What good are tools if there's no craftsmanship?
If our long-running Technology InSITE series has taught us anything, it's that tech products for sound corporate real estate management and decision-making are only as good as the people who create, wield and improve them. It's something they've been doing for decades now, refining and revising as they go, and constantly changing how you see and use data on your screen.
But screen is also a verb, as in monitoring what's going on, and separating the useful from the useless.
So this summer we checked in with two top tenant representation firms about technology solutions — whether off-the-shelf, homegrown or hybrid — and the people and projects putting those tools to the test.
International commercial real estate firm Studley has needed to use its own portfolio planning tools lately, as the firm has opened offices in Raleigh, N.C., and Shanghai, China.
Thomas W. Bogle, executive vice president and head of the company's Strategic Portfolio Solutions Group, knows whereof he speaks when it comes to technology, having pioneered development of Web-based tools for a number of major global service providers over his 20-plus years in the field. He and his Los Angeles based partner Craig Hendrickson, who joined Studley as executive managing director of Strategic Portfolio Solutions last December, recently shared their perspectives on the evolution of technology and corporate real estate practice today.
For tenant rep firms, the off-the-shelf products haven't changed all that much, says Hendrickson. "It's a lot of the same players, and even though a lot is going on behind the scenes, the basic functionality of the tools has remained pretty constant. There are new releases and what-not, but surprisingly, in my 25 years in corporate real estate, it's been a slow build."
"All of us thought 10 or 15 years ago we'd reach a point in the industry where there would be more sophistication than what's developed," says Bogle. "The irony is that large users and owners of real estate have tremendous volumes of operating and financial data, and for the most part are not using it effectively and efficiently to convert that into knowledge" that would enable predictive analysis.
"It's not as though the technology doesn't exist," Bogle says. "It probably does. What doesn't exist is an off-the-shelf or highly customizable piece of software where you can load it up, answer these 20 questions, and it will spit out the information. I think the industry has been slow to develop sophistication in this area. Most observers would say it's very difficult if not impossible to find solutions that can track transactions, projects, lease and facility information in one place. So you have to move to a best-of-breed [solution], assembling, and then layering and branding it, when the reality behind that brand is these point solutions."
In fact, he says, amid all the rebranding and amalgamation of off-the-shelf systems, "there is some deception afoot. Clients that are looking for this need to enter into it with their eyes wide open. Make sure the people selling it really understand what the definition is of ‘proprietary technology.' We just heard of a client who chose a provider because of that, and we know for a fact that there is no proprietary technology there."
Finding the Facts
Bogle describes his industry as an aggregation of project management, lease administration and accounting, transaction and document management and a whole other set of criteria and protocols. Part of the struggle, he says, is "how to drive to points A, B and C simultaneously with one car. With a car it's a physics issue. In our world it's a technology issue."
He says one global client with multiple providers across the world doesn't believe that one provider can meet all its needs in project management and other areas, so it's chosen to take one area, transaction management, and harmonize the process so there is consistent reporting from territories as diverse as China, India, Brazil, Malaysia, California, North Dakota, Panama, Sweden and Japan.
Studley is working with the client using an off-the-shelf software, but writing custom protocols and processes around how to use the report to predict what's going on in the future. Usually the technology is used "to report on activities that just happened," he says. "It's not being used to solve problems, for the most part."
Bogle says the big providers such as SAP and Peoplesoft have told inquiring minds that the market is just not big enough to develop a highly sophisticated and complex end-to-end solution. Virtually all companies that seek to sell such solutions will say they can do that. "But talk to the users," he says, "and they have serious questions about whether they do everything they're purported to do."
That said, service providers are differentiating themselves now with data analytics, owing to rapid advancement of data manipulation and visualization tools, says Hendrickson. Studley is doing a lot with specialized tools using such methods as regression analysis and Monte Carlo simulations to do forecasting.
Bogle says there are more of what one client called "people who think for a living" in the industry than there were 20 years ago.
"Firms want to buy intellectual expertise," he says. "They never build a project, pay a bill or administer a lease, but they help clients think through complex problems. And in order to do that, you have to have access to all of this data we're talking about."
In some places in the world, despite more transparency and more technological penetration, that data is still hard to come by. "My experience is that it tracks the sophistication of the culture you're working in," says Bogle. He says Africa lacks much sophistication save for South Africa. "You can obviously get your hands on what you need in North America. Western Europe is better than Eastern Europe. Singapore is very westernized. Vietnam is an emerging culture. Brazil is more sophisticated than Colombia. I've heard a lot of complaints about working in China — for Western-based firms, it's different."
"It's a big issue," adds Hendrickson. "Lack of transparency freaks everybody out. Africa is emerging, but it's hard to keep up with what multinational real estate managers are used to seeing in terms of transparency."
"I think a lot of corporate real estate people are troubled by what they don't know," says Bogle. "We're working with a client with a project in Eastern Europe. They have a global provider that's failed to deliver for them in this local market. They don't know who to call. We're using some contacts with the US State Department to find out who some reputable providers are. Firms face those challenges very day. [Service provider] firms say, ‘We have an office,' but they're brokerage. ‘I need to build out 3,000 square meters. Who do I call?' ‘Well, I don't do that.' "
Can You See It Yet?
Sometimes, the same opacity that applies to the third world can also be found in the Fortune 500. Bogle and Hendrickson say despite the omnipresence of tools that can shed light on what they're up to, firms still meander in the dark.
"We talk to companies every week spending $50 million, $75 million or $100 million in real estate but can't tell you how many square feet they have," says Bogle. "I talked to a client last week, 100 years old, with locations across the US, and they do not know how many square feet they have, or what they spend on real estate. How can that be? In their view, it's all built into the cost of the business units. A lot of companies have a similar story to tell. Costs are buried in the manufacturing of a product, or a service, or the P&L statement of a region."
Hundreds of companies in the past 15 years have used those tech tools to ascertain their footprints and start operating more efficiently and save money, he says, "but there are a lot of companies that haven't. Remember: Real estate is not just one function. Ask what they spent with Herman Miller, or what they spent on taxes, or on energy and utilities, and they could get close. But very few companies have a reason to add all that up, unless they're on a major efficiency push."
Where do you go to push that efficiency?
"If you're dealing with a company that doesn't know where their properties are, one of the best places to go is the internal risk manager — they have a list, because they insure all those places. How many people? Don't go to HR. You go to IT, and ask how many people have computers, laptops and phones. It's not that they're doing anything dishonest, but it's opaque. It's hidden behind what their core business is."
All About the Process
Cresa decided 20 years ago to rep only tenants, and that decision roughly coincided with the advent of Internet-based corporate real estate and lease administration tools. Cresa's more than 800 professionals now serve those tenants from 58 offices, and extend their reach internationally through a partnership with UK-based Savills. Among their specialties is software-neutral, real-time lease administration. And among the Cresa pros is Jeffrey A. Tosello, managing principal of lease administration, who got his own start in the business in 1989 in Chicago, and rapidly put to use his growing expertise in business process engineering.
"We know all the players very well, and have been the testing ground in many cases," he says of the range of software products out there, recalling the days of amber screens with boot disks and FoxPro databases. All such products continually are issuing new updated versions to meet or get out in front of client expectations. But for people in the trenches, says Tosello, what color the data point is or where it appears on a dashboard is still peripheral and secondary. The fundamental questions, even 20 years into Internet-driven data management, are still the same:
"Is this in fact all of our locations? Are these the proper data points? When you run metrics, are you pulling the right data?" asks Tosello. "It's process, not software. The software looks a lot cooler, and enables some things, but I don't know if it's remarkably different from what it was 10 years ago. From a tactical perspective, the challenges companies face are the same that existed back in the day.
"People don't want to change their process," he says. "For some unknown reason, they don't want to let go, and decentralization is still a challenge. Software can make a lot of those things easier," especially deployment today via cloud-based technology. Upcoming accounting rules changes from FASB will provide a prime testing ground for orchestrating data flow, he says. "It's going to be procedural. Once the data is there, all the software companies are ready to do the calculations."
Light of Day
Those databases used to be a Trojan horse for expiration dates, says Tosello.
"As a broker, that was the land of milk and honey. In some cases, if it was pretty, you locked up their stuff. I think corporate real estate departments wised up to that, and are looking for products that are portable." He doubts products with the look and feel of an Excel spreadsheet or an Oracle or SAP approach are going to go away. "They'll keep playing leapfrog," says Tosello, who thinks companies like Cresa which focus on lease administration as a separate discipline will do well because of an orientation toward working on the process, whatever the tools may be.
Tosello describes how, in the late 1990s, IBM downsized, and he figured his team could manage IBM's subleases. He flipped around an old DOS-based system to use as a lease admin system. There weren't any yet. But there needed to be.
"When I realized a company like IBM had a major disconnect between real estate and accounting, I started cold-calling Sprint and Exxon and Sears and landing them as customers," he says. "I started a company called Portfolio Solutions, solely focused on lease administration, and 'people first' was our mantra. You have to start with an orientation to want to do the work. We had paralegals, attorneys and CPAs on staff; I joined up with Cresa in 2002."
For Cresa it was a revenue source, not a loss leader. The unit was established with the same "people first" mentality, and now has grown through joining forces with Savills. "We've now gone from two people to plus or minus 80 people," says Tosello.
Along the way, the importance of real estate admin and the people behind it has found the light of day, even if all the leases still haven't.
"We've seen some of the same companies buy different software, and every time it gets poorly implemented they blame the software," observes Tosello. "It is the people. 'Maybe I shouldn't have my broker give me this for free.' Who's actually doing that work matters. I think the industry is catching up [to the idea that] this is a discipline in and of itself. In those days, a lot of real estate departments did not have C-suite visibility, and the CEO would say, 'I thought you were doing that already.' Now, with Sarbanes-Oxley, they see that the second or third cost leader is real estate and you'd better pay attention to it. There's procurement, but the cost of real estate sometimes gets very little focus. Scoop it all into a pile and it's a huge number. We're always able to save money by getting all that real estate put together. You can't do capital market plays or strategic planning until you get a database put together."
Tosello says one challenge is getting the language the same across a company's locations.
"The vernacular is wildly different from office to office," he explains. "What do you charge for a lease abstract or audit? Let's define. I could be pulling 300 fields of data, and somebody overseas might be getting just name rank and serial number. If they're $100 and I'm $300, is it because I'm expensive, or do we define things differently?"
Miles to Go
Defining lease administration itself is a start.
"Lease administration is everything between the ribbon cutting and decommissioning the site that nobody else wants to do," says Tosello. "Some define it with correspondence. It's an umbrella over many things, depending on where the rain is coming down."
And the amazing part is that companies still don't have their fingers on the pulse.
"I started the business when I was 25," says the 46-year-old Tosello. "When I was 30 I went to grad school because I thought I'd run out of companies. I still find publicly traded companies now managing with a spreadsheet that I've never heard of. It's 75 locations, catch as catch can, with a secretary managing. The small locations are the ones that will kill you. If it's transaction-minded people dealing with it, where do they make money? They make it at the tip of the iceberg, not at the bottom. But the 50 leases at the bottom of the iceberg can sink the ship. Nobody wants to deal with 1,500 square feet in Akron — everybody wants to be at the ribbon cutting. And somebody's P&L gets eroded by locations where they're overpaying.
"Most of the audit firms will chase after the 30,000 to 50,000 square feet," he continues. "We've found cases where for five years a company's paying for utilities when the lease says the landlord pays for the utilities. In a big portfolio all you need is a few of those and it's horrifying. The software will manage it, but it's the people who go, 'Wait a minute, I see that invoice and it doesn't make sense to me.' "
Tosello says one client "went with every real estate company there is, had five different software packages, and then decided to go with us." And he still is shocked to run across big-portfolio companies he's never heard of.
"How could they possibly have 700 locations and I don't know who they are?" he says. "There are small parts companies warehousing all over the country."
And there are plenty outside the country. Tosello's operation started adding international to the mix about a decade ago, driven by a lot of work in the Bay Area for high-tech companies.
"We translate the lease, plug it into same system, and it allows them to stay out in front of the expirations," he says. But there are differences.
"US corporate manages one way, intentionally forecasting the rent roll ahead of time. Overseas, they are finding out about the payments after they've been made. Wherever your footprint is globally, we have the resources to translate the lease or put boots on the ground in the country, gather the information and get the corporate real estate out in front. Now, with the Savills connection, we're getting some inbound requirements from an international-based group looking to deploy a US-based real estate solution. It's taught me that outside the US people don't look at centralization in the same way. Each country does their own thing."
And while numerals may be universal, lease language is not.
"I don't read Chinese," explains Tosello. "If I get an invoice in a language I don't understand, short of having a translator, it's difficult. Value begins to drop off - you're kind of taking a guess."
Then there are challenges such as finding comparables in markets which have neither a CoStar Group (for supplying comprehensive address-based data) nor tenant reps.
"You need boots on the ground," says Tosello. "But when a company has 200 locations, with 50 in the US and two to three in each other country, how do you aggregate that? And you have to have a bank account in the country where the rent is being paid."
When scanning technology came out, many thought word recognition could just grab everything, but the possibility still existed that a "3" might be read as an "8." So it's still better left to human beings, says Tosello. Similarly, one might use Google Translate to convert all leases into English. But try translating that result into French, and something (probably multiple somethings) gets lost in translation.
"Until that technology is reasonably perfect, it's going to be hard to trust," says Tosello, neatly summarizing corporate real estate technology's raison d'etre and job security proposition all at once. "We're working on it."