Most business owners are not in the real estate or contracting business. So, when they’re relocating, building or renovating, they probably have limited resources or knowledge when it comes to managing this time-consuming process. They have a choice: go it alone or align with a professional that has the technical expertise to manage the delivery of the project within clearly defined scope, schedule and budgetary requirements.
“Whether it’s a ground-up new building construction project or the renovation and remodeling of space, project managers are subject matter experts that can drive value in their ability to identify opportunities and mitigate potential project risk events,” says Eric Verh, director of Project Management at CBRE, Cleveland. “They can properly manage and coordinate teams of multidiscipline design, construction and vendor professionals and provide strategic consulting through all phases of the project’s lifecycle.”
Smart Business learned more from Verh about the value of project management, whether you’re facing a new building construction project, renewing a lease and renovating, or looking for new space and considering landlord turnkey or tenant-controlled improvement projects.
When should a user or owner of real estate hire a project manager to assist in the design and construction process for a proposed project?
The simple answer is the sooner you bring a project management professional in to manage a project the better. During the pre-construction phase, typically where only 20 percent of the project cost is incurred, 80 percent of the value creation can be realized in value engineering, design efficiencies and speed to construction that a project manager can lead if brought on board at the conception of an idea for new space or renovation or contraction. Full-service companies such as CBRE offer strategic consulting through business and conceptual planning stages of a project before the design actually takes place. CBRE Project Management offers clients up-front assistance during their space and building search. By providing comprehensive financial and qualitative analysis of alternative sites or buildings, our clients understand overall budget and scheduling implications associated with each site and, therefore, are better positioned to negotiate more advantageous lease or purchase terms with prospective landlords and sellers.
Further, through proper planning and strategy development early on there are many unforeseen scheduling and budgetary missteps that can be avoided. Understanding roles and responsibilities of those involved in a project and clearly defining the approval process for critical issues are often overlooked. If understood early on, extra time can be planned into the schedule and an expedited process for time-sensitive matters can be developed by a project manager to reduce time and expense.
What types of building owners or tenants are best served to retain the services of a project management professional?
Small, medium and large companies that have single building project needs to corporate and institutional owners and users of real estate on a regional, national or global basis can benefit from the services of a project manager. For example, companies looking to lease or own real estate can focus on their core business while allowing the project manager to oversee their best interests in managing a specific construction project that aligns with the company’s expectations in terms of quality, cost and timing of delivery.
On the other hand, corporations that may be rolling out national rebranding initiatives that either fully outsource or supplement their existing staff with a project management representative can benefit from local market experience and relationships. It runs the full gamut, from small companies to large corporations, whatever their real estate project management needs may be.
Even on small lease renewal projects involving simple renovations of just new carpet and paint, users of real estate may not understand the full implications of what that may mean. For example, the type of carpet selected can lead to the need to tear down, reinstall and re-cable workstations and the moving of employees and their contents, all of which can significantly add to project costs and employee disruption. Project managers can help companies identify these implications up front and to make decisions for alternative material selections or scheduling adjustments to mitigate such costs and disruption. So even on small projects, it’s beneficial.
Does the value offered by a project manager offset the associated costs for these services?
It is a win-win situation in the sense that a full-service project manager can represent a client’s best interest, while concurrently offering value engineering suggestions and efficient project planning, scheduling and design consultation from project inception through furniture, fixture and equipment selection and move services. For instance, at CBRE, our project management platform often saves our clients on average $2-$3 for every dollar spent on project management fees. It’s our ability to offer up strategic project solutions and best practice methods, as well as our preferred national vendor pricing for building materials and systems that are passed through to our clients in the form of cost savings from day one.
How can a business reduce operating costs through project management?
It comes down to details and aggressive and proactive planning in design early on that the project manager can help manage that process to reduce operating expenses within a tenant space. Selecting appropriate types of construction materials and design, as well as types of finishes, lighting, building controls and water usage can all lead to a more efficient building, which costs less to maintain and operate. Sustainability is big these days. For instance, LEED-certified projects can include environmentally friendly solutions that provide cost savings over time. Project management can not only help clients get into a new building or space, but also going forward have the savings of operational efficiencies.
Eric Verh is director of Project Management at CBRE, Cleveland. Reach him at (216) 363-6455 or firstname.lastname@example.org.
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Owners of commercial real estate have taken their hits and have learned along the way about the most efficient use of capital. Still, this market has dictated that being profitable means owners are putting an even greater focus on keeping costs down while maintaining service delivery.
“There are two sides to the NOI equation: income and expense. A good property manager is always addressing both sides,” says Kenny Coven, managing director of asset services at CBRE. “It’s in making sure that a given asset out-performs the market relative to occupancy rates, that they’re getting the highest rents that the market will bear and that they are retaining their current tenants while bringing in new tenants. That’s the income side of NOI. On the expense side, you strive to keep expenses as low as possible while keeping the services delivery best of class.”
Smart Business spoke to Coven about how to address the key issues of income and expense in today’s market.
What is the biggest issue faced by owners of commercial real estate today?
If you asked four years ago, it would have been a different answer, but in this economy and with the current credit crisis, it comes down to funding. If they’re in that cycle where they have to refinance right now, especially if they bought in 2006 or 2007 at the peak, they were modeling their building at the then current rent, and property values were at their highest. Since then there’s been downward pressure on rent, there’s been greater vacancy and devaluation of property values. So if they are in the market to refinance today, it’s much more difficult for them, and if they’re looking to spend money on tenant improvements to attract new tenants, it can be very challenging to find those dollars.
Several years ago when a broker took someone out to look at space, there may have been seven or eight spaces that met their requirements; now there are 15-20 potential units. So it’s even more important that the service delivery be outstanding, that you respond to tenants’ needs within hours of when they come up, and that from the time you get out of your car at the curb to when you’re in the space that everything is well kept. In this competitive market, you need to do everything you can to retain your tenants, bring in new ones and keep your expenses down.
What type of building owner should engage third-party management?
Building owners that use third-party management are generally multi-tenant, institutional, or just private owners that understand that, because of our size, our nationally negotiated vendor contracts, the amount of staff that we have and our skill set and expertise, we can manage their properties better and cheaper.
Where a third-party manager like CBRE can be most effective is in cross-selling services. We do the property management, the leasing, the construction management, and provide technical services, i.e. engineers and technicians. All of those different entities are led by different groups, but we’re all under the same roof and the real estate manager becomes the general. When CBRE provides all of the services just mentioned we get a lot of synergies that help in providing a seamless operation.
When should a property owner seek the assistance of a property management professional?
I personally believe that looking at third-party management is probably a good idea for almost any owner. Because of economies of scale and nationally negotiated vendor contracts, we can generally step into most buildings today and instantly bring expenses down 7-12 percent. For example, we took over a half-million-square-foot office property two years ago for a lender that had taken the properties back. The day we stepped in that door, we saved them $1 a square foot on operating expenses.
Often it’s a question of going for a real estate tax reduction. In many cases the single largest component of operating expenses are real estate taxes, and it’s not a difficult argument today based on what’s happened to the value of real estate. In the case just mentioned, however, the $1-per-square-foot of savings was a combination of the reduction in costs of goods and services.
What are some of the keys to successfully managing commercial property?
It’s taxes, its utility costs, it’s any third-party vendor contract such as elevator maintenance, snow removal, landscaping, tenant improvements, etc., as well as supplies used in the building itself.
It’s also understanding the specific needs of that asset relative to the market it’s in as well as the owner’s given strategy, because it’s not the same for every owner. We have some owners that are currently in the market to try to sell their building, which will require a different strategy than someone that intends to own a building 10 years from now. You’re looking at capital expenses and you’re looking at value creation over the next 10 years as opposed to someone who knows they’re going to be selling in the next two to three years.
Are they coming up for refinancing in the next two years? Because then occupancy and the length of the lease is greatly important to them. It may be a case of talking to every tenant whose lease is expiring in the next three years and trying to work out a new seven- to 10-year lease with them now where you give them some savings or maybe some additional tenant improvement dollars. Then when you come up to refinance in two years you don’t have a lot of leases that are rolling immediately.
It’s key to try to stay ahead of what could potentially happen out there, and to figure out what to do to put yourself in the best position to get that space leased when it comes to market.
Kenny Coven is the managing director of asset services at CBRE in Cleveland. Reach him at (216) 363-6436 or Kenny.Coven@cbre.com.
When CBRE decided to “green” its worldwide operations in 2008, the benefits were clear: reduced utility costs and water usage, happier employees, a major boost to company reputation. It experienced an added bonus just three years later when it was named by Newsweek as the 128th greenest U.S. company — the only real estate services firm to make the top 500.
“Our chairman got behind the sustainability practice group and set the goal that we were going to be carbon neutral by the end of 2010, and we met that goal,” says Tim Gascoigne, associate with the CBRE Sustainability Practice Group. “CBRE is now an experienced sustainability and LEED consultant with all the tools and resources to guide building owners and tenants through a successful ‘greening’ process of their full building or suite.”
Smart Business spoke to Gascoigne about what it takes to have a “green” building and why the advantages it creates are too great to ignore.
Why is it beneficial for companies to make efforts to be green?
The main drivers of the sustainable movement are large public corporations and the government. Both groups view ‘green’ as a way to reduce their costs, reduce their environmental impact and gain a heightened impression of social responsibility. More and more companies are putting out a corporate social responsibility reports. If you look at all the public corporations out there, many of them are starting to publish this to show how green and responsible their corporation is, which is becoming a wonderful marketing tool. As for the government’s commitment, they are looking to achieve LEED (Leadership in Energy and Environmental Design) certification in all the buildings they build, and will only lease certain buildings that have these characteristics.
Although tenants are definitely driving this movement more so than the building owners right now, a building owner will look at LEED as a competitive advantage to capture these quality tenants that want these LEED-certified spaces. They do get overall savings with energy reductions, but they also have to spend the money to get the tenants. It’s been shown that LEED-certified buildings far exceeded all the other buildings in terms of rent per square foot.
I think the ‘green’ trend will start moving to smaller companies who will also use a sustainable reputation as a marketing advantage.
What are the cost implications?
With larger multi-tenant office buildings in the 500,000-square-foot range, it’s running about 25-50 cents per square foot to make the building LEED certified. So there’s a cost, but then there’s a payback in how much you are able to reduce energy consumption and how much more you are able to increase rental rates. In the most recent CBRE Green Building Survey, the average utility spend for the subjects’ multi-tenant office buildings was around $2.50 per square foot per year. It quickly adds up, as some building owners have been able to achieve a 50 percent reduction in this cost. Furthermore, this study found that the LEED-certified building were able to capture $4 to $7 per square foot more in rents. This is a great achievement that adds significant value to these buildings.
Oftentimes, there is intervention that improves the payback, whether it is a utility company offering a rebate or a state program that provides financial incentives to encourage lighting retrofit. That’s a pre-tax benefit; there are also after-tax benefits that come through cost segregation studies, which break properties down into component parts to accelerate depreciation.
Where should a business begin?
The first and simplest step toward being green is to look at the energy and the commodities that you consume — water and energy — and come up with a plan to reduce your consumption. Next, focus on recycling. Simply recycling traditional items like cans and paper make a difference, or, if you want to get more advanced, you can look into commercial composting.
The No. 1 place to start if you’re a building owner is with regard to your lights. And it’s usually one of the easier places to achieve savings with how fast technology is moving in that category. You can put motion sensors in certain parts of the building so that lights automatically go off when no one is in the room. It’s tough to calculate the exact savings on sensors, but upgrading a lighting system has direct savings that are easily calculable. Typically, in older office buildings that have 4-lamp T-12 fixtures, you can upgrade to 2-lamp T-8 fixtures and achieve a 70 percent reduction in cost. If you look at the fixture wattage, you’re going from 188 watts in the older lamps down to 56 watts with the new lamps.
HVAC is also a great category to focus on for tenants. With improved indoor air quality your employees take less sick days, which improves your productivity. Most HVAC systems just need small adjustments to achieve significant increases in comfort levels and cost savings. We had a client in an office building that we managed that had a large central air conditioning system and, when the fan turned on, it would spike the utility usage. We were able to come in and put variable drive motors on that air conditioning system, which reduced the spike of electrical usage and made it run more efficiently.
So you’ve got to look at all of those components as a way to control and reduce. There are new systems that are much more energy efficient and there are ways that current systems can be modified to improve them.
What other things can businesses consider?
Everyone is trying to reduce the amount of storm water runoff — rain water that picks up waste and pollutes nearby water supplies. Parking lots are being developed with porous surfaces so the water runs through the pavement and reduces runoff. The new approach to landscape architecture involves more green space, which not only makes a property look better, but also reduces the storm water runoff.
Tim Gascoigne is an associate with CBRE’s Sustainability Practice Group. Reach him at (216) 658-6115 or email@example.com.