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Trading spaces Featured

10:13am EDT November 19, 2004
Sal Ambrosio asks a lot of questions. He wants details -- plenty of them -- and he will "crawl into the socks and shoes" of his clients to get them. Real estate, after all, isn't just about trading spaces or shopping for square footage.

"Think of real estate as a chess game," says Ambrosio, president and CEO of Tactix Real Estate Advisors, a real estate and brokerage firm that focuses on commercial clients. "There are strategies and various steps required to execute a rational real estate response to a business's needs.

"It is our passion and calling to act as the chief real estate officer for our clients. We learn the dynamics of our clients' businesses and shrinkwrap custom real estate solutions around their business plans."

Tenant brokerage, strategic planning, capital restructuring and build-to-suit options are included in a menu of real estate services for blue chip customers such as Sunoco, FMC, Villanova University, Covance and privately-held entities such as Schnader Harrison.

"We bring a mental aggressiveness and intellectual discipline to the assessment of real estate needs," Ambrosio says. "That is our role in life."

Smart Business talked with Ambrosio about serving commercial clients, the Philadelphia commercial real estate market and attracting the industry's heavyweights to his firm.

What is the mission of Tactix?

We formed as a response to market forces. The ownership structure in secondary markets is increasingly complex. Profit margins are thinning, so landlords are building up significant expertise -- engineers, architects, lawyers and financial people -- on their end. Tactix is a response to that increased complexity.

We built a team of interdisciplinary experts so our clients can have the same expertise as landlords. We level the playing field.

There are two legs to most of the work that we do. One leg is learning. We need to learn everything we can about the dynamics and business plan for our clients' operations. Our first order of business is to get into the socks and shoes of our clients and understand the dynamics that drive their businesses.

The second thing we do is pedagogical in nature: to coach and educate our clients on the intricacies of the real estate decision-making process as we practice it.

Typical large, regional and national firms dictate annual sales quotas to each office, which are then allocated to individual brokers. These artificial goals can color the advice relative to transaction timing. In other words, a broker may rush a deal just to book the transaction and meet the sales quota.

We understand that we need to do the homework and the heavy lifting before we begin to shape solutions and recommend outcomes. We move at deliberate speed, but never rush to a convenient or high-paying solution.

For example, one client came to us and said, 'I need 25,000 square feet of office space.' We asked, 'Why?' And, 'When do you need it?' We asked a lot questions about the nature of the business unit that would occupy the space.

We got a space planner involved on the team, and we did an analysis of the existing building they were in. We found that, with some minor alterations, we could expand the business unit in the same place rather than leasing them a new space. We did a market survey and found alternative pieces of space, and then we proceeded to work together with construction contractors and space planners.

We identified the true cost of the short-term expansion. The client would pay twice as much for a new space.

By asking questions, conducting our practice in a multidisciplinary manner and looking for cost-saving solutions, we put ourselves out of a job on that assignment. The good news was, the client liked the experience so much that they handed over their entire national real estate portfolio to us.

It pays to do the right thing. That was one of our first interactions as a firm in 1997.

What is different about servicing commercial clients?

Our clients literally cover the landscape. We specialize in office, lab, data center and warehouse/distribution space. We represent large- and mid-cap publicly traded companies such as Sunoco, Atofina, Covance and FMC; institutional clients such as Villanova University; privately held entities such as Day & Zimmerman and the Graham Co.; law firms large and small, such as Dechert, Morgan, Post & Schell, and Schnader Harrison; and emerging growth companies. We have a stable of 150 to 200 clients, with 10 percent of them having active matters at any given moment.

The common thread is that they all consume space as a factor of production, like labor and capital. For most, real estate is the second largest overhead item after labor. They understand that real estate, as a cost item, needs to be aggressively managed.

Real estate is a key ingredient in the mix required to make a profit. And in today's marketplace, labor, capital and technology are all available to a CEO at the click of a button. But real estate is not.

It is a unique aspect as a factor of production because it defines, in many ways, a company's culture. How a business grows in that space and how it leaves that space are vital aspects of managing a firm.

You worked in the Reagan administration on the Central Budget Management staff. What impact does that experience have on your role in the real estate world?

I was fortunate to have competed for and won a Presidential Management Internship after getting a graduate degree in public policy. My degree focused on public policy evaluation, research, finance and economics.

In the Reagan administration, I was part of a small group of five staffers that reported to David Stockman, director of OMB (Office of Management and Budget), and supported all of the analytical and negotiation responsibilities of that office. We implemented a top-down, policy-driven development of the president's budget. This was revolutionary at the time.

We implemented one of the first PC-based management information systems (MIS) in OMB and used the system to perform sensitivity analyses, or what ifs, on the budget and economy. I found my calling when I was asked to build the MIS and then lead teams responsible for drafting and negotiating the various appropriations bills that comprise the federal budget.

I love working at the intersection of the decision-support sciences, law and project management. These skills are in use today at Tactix. I saw the transition to tenant representation in commercial real estate as seamless.

What issues do tenants neglect to consider during the real estate process?

Most tenants only think of rental rates and fail to properly account for the other major cost drivers in a typical real estate transaction. The big three are net tenant improvement outlay, the amount of square footage and rental rate.

There are two other areas that are often overlooked in a real estate transaction, and these can prove extremely costly over the life of a lease hold. That is a business's exit and growth strategies. Your ability to grow in the space may be the determining factor in whether that space satisfies your needs.

Describe the commercial real estate market in Philadelphia.

It's not all rosy here in the Delaware Valley, and we see it from the ground level. Job growth is a proxy measure for office space demand. We are not seeing the job growth in center city, so we expect and anticipate a continued dampening of value.

We are concerned when we see local landlords selling their portfolios. We don't think that speaks to the health of the center city real estate market. We need to work diligently for tax reform in center city Philadelphia, which we believe is the obstacle to job growth.

How do you account for your ability to recruit heavyweight professionals to the firm?

I define our team as a fiercely independent, interdisciplinary team of professionals. We are a collaborative team driven by one vision: customer service. What attracts talent to our firm i s the nature of the work and the vision for how it is conducted.

Six of our folks are attorneys, and I have a technology, finance and economics background. We have a professional architect on staff. We hire from the neck up, and we hire for passion. Once you attract that core, and once people see the type of work you can do, I think success breeds more success.

We can have a great impact on the operations and the P&L (profits and loss) of a firm by the work that we do. We have a unique opportunity to frame issues and shape solutions for some of the most dynamic people we know. That is a very attractive package.

We set out to change the face of brokerage. We have successfully put together a top-flight interdisciplinary team of real estate experts to advise our clients and manage their real estate decision processes.

Where do you see your business headed?

We will continue to focus on what got us where we are today: client service and hiring the best and brightest. Looking forward, you will see us stick to the knitting. We know our core competencies, and we are not going to veer from those.

Also, I think you will see us slowly but surely continue to expand our practice on the eastern seaboard. How to reach: Tactix Real Estate Advisors, (610) 688-1800 or www.tactixusa.com