Archive for April, 2010
|Give Them What They Want
Wednesday, April 28th, 2010
By Vik Bangia
It seems to me that corporate clients want certain things from their real estate service provider, but they haven’t yet been able to articulate these wants in a Request for Proposal (RFP). Interestingly, outside of the RFP process, they’ve been very clear. I speak to several corporate prospects and one thing I’ve realized is service providers need to learn to answer the questions prospects and clients wish they could ask regardless of whether they actually ask them. Better yet, we need to find a way to let their purchasing or procurement departments know what those questions should be in the first place so they’re actually in the RFPs we answer.
What do corporate clients want?
Here’s what I’ve heard:
- Corporate clients want a formal report, delivered annually, that lists the immediate
opportunities in their portfolio and takes into account market conditions as well as
specific provisions in their lease documents, such as renewal, extension, or termination
options.
- They want the ability to report live data to their senior management, in dashboard form,
that shows their competitive position within the industry as well as against internal
benchmarks they set for themselves.
- They want help establishing those internal benchmarks in the first place.
- They want involvement from the service provider’s senior leadership in addition to that
of their local team.
- They want to receive tangible evidence of thought leadership and best practices through
articles, white papers, and industry involvement. Those that are not involved in
professional organizations feel they don’t know what’s going on in the real world. Even
those that are involved feel limited in the level of meaningful information they receive.
- They want us to come in and help them analyze their internal processes, recommend
improvements, and measure the success of our implementation.
- They want us to report on value add – not just our value add, but something they can
take to their management that shows their value add. More than ever, these people are
under pressure to justify themselves to their management.
- They want service providers to come to them with innovative ideas that have impact on
a portfolio-wide basis (sustainability opportunities, energy management, lighting retrofit,
etc.).
If the service provider community would package these wants and offer them as part of their national account services and not as add-on services, more corporate clients would be receptive. If they actually delivered on these bulleted items, more clients would stay contractually engaged with their existing providers for longer periods of time.
To do this, service providers need to think in terms of both products and services. Good, tactical service delivery is important, and so is adopting an account management way of thinking. Obviously, there is a revenue threshold for which this approach makes sense, but in example after example, the investment of a service provider’s time, energy, and effort have a remarkable payoff. With most real estate service providers, it’s not an easy thing to convince them to consider this as an investment and not an expense.
On the corporate side, it is imperative that Corporate Real Estate (CRE) management within corporations help their internal procurement departments understand and articulate what they need to the service provider during the RFP process. Too often an RFP question will simply ask providers to “describe your account management approach.” This is way too open-ended. Perhaps an idea is to sit down with individual service providers and ask, prior to the issuance of an RFP, what their specific service and deliverables for you will be during transition and as part of ongoing account management on a quarterly and annual basis.
Do you get all of the information you need from real estate service providers during the RFP process?
Tags: corporate real estate, request for proposal, RFP
Posted in National Accounts | Comments Off
Supply Chain Flexibility
Wednesday, April 21st, 2010
By Rob Wheeler
The economic climate of the past two years has led companies to reevaluate all of their business operations, and assessing the supply chain has been at the forefront of this effort. One noticeable development is the increased emphasis placed on flexibility within the supply chain.
What is supply chain flexibility? It is the ability of the supply chain to expand to meet increased demand or contract to eliminate inefficiency, without an interruption to the customer or the company.
Professionals in the world of supply chain management have always concentrated on being lean while still serving customers both internally and externally and planning for the future. The economic downturn caught organizations with too much inventory and excess space, and they have responded by looking for new ways to build their distribution networks to scale and respond to business developments as they happen.
Companies have the ability to be more flexible today because of the availability of real time information. Vendors, transportation providers, manufacturers, and the end users are sharing information about supply and demand variables and the related flow of goods almost instantaneously. This increased visibility allows for reading and reacting within the chain in a timelier manner than in the past.
This increased focus on flexibility in the supply chain has, and will continue to have, an impact on supply chain related real estate decisions. As companies build out their operational network, termination options, expansion rights, and other tenant concessions are negotiated to create additional flexibility in the network. Operating companies are trending toward lease instead of buy decisions for properties not essential to core operations, and they are looking to third parties to operate some or all of their operations network.
Another recent development in supply chain decision-making is the growth in one firm partnering with another firm to reduce overall operating costs. When deciding where to locate, one factor in the decision may be the ability to locate in close proximity to another company that serves the same customer base. For example, a company that distributes household cleaning supplies may find it beneficial to locate next to a company that ships paper goods. Both companies ship to the same customers, so if they are in close proximity they may be able to partner with one another to reduce overall transportation costs. This is especially true when big box retail is involved.
Currently, industrial vacancies remain at 20 year highs. Landlords are responding to market demand for increased flexibility with a willingness to negotiate tenant concessions. Now is the time to build flexibility into your supply chain network for the next decade or longer.
What ways do you see to make your supply chain more flexible?
Tags: flexibility, operating costs, operations network
Posted in Supply Chain | Comments Off
The Added Value of Professional Facilities Management
Wednesday, April 14th, 2010
By Jim Ricker
In my last blog entry, I wrote about the critical role a Facilities Management (FM) team plays in the daily life of a corporation. Today, I am delving into the financial value a professionally managed facilities group brings to a company or institution.
The financial contributions of an FM organization are numerous:
- Protecting the revenue stream by eliminating business interruptions due to
infrastructure failure;
- Managing a substantial operating expense budget; and,
- Planning for and managing capital expenditures.
Business Interruption
When a manufacturing line goes down or a research project is interrupted or lost due to building-systems failures, the financial losses can be staggering. A professional FM group insures against these losses by implementing preventive maintenance programs that include regular inspections and servicing, in accordance with manufacturers’ specifications and industry standards.
Operating Expenses
The FM function manages a significant portion of what is often the second largest corporate expense: real estate. While other corporate real estate departments are usually responsible for rents, escalation charges, real estate taxes, and insurance, the FM group manages the remaining costs of occupancy—including utilities, repairs and maintenance, custodial, grounds, guard services, administration, and the like. These costs can reach $10/SF. In a million SF portfolio, for example, one dollar of operating expense savings results in a total savings of $1 million. Stated in other terms, a typical corporation would have to increase sales by $10 to $20 million to generate the same bottom line impact as the $1/SF expense reduction.
Capital Planning
A professionally managed FM group will develop and update a rolling comprehensive capital plan that often looks ahead five years. The financial benefits of this kind of planning are substantial. It forces the FM team to review its assets annually and adjust the five year plan where needed. The planning process identifies future capital replacements, enabling the corporations’ money managers to plan ahead for these capital expenditures and to fund them in the most beneficial manner.
Whether you need assistance in capital planning, overseeing your operating expenses, avoiding business interruptions, or all of the above, a professionally managed FM group will have a positive effect on your bottom line. Do you outsource your FM services? What added value does it bring to your business?
Tags: business interruption, capital planning, infrastructure, operating expense, opex
Posted in Facilities Management | Comments Off
Why Use an Advisor?
Wednesday, April 7th, 2010
By Darren Fleming
Many tenants believe they have little room to negotiate their lease when planning a renewal. Many of the comments we hear include, “There isn’t a plan for major renovations,” or “My staff is generally happy with the location, and the business model easily accommodates the current rental rate.” If the landlord approaches his tenant with a proposal that sounds reasonable and maintains the status quo, there is often no red flag urging tenants to call an advisor for advice. And while it might be nice to have a lease that allows for some flexibility to expand, contract, or terminate in the event of unexpected circumstances, if tenants don’t take the time to investigate the market and create proper leverage those clauses never seem to make it to the final draft.
Seek Professional Advice
Let’s put things in proper perspective: By the time you add up rent, operating costs, and utilities in a typical 10,000 SF lease the total cost in most markets is more than one million dollars! If your company had a similar legal expense or tax issue, a professional advisor would be consulted as a matter of course. Yet when it comes to real estate, many senior executives try to tackle it themselves.
Choosing the Right Advisor
It is important that the advisor chosen is a specialist in the type of building you are leasing or considering leasing. Be it office, industrial, or retail space, there is usually one, or often several, advisors in your market who can help.
Another important item to consider is the potential for a conflict of interest. Does the firm usually represent both landlords and tenants? Do they currently have, or might have in the near future, a listing on a property that could put your company at a disadvantage? Inquire about compensation structures. Since most firms still get paid by the landlord, ask about how they get paid as it can vary widely from market to market. Is it on a percentage of the rent or on a flat fee basis? Lastly, check their references. Any firm that has been doing business for any period of time should be able to produce a list of recent transactions and provide you with some contacts to talk to.
Tags: advisor, tenant
Posted in Transaction Management | Comments Off
