Let it grow

Building a national company is the
dream of many entrepreneurs, but
launching a new franchise or opening a distributed group of sales offices means
securing real estate in new areas, and that
requires knowledge of the local market.

In the past, many executives created infrastructure and hired staff to procure and manage commercial real estate as part of an
expansion plan, yet those staff members
often turned to local real estate brokers for
marketplace expertise. Now, smart CEOs are
finding they can secure the knowledge without the overhead by outsourcing their company’s real estate function.

“Operating a national real estate portfolio
can be overwhelming,” says Jerry Lehman,
CCIM, SIOR, president and broker for
Prudential CRES Commercial Real Estate
SFL and executive vice president for
Prudential CRES National Services Group.
“It’s time-consuming and it’s expensive. No
matter the size of the company, if your reach
moves beyond your local neighborhood, it’s
possible to outsource everything from site
selection to lease management without
increasing costs.”

Smart Business spoke with Lehman about
the advantages of achieving growth without
increasing overhead by outsourcing your
company’s real estate department.

Which commercial real estate functions can
be outsourced?

The entire scope of the real estate department can be outsourced, including market
surveys, initial site selection, the due diligence process, property inspections and
ongoing lease management. The services can
also include monitoring lease expiration
dates, negotiating lease renewals and conducting day-to-day communication with
landlords about needs like increasing the
parking spaces at a remote sales office. Many
national commercial real estate companies
offer turnkey outsourcing programs.

What are the advantages of outsourcing?

Real estate is a local business. While you
can review local area demographic data such
as population, income and age when considering a new location, selecting the perfect
spot requires a composite analysis of data
and human intelligence. Unless you’re familiar with the local market, you won’t know
about recent changes in property use, new
roads, proposed exit ramps or if employers
are leaving the area and why. The most critical player is the local agent who must understand your business needs and match them
to the local market. In most cases, internal
real estate staff members will turn to local
agents for that knowledge and expertise, so
outsourcing further leverages your buying
power, reduces overhead and gives you a
committed relationship with a national network of agents located in major urban and
secondary markets. While you’ll work with a
number of agents, you’ll have one contract to
manage and you’ll work through the company’s account managers and regional directors. They’ll become experts in your business, your real estate needs and your long-term business objectives and then transfer
that knowledge to the local agents, when you
need to secure a new location.

What are the costs and the potential savings?

There’s no cost to your company because
the landlord or seller pays agents’ commissions. The result is a huge savings opportunity; at most, you might need a small internal
team of one or two people to manage the outsourcing relationship, educate the account
managers about your business requirements
and manage your company’s portfolio of leases. I’m familiar with one large retailer that
manages a portfolio of 1,600 store locations
with an internal staff of only three people.
Without outsourcing, it would take a minimum of 50 people to manage a global real
estate portfolio of that size.

Will outsourcing change the fiduciary relationship between brokers and clients?

If you choose to outsource your company’s
real estate department, the broker’s fiduciary
relationship will remain with you, the buyer.
Typically in a real estate transaction, the
landlord or the seller pays the broker’s fees,
so the industry standard is that others pay
the costs associated with the broker. The
party who pays and the agency relationship
are not necessarily related in commercial
real estate transactions.

What selection criteria should CEOs consider
when selecting an outsourcing partner?

Select a company with a strong geographic
reach and extensive commercial real estate
experience, because you want to select a
partner that has some muscle in the field and
the resources to manage an outsourced
engagement. Review the company’s locations to make sure it has an office in the cities
and countries where you plan to expand.
Understand their account management
structure, because once the contract is in
place, those people are vital to the success of
the relationship. You’ll want to know if you’ll
have a single point of contact and how they
communicate information about your needs
to brokers located across the country or the
world. Consider checking references to validate a potential vendor’s experience and
commitment. Then sit back and enjoy the
benefits of growth without the expense.

JERRY LEHMAN, CCIM, SIOR, is president and broker for Prudential CRES Commercial Real Estate South Florida and executive vice
president for Prudential CRES National Services Group. Reach him at (561) 995-8887.

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