Archive for June, 2010
|Hidden Challenges, Lurking Solutions
Wednesday, June 30th, 2010
By Phillip Infelise
Glad that you wanted to check in on our fourth edition.
I promised that today we would address some of the most daunting challenges our Project Managers face on a day-to-day basis. How we overcome these challenges proves our mettle as Project Managers in an often chaotic project world.
Budget Creep. This challenge is directed by the client. I treat the client’s money as my own once entrusted with a project budget—and I am extremely value-oriented. After 30+ years doing this, I am convinced that Change Orders don’t bloat budgets; most of the time clients do it themselves. Imagine when we are put in the position of saying “no, we should not spend that money” to the client whose money it is. I do it all the time, and I think they appreciate it in the end
Car-Shopping Syndrome. Don’t fall in love with it if you can’t afford it. Clients, like all of us, will tend to fall in love with a strategy, design solution, or furniture look before understanding the overall cost impact of it. Our challenge is to not let them do that. Always talk overall cost before they become attached to a solution.
Architects lack of Cost Awareness. Obviously not all, but some (more than a few) architects pay little attention to the value or cost of a particular solution. My simple edict to architects on my teams – when you present a solution, it must be accompanied by an estimated cost (see above).
Brother-in-Law Syndrome. Being forced to use vendors that are unqualified to do the job is a recurring theme. If we hear about it in advance, we may pass on the assignment simply because we know the problems it can cause with the other professionals around the table who are selected based on their qualifications, not on their (family) contacts.
No Client SPOD. Having no single point of decision-making on the client side of the table often puts schedules and budgets at risk. At the end of the day, decision by committee often can’t work when fast tracked projects need immediate decisions to meet aggressive schedules. Managing the politics on internal decision-making is a key challenge to overcome.
Managing Change. As Project Managers, what we really manage is change; not just the project that facilitates that change. Too often, poor decisions are made simply because it suggests change from the standard operating procedure. Project Managers feel much more engaged when their experience can be brought to bear to push positive change in a reluctant world.
These are but some of the myriad of challenges that our Project Managers face, each likely having their own priority list. How we bring our experience to bear on these challenges is where we earn our keep and our client’s confidence.
Which challenge do you or your Project Managers find most daunting?
Next visit. It’s about time, let’s clear up the confusion between Construction Management and Project Management – who does what, which is which, what it isn’t. Ciao.
Tags: project management challenges
Posted in Project Management | Comments Off
Underlying Basis for Commercial Properties is Changing
Wednesday, June 23rd, 2010
By Jim Leslie
Commercial properties are beginning to show some sales activity, which creates opportunities for tenants in negotiating leases if they do some basic due diligence. It takes more than a thorough understanding of market rents in your market to find the lowest occupancy cost which can be achieved. While there was a period of time when market knowledge was the primary factor in negotiating the rental rate, we are moving into a new era where you need to know if the building ownership has changed, who the new owner is, and how much invested capital they have in the building. In many instances this change of ownership has not yet occurred, but the landlord may be delinquent in his obligations to the mortgage holder and it is simply a matter of time before he will be either transferring ownership to a new investor or to the mortgage holder. As a result, it is important to know the status of the maturity of leases in the building as well as the underlying debt terms in order to reasonably forecast the future financial health of the landlord.
We are seeing buildings trade at discounts to replacement costs and in some instances at values below the current debt levels encumbering the property. The new owner may have the ability to quote and execute lease rates below the current market value and still achieve attractive economic returns to their invested equity. For example, we recently saw an office building that required a NNN rental rate of $22/SF in order for the owner to achieve an unlevered yield on a cost of 8%. The current lien holder foreclosed on the collateral and sold it to a new investor at a discount to the face amount of the debt. Market rents for this product were NNN $16-$18/SF at the time of the transfer to the new owner. Fortunately, the reconstituted basis allowed the new owner to quote NNN $14.40/SF and achieve a 9% yield on unlevered cost. Being aware of the sale transaction as well as the market rents gave the tenant extra leverage in its negotiations with the landlord.
All tenants should expect and demand this due diligence from their Advisor so that they have the ability to use the knowledge in negotiations with landlords. You will be disappointed if you go forward with a transaction you feel is market-driven, only to find out later that the building ownership had transferred and the new owner was in a position to negotiate a lower deal, simply because their basis was lower. This phenomenon will exist for roughly two years, and it is important for all tenants to recognize it and adapt their process in acquiring new space or renegotiating current lease obligations accordingly.
Are you seeing this sales activity in your market?
Tags: building ownership, debt terms, market rents, rental rate, sale transaction
Posted in Capital Markets | Comments Off
Transportation, Transportation, Transportation: The New Location?
Wednesday, June 16th, 2010
By Rob Wheeler
The most important factor in real estate has always been location, location, location. In today’s industrial real estate marketplace you can also add transportation, transportation, transportation. The cost of transportation in the supply chain has and will continue to rise and fall with the volatile cost of oil. This makes planning transportation as you make a real estate decision more important than ever.
Intermodal transportation has grown as a result of increased transportation costs and a need for flexibility in the supply chain. Intermodal transportation is the use of multiple modes of transport (ocean, river, rail, trucking, air freight) in one movement. Taking bulk shipments further downstream toward their destination before segregating them into their ultimate deliverable characteristics achieves economies of scale which can drastically cut transportation costs.
Transportation providers, municipalities, and developers are all working together to position intermodal availability as the go to place for future development. Their message—intermodal transportation can cut cost and increase flexibility for an unknown future—is key for the future of your business.
This message was most apparent at a recent event I attended that was sponsored by the Greater Memphis Chamber of Commerce. The Memphis area is now marketing itself as America’s Aerotropolis and is touting the multiple modes of transportation available to businesses that locate there. These include the world’s largest cargo airport, the highway system, the intermodal rail facilities, and the river port. While one mode may have greater weight in this market place, the city is placing equal emphasis on all four. They believe these multiple modes of transportation combined together will lead to future development in the marketplace that they wouldn’t have seen otherwise.
Intermodal transportation is also the key in massive industrial development in the Joliet, IL area outside Chicago. The rail industry in Chicago has always struggled with congestion. The Union Pacific and BNSF railroads are hoping to ease some of this by working with Centerpoint Properties Trust on multiple interconnected intermodal facilities. This $3 billion, 6,100 acre development with up to 32 million SF of industrial space is all centered on the growth of intermodal transportation. Even if companies don’t use the rail, they have located here to provide flexibility in case the need may arise to do so in the future.
Having multiple transportation options available to a site will be key to future supply chain facilities decisions. The ability to stay flexible and mitigate the risk of spikes in oil or changes in the competitive landscape should be part of any site selection criteria, as the future of industrial real estate is all about transportation.
How important is transportation to your real estate decision-making?
Tags: Chicago, intermodal transportation, Memphis, transportation
Posted in Supply Chain | Comments Off
Changing Workplace Standards
Wednesday, June 9th, 2010
By Darren Fleming, Ottawa
Making the decision to move to a new office space standard should not be made lightly as it is time consuming, expensive and often stressful to you and your staff. While change is inevitable, poorly managed change can be ruinous. If change is managed well, it can create the opportunity to breathe new life into your space and revitalize your team’s communication and work/life environment. Here are some things to think about before, during and after implementation to try and smooth out the potential bumps in the road.
Consider the future.
While this seems like an obvious statement, many companies plan their space based on activities and practices that reflect where they have been; not where they’re headed. When planning new office space you should consider what your organization will look like over at least the next three to five years (or longer) and try to gauge what changes are likely to occur within that time period. Some examples: Are you moving from R&D to full production? Are there any contracts you are pursuing or that are coming to term? Is there a standard employee workstation footprint you need to consider? Would you like to create one? Is there a potential for a merger or acquisition in the future? All of these questions carry with them an impact on head-count and the roles that individuals will be playing. Taking the time to think about them will be essential to making your new office space program effective and obtaining buy-in from the employees and other stakeholders.
Implementation
Change is never easy for most people and is often hotly resisted. You will learn new aspects of your staff’s personalities and find that they can be territorial about some of the strangest things. “Do I deserve an office or a cubicle?” “How big is my personal work area?” “Is my office bigger than Karen’s office?” “Will I have a window?” “How about guest seating?” In making a change to a new standard it is important to understand the corporate culture you are dealing with and try to see these kinds of pitfalls before you step in them. For example, in an office where sales people had to compete for an enclosed office with a door versus a workstation, moving the sales team to a cubicle bullpen could be perceived as a demotion. In space with limited access to natural light the window spaces are likely in higher demand and reserved for more senior people. And most importantly, size does matter. Employees are very conscious about the size of their personal workspace as it relates to their seniority and guard their territory jealously, even though we all know that function should be more important than status.
The point is not to try and change their minds, but to make a compelling case for the change you envision. State it clearly and help your team understand why you are proposing the new plan. If you are moving to fewer enclosed offices then make sure everyone who is being affected clearly understands the benefits to the organization and what processes you have gone through to come to this conclusion. Perhaps you should offer them some kind of perk to offset their sacrifice. If you are saving money on rent due to right-sizing your space, consider spending some of the windfall on employee amenities like an upgraded kitchen, better coffee service, or a gym membership.
Change is inevitable in any organization and making a clean start with fresh new office space sends a message to your employees that you are prepared to invest in them and that the future is bright. It can be a fun process if properly approached and can make a dramatic, positive impact with your employees.
How does your company handle workplace change?
Tags: change, office space, workplace standards
Posted in Transaction Management | Comments Off
The Evolution of Lease Administration
Wednesday, June 2nd, 2010
By Jeff Tosello
For years, lease administration was reduced to a service that was:
-Nice to have but not essential,
-A free service your real estate broker gave you, or
-A software program that your administrative assistant ran in between other projects.
These solutions were better than completely losing control over your real estate obligations but lacked several important elements necessary to truly create value for your organization. Further, they did not respond well to concerns about financial integrity relating to reporting obligations.
Today’s lease administration is more than just managing addresses and expiration dates for leased properties. A properly integrated real estate function does all of the following:
-Tracks all property obligations and opportunities,
-Integrates with business unit and enterprise-wide strategy,
-Incorporates and supports multiple departmental disciplines, and
-Complies with internal audit requirements relating to the financial management and reporting that the portfolio requires.
These important aspects of a fully-functioning, enlightened real estate process cannot be achieved with software alone and are not well managed by inexperienced personnel motivated only to execute tasks and be content with the status quo.
Corporate real estate departments require accountability for results which means that there has to be a formally articulated work plan, regularly measured progress, and reliable and agile collaboration and reporting responsive to a dynamic landscape of risks and opportunities. Lease administration or more broadly, corporate real estate support services, are an important part of enabling practically every other service we deliver across the real estate services spectrum.
If this approach makes sense, you should know that our lease administration team is fully capable and already delivering on this level. If you are still defining lease administration as an after-thought and unimportant to the delivery of your services, you may want to reconsider if you are delivering truly strategic services.
How do you define lease administration?
Tags: corporate real estate, support services
Posted in Lease Administration | Comments Off
