Oftentimes, if a corporation is faced with reducing expenses, especially in the expensive arena of real estate, it should evaluate the technical and strategic benefits available through outsourcing.
“Essentially, organizations whose core business is not real estate should consider outsourcing real estate functions in order to achieve portfolio optimization and cost efficiency,” says John Ferguson, senior managing director at CB Richard Ellis in Atlanta.
Smart Business spoke with Ferguson about corporate real estate outsourcing options and how to determine if it’s the right choice for your organization.
What are the trends in corporate real estate?
Emerging trends in corporate real estate (CRE) that increase the value of outsourcing include:
- Having the right labor pool available, which will dictate where the company chooses to lease or own space
- Increased openness to alternative strategies for a mobile work force
- The integration of CRE with HR, IT, finance, accounting and the C-suite
- The role of the CRE manager as a strategist and business unit relationship manager The workplace is now the intersection of technology, HR, operations and real estate.
- Real estate evaluated with a different lens in the era of corporate strategy and intense competition for customers, employees, resources and transparency imperatives
- Evaluation of global models for noncustomer-facing activities
What types of services are available?
Outsourcing can encompass a number of different management and administrative functions. Many businesses take advantage of one or more of these services:
Facilities management: Corporate, institutional, not-for-profit and government entities can outsource facility management. This allows them to draw on experts who can customize their knowledge, technology, procurement leverage and processes to create a competitive advantage.
Portfolio management: Specialists ensure all the vital portfolio details data, critical dates, rent payments, cost structures and other processes are in place and operating efficiently and effectively. Proactive portfolio management lowers costs, improves space utilization and provides a solid basis for creating a strategic real estate plan.
Global client strategies/consulting: Consulting drives superior business performance by maximizing value from real estate assets and management practices. Top-quality solutions integrate business intelligence with portfolio optimization, location analysis and organizational strategies.
Transaction management: Skilled transaction managers can harness local market knowledge and work closely with organizations to develop and manage a consistent, portfoliowide process for managing transactions on a global level.
Project management: Professional real estate project managers can plan and execute a full menu of services for organizations that occupy and invest in real estate.
Portfolio administration: These services help you find, collect, manage and analyze key portfolio and operational data to identify portfolio trends, spot opportunities and make sound real estate decisions.
Move management and transition manager: You can minimize your transitional downtime and costs by outsourcing transitional management, coordination and implementation functions during relocations, mergers, consolidations and renovations.
What are the advantages of this outsourcing?
Your company can experience cost savings through access to high-caliber tools, staff and strategies. Outsourcing also gives you the flexibility to expand and contract your real estate department in response to events like corporate mergers or special projects.
How can corporations decide if this is the right option for them?
You and your executive team should ask yourselves the following questions:
- Are we currently evaluating alternative workplace solutions to determine the impact on our work force?
- What is the financial impact of a reduction in our vacant/stranded space?
- How do our real estate expenses benchmark to similar corporations?
- How are our current service providers held accountable for results?
- What performance measures are used to track real estate performance?
What first steps should businesses take if they are interested in these services?
Executives should look for a company and a representative that fits well with their company strategy and culture. Some other critical success factors include:
Transition plan: A smooth transition is critical to a successful outsourcing initiative and communication is the most important transition success factor.
Data transfer: Accurate and timely transfer of existing portfolio and vendor data from the company to the service provider
Financial information: Existing baseline operating and capital expenditures need to be well defined by the business and understood clearly by the outsourcing company.
Executive and location manager buy-in: Outsourcing success is ensured when all levels of management are in full support of the outsourcing decision and the resulting service delivery.
JOHN FERGUSON is senior managing director with CB Richard Ellis in Atlanta. Reach him at (404) 504-7870 or firstname.lastname@example.org.
Want to know the secret to getting better locations, lower rates, greater incentives, and smoother transitions for your real estate projects? Start early. Tenants give themselves a huge advantage when they start planning real estate projects well in advance with the help of a skilled tenant advisor.
“Once a real estate need is identified, the project should become part of the company’s long-term planning objectives” says Henry Jaffe, advisor with CresaPartners.
Smart Business spoke with Jaffe about how to improve the success of your real estate projects through early planning.
When should you start a real estate project?
Many factors influence when tenants should begin a project. In general, to ensure the greatest costs savings, tenants should begin any real estate project at least 18 months prior to the lease expiration. Build-to-suite projects should realistically start 18 to 24 months before lease expiration. The start date on new construction projects are primarily driven by the type and extent of the building and the local permitting requirements.
Why should tenants start real estate projects early?
The most educated and informed tenants will ultimately structure the most favorable terms for their contemplated renewal or relocation. Time can be tenants’ most useful negotiating leverage tool. A competitive environment increases their leverage and ultimately decreases potential total occupancy costs by up to 20 to 30 percent. This means, for example, if a company leases 24,000 square feet for $20 over five years, it saves from $480,000 to $720,000. Waiting to begin the process will eliminate options and weaken tenants’ negotiating position.
Also, working on an extended timeline ensures that there is a proper cushion at each step of the process. When tenants have their space secured well before their lease expiration, they can still meet their projected deadlines, even if the build out or other components of the process experience delays. This keeps tenants in a secure position where they can make the best decisions.
What professionals should be involved in real estate projects from the beginning?
Companies can make sure they begin real estate projects on time by assembling a competent, focused project team. Dedicated experts ensure accountability. The composition of the project team depends on each situation. Due to the complexities of commercial real estate transactions and the significant financial obligation at stake, businesses should consider hiring a tenant advisor to help guide the project and involve the appropriate professionals.
- Tenant advisor: The lead on the team and the person who has ultimate responsibility for the success of a project. He or she will develop the plan for the project and put together the best team to implement that plan, making sure that the ultimate solution best supports your business.
In addition to the tenant advisor, the following professionals could be involved in the process:
- Space planner: These professionals determine companies’ actual space requirements and how they fit into prospective locations. Bringing space planners onto the team early in the process ensures that businesses have a clear idea of their true real estate needs and that the space truly meets their operational needs.
- Project managers: They take responsibility for the schedule and budget in a project. They will participate in the planning phase and oversee the construction and relocation portion of the project, and play a vital role in ensuring that the construction allowance is sufficient.
- IT professionals: It is vital to include the company’s IT group in the process from the very beginning. Often this group is engaged late in the process, which leads to increased costs or, worse yet, project delays while waiting for phone or data services to become functional.
- Facilities or operations managers: Some companies employ them to oversee their buildings and grounds. When businesses have these professionals on staff, tenant advisors work in tandem with them to complete the real estate project.
- Executives: It’s essential that high-level executives play a key role in real estate projects from the initial stages. Their guidance ensures that the project meets the overall business needs of the organization.
What are the first steps in a project?
After a needs analysis is completed that defines tenants’ operational objectives and financial goals, an opportunity analysis is created displaying current market conditions, relocation alternatives, renewal opportunities and potential space savings.
A needs analysis clearly lays out the big picture of what companies want to achieve from a real estate standpoint relative to their business objectives. This could include goals like increasing square footage, decreasing real estate holdings, or integrating a new space program.
An opportunity analysis helps tenants craft an action plan based on a comprehensive awareness of their options within their market. This deliverable provides companies with a decision support tool to pursue the best solution for their business.
HENRY JAFFE is an advisor with CresaPartners. Reach him at (610) 825-6546 or email@example.com.
Now is the time to win big. If you goagainst the flow, you could experience remarkable opportunities to differentiate yourself.
“According to one study, during the lastrecession, 25 percent of businesses aggressively increased marketing expendituresand, as a result, increased market share
2.5 times the average for all businesses inthe post-recession period,” says JonathanFisher, CEO of BrandExtract. “Conversely, during expansion periods, 80 percent ofbusinesses increased advertising budgetswith no improvement in market share —because competitors did the same thing!”
Smart Business asked Fisher what marketing strategies can fuel your company’ssuccess in today’s economic climate.
How does the challenging economy affectmarketing?
The stronger a company’s brand recognition, the greater the chance it can win business and retain price points. Business owners are demanding returns and tightervalue propositions. Consumers are lookingmore closely at their purchasing relationships. This means buyers want provenproducts or service providers they knowand trust.
Cutting marketing budgets in down markets is one of the worst moves a companycan make. Case study after case studyshows that a down market is one of the fewsituations when a company can differentiate and gain ground on their competition— without increasing last year’s budget. Intight markets, businesses are able to buymedia, services, printing and more at discounts. This translates into increased bottom-line gains unlike any other time.
Why is using the right strategy important?
Strategies that yield quality over quantityhave proven to be the most effective whenyou must do more with less. You shouldalso make every effort to increase yourbond with current customers to protectagainst competitors. If you have the correct plans in place, you can thwart theaggressive tactics of other businesses thatare desperate for business.
How can companies in today’s economy evaluate their marketing?
Aside from looking at the returns, companies should view the cost per reach andconversion, both short and long term.Marketing departments will defend theirinvestments by touting numbers like hitson the Web site, but business ownersshould look closely at the cost to acquirethese leads or hits. By comparing the costto acquire these returns against each marketing channel, you will see a holistic picture of the expense of marketing efforts.
What should be considered in developing anew plan?
Marketing plans are investments and, likeretirement portfolios, should be diversified.This means including a mix of the tried-and-true on up to highly creative (such as newmedia) strategies and tactics. Also, plansshould be geared to the goals and personality of the company — generic, one-size-fits-all methods rarely work.
One of the most effective methods fordeveloping plans in a down market is toconsider each quarter an investment overthe next. We call this momentum marketing, as you are building on the momentumover each quarter. If your agency or marketing manager is proving that their strategies are working, be willing to increase thebudget. This approach will yield greaterreturns and not stifle the progress yourmarketing investments are making.
How can a business measure marketing ROI?
Marketing has many measurements,ranging from brand awareness to traffic tosales. Generally, we look at the equationratio of leads to prospects to proposals toconversion rates, but every company’sgoals are different: some want to reduceattrition, others are seeking to reverse anegative trend, and still others are zeroingin on aggressive growth. An important,though often neglected, point is that youneed to invest in establishing your currentbaseline for your measurement to havemeaning.
Any other points to share with readers?
- Beware of discounting fees unless the price reduction is truly strategic.
- Promote value and benefits over features.
- Watch for market demand because it may lead to new services, products or packages.
- Talk with your customers and form focus groups with strategic partners and vendors, as they will be your best referral sources.
- Concentrate media buys and agency services for negotiating power.
- Get creative with balloon contracts and multiyear retainer options to save money. Now is a perfect time to negotiate long-term contracts at reduced rates.
Remember, the decisions you make in adown market will have an enormousimpact on your brand. If you let it slidenow, it will be twice as difficult and expensive to get it back to where it is now.
JONATHAN FISHER is the CEO of BrandExtract, an integrated branding and communications firm that guides growing companiesby providing strategic branding solutions, marketing communications, advertising, print and interactive services. Reach him at(713) 942-7959 or firstname.lastname@example.org or go to the company’s Web site at www.brandextract.com.