Corporate Real Estate Services Delivery Model
A merger or acquisition confronts CRE executives in a corporation with how to best deliver corporate real estate services in light of the probable substantial changes in the combined portfolio. The fundamental issue is the type and amount of services to be provided by CRE employees vs. third-party service providers. The process for making this determination should be tailored to each corporation's unique merger attributes, associated business dynamics, core competencies, emphasis, cost-reduction objectives, service quality, culture, corporate real estate activity level, property type and portfolio size.

Corporations' post-merger responses to the appropriate positioning of he real estate function on the in-source and outsource spectrum varies depending on individual circumstances. For example, two international specialty chemical manufacturers decided to create a new position of director of corporate real estate and pursue an outsourcing model for transactional services through a strategic alliance with an international real estate services firm. At the same time, facilities management for industrial and R&D sites remained in-house due to the perceived need to retain internal expertise and maintain the greatest possible control.

Two merging telecommunications companies brought together opposite approaches to corporate real estate and facilities management. One had outsourced a very significant amount of the activities, while the other had historically provided the bulk of these services internally. Ultimately, the merged company decided to implement an in-source model. In short, there is no one best approach for in-sourcing versus outsourcing. Developing the right service delivery models within corporate real estate and facilities management and selecting the right people are the critical elements in optimizing corporate real estate's value contribution.

Performance Measures Are Key
Financial goals for a merger or acquisition typically include cost reduction, cash generation, asset redeployment, earnings per share increase, and improving return on assets. Entering into sale/lease-backs, synthetic leases, and other sophisticated financial structures can satisfy these goals. Initial corporate concerns regarding loss of control over assets can be alleviated once it is understood that there a number of structures that can provide control levels similar to ownership. Clearly, this topic needs to be evaluated as a key part of developing a holistic corporate real estate strategy.

Executives involved in a merger or acquisition typically have a positive subjective evaluation of the transaction's results, even though objective measures such as shareholder value are less favorable. This bias points out the need for performance measurement in determining the success of the transaction, both in the short and the long term.

Similarly, corporate real estate departments need to take another look at their performance metrics during the merger integration process to determine their ability to improve linkage and responsiveness to business units, achieve overall corporate goals and provide a basis to support continuous learning. As the pace of mergers and acquisitions is likely to continue at a high-level for the foreseeable future, corporations and their real estate departments must learn from their experiences in preparation for the next transaction. SS

Tom Wenkstern is director of Global Consulting at Jones Lang LaSalle.
Working from Dallas, he co-leads the firm's Mergers and Acquisitions specialty.