal
-Ocean
-What current and future accessibility is required?
-Interstate
-Intermodal
-Seaports
-Airports
-What is the planning horizon?
-Implementation schedule
-Short-term solution
-Long-term solution
-A combination: flexible leases
-What real estate supports the requirement?
-Can an existing building accommodate the model?
-Will a build-to-suit be required?
-Does a network change support the future direction of the organization?
-Does change add value to the organization?
-Opportunities to increase revenue
-Lower operating expenses
-Lower assets on the balance sheet
None of these decisions can be made in a vacuum. It is important to note that when considering total supply chain operating costs, in most cases real estate makes up only a small percentage. Labor, transportation, and inventory carrying costs far exceed the cost of real estate, and making a bad real estate decision can drive up these costs. But making the right real estate decision directly impacts the ability to drive efficiency within the supply chain.
Currently the industrial real estate market remains soft nationwide. Now may be the optimum time to take a white board approach to supply chain design to fully optimize the network footprint. CresaPartners recently advised a multinational consumer packaged goods company during their supply chain rationalization and implementation, saving them a significant amount of money annually. This was accomplished while avoiding unnecessary capital expenditures and also steering clear of long-term commitments that would reduce their flexibility for future changes.
If you have questions on how this was achieved, or any other questions about the real estate and supply chain relationship, feel free to contact me at rwheeler@cresapartners.com.
Posted in Supply Chain | No Comments »
A View from the Boiler Room
February 17th, 2010
By Jim Ricker
Probably the least glamorous of the various corporate real estate functions, Facilities Management has long been viewed as the stepsister of the sexier disciplines – such as Transaction Management, Project Management, and Site Selection. Or as one of my friends once asked, “Aren’t they the folks who empty the trash and stop the leaks?” True – but there’s more to the story.
Having been involved at some point in my career with the entire spectrum of corporate real estate services, I developed a strong appreciation for the critical role of a Facilities Management team when I managed the headquarters site for the former Digital Equipment Corporation, now part of HP. So how did that change my perspective?
The Site
Digital’s headquarters was a former woolen mill constructed on the shores of the Assabet River in Maynard, MA. Built between 1833 and 1910, the 1.1 million square feet site consisted of 23 buildings connected by bridges and tunnels. It had been painstakingly converted from manufacturing wool blankets for the Union army (and the Confederate army according to folklore) into a high-tech facility containing manufacturing lines, board shops, model shops, offices, labs, and the executive suite and boardroom. It even had its own hydro plant creating 1.5% of the site’s electricity as the water flowed from the mill pond back to the river.
The Customers
Housing about 2,500 employees, the site was home to several critical business lines, 35 vice presidents, and the executive committee. All of these constituencies had strong opinions of how the site should be run in order for them to be successful. Along with the inevitable politics of a major corporation, we were forced to juggle the often conflicting demands of the constituents while focusing on our asset management goals of improving services, reducing costs, and developing a long-range capital plan.
The Services
In addition to contending with the physical and political complexities noted above, our team delivered the following services: HVAC, electrical, plumbing, carpentry, engineering, design, project management, energy conservation, environmental health and safety (including groundwater remediation), security, cafeteria, mail, copiers, supplies, grounds, custodial, recycling, space planning, audio-visual, and customer tours. It’s easier, however, to appreciate the breadth and depth of the services when looking at just one in greater detail; e.g. electrical. One of our key measurements was the prevention of business interruption due to infrastructure failures – especially electricity. To insure uninterruptible power without the benefit of UPS and generators, we conducted an annual 3-day shutdown for high voltage testing. And as one of the major power users on the metropolitan Boston grid, we were networked to the utility in the event they needed us to reduce consumption during brownouts – an interesting proposition when trying to be good citizens without affecting the manufacturing and engineering activities – but our engineers developed a satisfactory solution for all.
The Conclusion
Facilities Management may still be considered the stepsister, but it is nevertheless a valuable member of the corporate real estate family. A Corporate Real Estate group, often with responsibility for 25 to 35% of its company’s assets, cannot succeed without valuing the contributions of the Facilities Management teams – the deliverers of essential services and the maintainers of critical infrastructure.
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Software Envy?
February 10th, 2010
By Jeff Tosello
Maybe it’s just software confusion that has people looking, wondering, and scratching their heads asking about which lease administration software is the best and how they can get their systems to “talk to each other” or to generate this report or that one. Entering the words “lease administration software” in Google produces more than 11 million results! But the truth is, aside from the interface, most of the prevailing systems out there today do many of the same things. When clients begin thinking that software can solve their problems it can be an opportunity to educate, but it’s often an uphill battle against a tide of marketing dollars spent to make it look about as easy as a diet pill…just buy this and you’ve found a magic cure. Furthermore, what they might think they are looking for in software can sometimes be found in their existing systems if they can change business process enough to generate the data the software needs to run in the first place. At a minimum, reviewing these processes is an important first step even if software procurement, data migration, and new reporting are in the company’s future.
Real estate software applications break down into a few neat groups. First, there are applications that can be purchased and run on a company’s own network environment. Typically a license fee is paid once, the software ships, and then there is an annual support contract that is a percentage of the upfront cost. Opposite that model are the ASPs (application system providers) that provide web access to the software on a monthly license fee basis, but the application itself and the data are stored in their own server environment.
The next division is between applications that have built-in accounting functionality and those that do not. The accounting-based systems have an underlying general ledger so that when items like rent are “posted” or bills are “paid”, this debits and credits ledgers that run behind a number of the applications and can produce financial statements for properties or companies. Typically these systems are in place when a company has a lot of owned property and is, or at least functions like, a landlord or asset manager.
Finally, software applications can be grouped by features. Some applications are designed to take care of a particular function like lease administration, project management, or property accounting. Others integrate a number of functions on a relational basis such as property and lease management (data, dollars, and dates), transaction and project management (starts, stops, and status), and facilities management (parts, places, and people). Often though, and this adds to the confusion, these applications morph from one area in which they are or were strong into the other areas where they have added features to make them appear as though they can also handle other functions as well…but do they?
Everyone has probably seen many different software demonstrations for different reasons. Despite a few horror stories where someone’s demo crashed or failed, these demonstrations are usually very enticing. Dynamically updating charts, colors, graphs, alarms, maps, links to web sites….they practically run themselves (at least for the short time that the demonstration runs). At the same time, everyone has also probably bought something they saw on television or read about, taken it home, gotten it out of the box, and had that moment when they realize that “some parts are sold separately” and this thing isn’t going to work like it did on the commercial. Falling in love with features but not considering functionality can be a problem because now you own the software, and the only answer might be spending more money on software development consulting time. Ouch.
The decision to replace the old spreadsheet and try to get information access the new way via portals or dashboards can be appealing and often leads business customers to their real estate broker for an opinion. This can be a great opportunity for advisors to demonstrate the ability to listen. What is it that customer is really trying to accomplish? How can your real estate advisor help? There is a lot to consider and it certainly can start with what the customer wants things to look like when it’s all done but should it start with CresaTrac? Virtual Premise? Archibus? LeaseHarbor? Acruent? The answer is simple: maybe.
Tags: lease administration software, real estate software applications
Posted in Lease Administration | No Comments »
Understanding the Capital Stack is Critical in Today’s Market
February 3rd, 2010
By Jim Leslie
The underlying debt and equity which capitalize real estate assets has changed dramatically in the past 10 years. With the acceptance and explosion of Commercial Mortgage Backed Securities (CMBS), developers and investors have been able to piece together very aggressive debt structures, reducing the equity requirements of the owner. This structure makes sense and works wonders for financial modeling as long as demand for space remains strong. The typical projections for these types of structures routinely assumed ever increasing rents with no slowdown in leasing velocity. This gave Wall Street underwriters justification for doing more of the CMBS product and justifying debt ratings to lower the cost of the debt. We are all aware of the financial meltdown caused by the realization that these assumptions were faulty, and as a result the “low risk” nature of the CMBS product was recognized to be fool’s gold.
This unsettled debt market creates opportunities as well as obstacles for tenants. Careful analysis and understanding of the “capital stack” is critical for consulting with the tenant as to the correct course of action in renewing their lease or committing to a new building. Owners with CMBS debt have many issues to contend with and few answers. Most have maturities in the near future with no prospects for refinancing at the current debt levels. Others have depleted all of their cash reserves and are not in a position to invest any money into the building for tenant improvements and other transaction costs. In either instance these are issues advisors need to be fully informed about before introducing the tenant to the opportunity.
It is important to spend more time on the initial underwriting of prospective buildings to know how the developer/owner is capitalized in order to structure a transaction that is acceptable to both the landlord and the tenant. That being said there are still traditional capital stacks in many of the buildings throughout the country, but one must inquire early in the process. Our Capital Markets group can help you understand the objectives and limitations a landlord may have based on the financing in place on the building. This knowledge should be very helpful as tenants strategize with their advisors as to the approach to take with each prospective building. All of this chaos can bring opportunities we have never experienced before.
Tags: capital stack, CMBS, commercial mortgage backed securities, debt structures, real estate assets
Posted in Capital Markets | No Comments »
From New Business Incentives to Hand to Hand Combat: How Smaller Cities Compete for Investment
January 27th, 2010
By Michelle Cammarata
When the going gets tough, how can economic developers in small cities compete for jobs and investment? For a recent research project, I learned how officials from Richmond to Boise are working harder and smarter. One local official described his work as “hand to hand combat,” reflecting the fierce battle for every project. In this war for new business, the weapons include low business costs, incentives, and a skilled workforce.
Low Costs + Diverse Economy = Stability
Omaha’s low costs and diverse economic base has helped to keep the unemployment rate at just 4.6%.1 With 10,000 jobs, the Air Force is the region’s largest employer. Other institutional employers include the University of Nebraska. Low rents and a skilled workforce support a strong financial services sector, while Omaha’s technology infrastructure and low power costs attract data centers. Nebraska is the nation’s only public power state, and generation and distribution of electricity are provided by a not for profit entity.
Innovations in Incentives
Innovative economic developers are changing business incentives programs to suit the times. Incentives for a New Kentucky (INK) offers tax benefits for companies that are often overlooked: existing businesses and those re-investing in facilities, even if they are not creating new jobs. Officials in Bowling Green believe they have a major advantage in business retention. Faced with the choice to close their local plant or a facility in another state, consolidating companies will choose to stay in Kentucky, they reason. When the economy improves, Bowling Green will capture the new jobs.
Investing in Workforce
Investments in human capital make a major impact as Kingsport, TN has shown with the “Educate and Grow” campaign, designed to reverse the region’s overreliance on heavy manufacturing, shrinking younger workforce, and sinking educational achievement. Local leaders launched a K to 14 program, the first in the country, to extend high school by an optional two years. Kingsport high school graduates are eligible for a scholarship at Northeast State Technical Community College. The community has invested in an “academic village” that includes regional training centers for advanced manufacturing and health professionals. The effort has paid off with new businesses, a growing young adult population, and an increase in residents earning college degrees.
Culture Matters
In headquarters site selection, quality of life plays a major role, and smaller cities with the right assets can win. To beat Atlanta for MeadWestvaco’s headquarters, leaders in Richmond showed that their hometown offers all the cultural amenities of a big city, with shorter commutes and lower housing costs. Greater Richmond boasts 10 colleges and universities, a fine arts museum, a science museum, and 400 years of history.
Small Cities Think Big
Whether their populations and budgets are large or small, the challenges facing economic developers will not disappear any time soon. Yet, no matter where we are in the business cycle, smaller cities can compete and win by thinking big, aiming high, and developing the business climates and cultural assets that employers value.
1 Bureau of Labor Statistics, Nov. 2009
Tags: business incentives, economic develoment, Site Selection
Posted in Workforce & Location Planning | 3 Comments »
Dawn of the Green Technology Decade
January 20th, 2010
By Mike Tobin
Welcome to 2010 and the dawning of the clean/green technology decade – or so we are led to believe! The current administration has ushered in the new decade with some very exciting steps towards embracing a more sustainable and environmentally focused strategy which has the potential to dramatically affect our real estate market. From the notable steps taken by the Supreme Court in the 2007 ruling that the EPA must regulate CO2 and other greenhouse gases to the recent December 7, 2009 announcement in which the EPA has formally determined that greenhouse gases threaten public health and welfare, it is inevitable that business as usual will no longer exist as it relates to greenhouse gas emissions. Congress will need to pass comprehensive greenhouse gas regulation soon otherwise the EPA will be required to regulate these emissions under rules that most experts consider inefficient. It was therefore more of a formality and favorable political opportunity for President Obama to finally, and confidently, put the United States in the middle of the discussions on global warming and limiting greenhouse gas emissions at the Climate Conference in Copenhagen this past month.
Regardless of politics, the winds of change are blowing harder than ever in relation to how businesses address greenhouse gas emissions and other sustainability issues. Leading companies have already put in place a strategic sustainability plan and begun to measure their carbon footprint, analyze their exposure to “dirty” fuels, and assess their capabilities to harness renewable energy sources (among other objectives). All companies could substantially benefit from developing a similar plan to position themselves for the cleaner/greener future.
Within this sustainability plan, the impact on real estate will be profound as companies struggle to adjust to the new regulations and stakeholder expectations, as well as the necessary efforts to take advantage of the myriad of incentives and initiatives surrounding them. This era of change brings with it opportunities for success but it also brings the potential for pitfalls. In order to capitalize on the future, leading companies are diligently working now at the forefront of change to identify both the opportunities and pitfalls.
For example, we all know the key in real estate is “location, location, location”. The new changes on the horizon will affect the playing field for finding the best sites. Site location criteria will begin to focus more on the mix of local fuel sources with an eye toward avoiding areas with “dirtier” fuels and areas with local utilities that have a higher cost to meet compliance. “Dirtier” fuels and higher conformance costs will translate into higher costs to consumers. Also, understanding the feasibility of local renewable energy sources will become more important as this will affect the prioritization of sites that allow a company to tap into the most efficient renewable energy systems that will provide clean, consistent power at relatively stable prices into the future.
As we begin 2010, how are you helping your company or your client prepare for – and capitalize on – the clean tech decade?
Disclaimer: The opinions expressed in CresaPartners’ Blog represent those of our bloggers, and not necessarily those of the firm.
Tags: green, renewable energy, sustainable
Posted in Sustainability | 1 Comment »
Project Management for a New Day
January 13th, 2010
By Phillip Infelise
Project Management. The term implies different things to different people. I want to offer a perspective of what it means in the context of the New Day Project Manager. In a perfect world, we would call it Process Management, since that is what we are really managing…an overall process…but that only confuses folks with vernacular, so we stick with Project Management. We whisper then that the New Day Project Manager manages the entire process that surrounds the more simplistic “project.” What is it that we actually manage is broken down into three buckets: Process. People. Projects.
Process is an expanded set of activities in our world – dream it, find it, design it, build it, occupy it. Most traditional PMs focus solely on the design and construction phase. If we have engaged the right partners on our project teams, that’s the easy part. Surrounding the sticks and bricks are the true hazards and pitfalls. The New Day PM is involved in the Strategic Planning and real estate on one end and Relocation Planning & Management on the other, effectively bookending the traditional PM mindset. We manage both physical and intellectual process, distinct activities as well as overall planning and communications.
People. The majority of the New Day PM’s effort is spent in managing the myriad of people on a project, including the internal team (client management, staff) and the external team (architects/engineers; contractors; cable, phone, security, and furniture vendors; specialty vendors like sound-masking, audio/visual, signage, graphics, and right down to the art consultant). In a large project, we can easily be talking 50 people or more. One classic, large law firm project included a total of 34 companies represented at an all vendor meeting. We practice a lesson taught early in pre-school – learn to play well in the sandbox; teach others to do the same.
More than anything, the New Day PM is tasked with managing the very client that hires him/her to manage everyone else. We are not shy about saying this, but managing the client expectations, their internal organization, and their spending to achieve their stated output is where we spend our time and efforts since that’s where we can add significant hidden value. We are “people people” that manage process.
Project. The projects we manage are diverse. We oversee the “dream it, find it, design it, build it, occupy it” effort to build a user’s space, be it in a standard office, a build-to-suit headquarters, a technical space in a flex-tech environment, a laboratory, or a special use building like a recreation center, sports facility, studio, church, school, what have you. Whatever the project, the process remains the same.
New Day PMs, thus, require a much broader set of skills than the old world PM. Beyond the sticks and bricks expertise, the new day requires strategic, financial, diplomacy, and communications skills only learned after years on the job. Building it is easy; managing the process and the people to get it built is the real challenge.
Tags: PM, process management
Posted in Project Management | No Comments »
Towards Optimal Efficiency
January 6th, 2010
B
y Vik Bangia
For the past twenty years, the mantra in the real estate service provider world has been “cost savings.” Most service provider firms in this industry say they’re experts on delivering real estate solutions that result in bottom line savings. Whether the savings is related to occupancy expenses, energy, or operating expenses, their stated goal is to reduce real estate spending. However, with any line of thinking, what starts small often goes to extremes, and what has transpired in this industry has damaged both client corporate real estate (CRE) organizations and service providers alike.
In the zeal to cut costs, CRE organizations made several missteps over the years. In the 90s they over-outsourced their real estate departments and dramatically reduced headcount; often losing institutional knowledge along with the layoffs. Service providers, in a similarly zealous effort, made recommendations that reduced short-term spending but neglected long-term implications especially in the changing economic times and challenges such as the 1990s recession, turn of the century dot-com era, and our recent (and continuing) economic crisis. The result was a glut of office space, scope creep on outsourcing engagements, and a push by corporations to compress service provider fees. This has commoditized the real estate services industry and made it more difficult for corporations to get what they needed all along, sound advice.
Instead of looking back at what could have been done differently, I’d like the industry to look forward about how to think differently about what cost savings really means. And as usual, I don’t turn to the readily available commercial real estate publications. Instead, I go back to the basics and open up my college physics book.
In physics, the optimal performance of any system is a range in which the system performs best. In corporate real estate, for simplicity, if you define this range as a line, the optimal efficiency of a corporate real estate department is achieved by bringing the organization closer to the line (see graphic below). Working against optimal efficiency are certain internal and external factors. External factors, among others, may include: the economy, competition, politics, regulatory issues, and public perception. Internal factors, among others, may include: vacancy, demand for space, attrition, asset value, and the company’s own business strategy.
In traditional real estate brokerage, an assumption tends to be that every optimal transaction creates an optimal portfolio. But a true real estate advisory approach considers the real estate portfolio as a “system” in which the optimal efficiency of the whole is paramount, and individual decisions are made with the system efficiency goal in mind.
This system framework is created by recommending and implementing the right combination of outsourced support services, CRE organizational design, internal processes and workflow, best practices, communication, internal customer relationship management, and both internal and external benchmarking.
The system then looks to define the optimal framework for decisions by developing space standards, communication and reporting protocols, financial and business controls, and performance measures.
In 2010, consider your real estate portfolio as a system which should be managed with a system view to efficiency. If you’re thinking about a new real estate service provider relationship, be sure to ask questions of your service provider candidates that go beyond the traditional day-to-day or deal-by-deal approach. If you’re looking for questions to ask, write me at vbangia@cresapartners.com.
Tags: cost savings, optimal efficiency, real estate portfolio
Posted in National Accounts | 1 Comment »
