Checkmate: Corporate Real Estate's Evolution From Pawn to Secret Weapon Helps Topple the Competition's King
To win a game of chess, the winning player must understand the value and role of every piece on the board, then use each as part of a strategy that is flexible enough to react to the moves of the other side. Many times, the overlooked piece in a far corner of the board can make the difference between winning and losing - or it can make a move that allows the player to turn the game.
Corporate real estate has traditionally been seen in terms of a cost center - a pawn, so to speak. However, many companies are beginning to include real estate as a more proactive component of financial strategy. Often representing a surprisingly high percentage of corporate owned-assets, a real estate portfolio can be leveraged to recruit and retain employees, optimize a company's value chain and support a sustainable model for long-term growth.
At a recent meeting of the Chicago Chapter of CoreNet
Global, experts shared best practices from BP, SBC and
other corporations.
While different companies face varied challenges and
opportunities, some see real estate not just as a necessary
evil, but as a core component of corporate performance.
Despite external differences, there are some underlying similarities
in corporations that strategically leverage their real estate
portfolios to contribute to bottom-line success.
According to Arthur R. Martin, senior vice president of
tenant representation for Transwestern, the role of the corporate
real estate executive has evolved from "taskmaster" in the
most traditional of models to "business strategist."
Of course, the first step in formulating a strategy is identifying what you have to work with - so quantifying the real estate portfolio is a necessary first step for all corporations that strive to achieve this ideal.
Setting up the Board Quantifying the value of a corporation's real estate portfolio is often one of the most daunting tasks of the corporate real estate function - and one of the most critical. "If it doesn't get measured, it doesn't get managed," says Mary F. Kerbs, corporate real estate project manager of BP America Inc. "We strive to apply a standardized global approach to measure financial results."
Particularly for multinational corporations like BP, the value of owned assets and the commitments to leased space can be highly complex. By centralizing information and requiring corporate involvement in local real estate decisions, the process of acquiring or divesting space can be aligned with the business objectives of the corporation. Corporate Real Estate's Evolution From Pawn to Secret Weapon Helps Topple the Competition's King
Reporting is usually the first step toward centralization, so
a corporate real estate function seeking to provide maximum
independence to regional managers while still quantifying the
real estate portfolio can require the minimal involvement of
simply reporting real estate transactions so the results can be
quantified. In a more centralized corporation, the corporate
real estate group may require review and/or approval across
the board of all decision-making that involves real estate.
Once the real estate portfolio has been quantified, its value can
be better understood by senior management, and in particular, corporate
financial officers at the "C-level" such as CFOs, CEOs and
COOs. Corporate real estate executives should communicate the
results of their initiatives in language that the C-suite can understand.
For example, if divestiture of real estate assets has resulted
in a 20 percent reduction in cost or even an incremental jump
in EPS, that is a material figure that can be instantly recognized,
understood, and synthesized with other financial information.
If the real estate portfolio of a company that is the target of
M&A activity includes environmental risk, it should be quantified
so it can be factored into the cost/benefit equation and
resulting decision-making. This communication is a two-way
street: C-level executives need to insist that corporate real
estate information be delivered in enterprise-level terms,
and at the same time, real estate executives need to present
information in terms universally understood.
One way to accomplish this, according to Richard D.
Wagner, director, strategic and portfolio planning of SBC, is
the assignment of corporate real estate metrics that assist in
the alignment of real estate with overall corporate goals. This
includes assigning value to factors such as:
Annualized savings from rent and operating expenses
Reduction of required square footage
Proceeds from asset sales
Workstation and overall administrative space density
Workstation utilization
Construction cost-per-square-foot
On-time, on-budget construction project completion
Reduction of design and construction-attributable service losses
Internal client satisfaction
Bold Move
True strategic involvement requires real estate to be a central
component in all decisions that could be materially affected
by factors related to real estate. In the consideration of M&A activity, how will the target company's real estate portfolio factor into the deal? Will it sweeten the pot or sour the profit pool?
Including a representative from the corporate real estate
function in M&A teams from the beginning ensures these
considerations are factored into strategic planning early on.
When managed proactively, global real estate management
can reduce operating costs; maximize capital receipts from
surplus real estate assets; and contribute to improved business
productivity. To achieve this, corporate real estate functions
should be charged with: developing a range of property
solutions; managing the retired property portfolio; facilitating
real estate requirements driven by growth; managing the implications
of business decline; and exploring opportunities for consolidating
and restructuring of the real estate portfolio using innovative
solutions beyond reduction of cost-per-square-foot.
Checkmate
The presenters at the recent meeting of the Chicago Chapter
of CoreNet Global demonstrated that as the corporate world
strives to think more strategically, senior-level management
will be increasingly turning to their real estate executives as
counselors and sources of innovation to improve the bottom line.
