Question and Insight: Laying Tracks for Real Estate Change, Site Selection Magazine, March 2003

harles McSwain is a master,” CSX Real Estate President Stephen Crosby has said.

       
But McSwain, a vice president at both CSX Real Property and CSX Realty Development LLC, deflects praise to others on his team such as colleagues Crosby and Randy Evans, CSX Transportation vice president of real estate and industrial development.

       
Nonetheless, McSwain has developed a strong reput ation for problem-solving that has prompted numerous honors, including serving as treasurer of the Industrial Asset Management Council (IAMC) and winning a 2002 Site Selection Corporate Real Estate Leadership Award.

       
CSX has taken the lead in the development of integrated logistics centers and other projects that seem at least as devoted to collaboration with external parties as McSwain’s team is devoted to internal teamwork. In January, the company’s chemical and bulk terminal operating unit TRANSFLO launched a cooperative effort with Union Pacific. In December, that unit’s METALNET service opened its newest multi-modal metals warehouse, pursued in partnership with Pittsburgh’s oldest trucking company, PVO Express.

       
During IAMC’s Atlanta board meeting, we chatted with McSwain about leadership

       
Site Selection: How does corporate real estate’s (CRE) proactive role compare to the early 1990s, when you first moved into that unit?

       
Charles McSwain: CRE was sometimes seen as the enemy then, selling the railroad’s birthright for quick cash. When business units needed land, they occasionally turned around and it was sold. There was huge conflict and not much communication.

       
Operating real estate was frequently handled unit by unit, and CSX was very silo-driven, with lots of competition between silos. Non-operating real estate was handled by the professional CRE team.

       
SS: How did you react to that?

       
McSwain: I saw a huge gap between what could be and what was, with the silos and not the real estate planning I expected, having come from the real estate development business.

       
So I approached real estate’s then-president and said, “The unit’s only goal seems to be to liquidate assets, to sell properties. We could serve shareholders much better if we became a full-service organization responsive to units as customers. Do you mind if I try?”

       
So I built my current position around that idea. We did some successful demonstration projects, got noticed at the CFO level, and it rolled out from there. My role is as an advisor, a consultant available to fix any senior manager’s problematic issue.

       
SS: How does the current CRE setup compare?

       
McSwain: We still have a strong surplus land sales organization, headed by my associate, Rick Hood. And we still manage our vast land portfolio, a major activity headed by another associate, Rick Sibley.

       
But we also now have a very strong teaming effort with all business units. For example, I created the joint task force, a quarterly meeting for all business units. They all put their needs in a common hopper, so we work in a coordinated way. By cooperating, we made better use of capital budget, and projects go up to the capital committee with multiple unit support, helping them make better sense of optimizing capital. The real estate team has become both a facilitator and driver of value.

       
SS: Any recent examples of that coordination?

       
McSwain: We closed recently on a 100-acre [40-hectare] property that another business unit initially requested. The first purchase contract was made in 1999. When that unit turned its interest to another site, we got the Joint Task Force to support real estate’s property option for three years as a strategic play.

       
Last year, another business unit said, “That could be a solution for us.” In the end, real estate provided strategic value to the franchise and avoided traditional last-minute property-buying problems, which tend to raise costs. So we’re strategically involved in putting together some of the right properties as a business-unit resource.

IT’S A TEAM THING: Charles McSwain says that the CSX real estate team “has become both a facilitator and driver of value.” Key to that team are Steve Crosby (center), president of CSX Real Estate, and Randy Evans (r.), vice president of CSX Real Estate and Industrial Development.

       
SS: One CRE change is more leasing. Why?

       
McSwain: We try to remain as agile as possible, with a constant eye toward shareholder value. We brought up questions such as, “Why do we build and own space when we’re short on cash and can get a build-to-suit with an option to buy at the end?” We work very closely with the financial managers.

       
We’ve brought all companies’ lease-to-company deals together and also established a lease administration database for monitoring lease costs, which had been lost in unit accounting. Before that, we had a field team actually lease a hotel room for offices for three years, putting the cost on expense reports!

       
Our Business Unit Services team has been able to reduce operating lease costs 20 percent in the past two years for a portfolio of $45 million in annual rent, $10 million of which is actual office property used by operations staff.

       
SS: How do integrated logistics centers (ILCs), which you discussed at the IAMC Forum in Savannah last October, figure in CSX’s future?

       
McSwain: We can’t grow our business as fast as we’d like simply dragging boxcars from one rail door to another. We have to start becoming the big pipeline in the middle and get truck-conversion traffic.

       
Around 85 percent of the cost of moving goods isn’t real estate — it’s transport-service costs. The more we cut shippers’ costs for good service, the more we compete with truck-to-truck moves. The key to truck service from the rail is freight density.

       
So the real estate play is to help locate as much density as you can around those ILCs. We’re looking at a couple of pilot projects, buying 500-to-1,000-acre [200-to-400-hectare] sites for new terminals and building parks around them for our customers.

       
We discovered this trend with the Fairburn, Ga., CSX Intermodal terminal. We started getting companies with large distribution requirements saying, “Hey, can we move in next door?” By being at the terminal, the shipper cuts the costs of trucking to the terminal.

       
SS: Is CSX’s CRE bar getting even higher?

       
McSwain: Yes. The company continues to right-size, with not much outsourcing. And my boss, Steve Crosby, and I have promoted the idea that it’s OK to remain proactive. So the bar’s been raised, but I think we’re up to the challenge.