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hen is the last time you quantified your company’s entire real estate portfolio and its performance? If you haven’t done that in the past 12 months, then more than likely you are throwing money away.
That was the conclusion of Ronald P. Zappile, one of 15 presenters at a recent Corporate Real Estate Leadership Roundtable in Atlanta organized and hosted by Andrew S. Goldstrom, managing partner of the Southeast Region for United Systems Integrators (USI). Zappile, president of United Technologies Realty Inc. (UTR), told some 70 attendees at the Ritz-Carlton in Buckhead that portfolio optimization occurs only when the company’s real estate group asks the right questions.
“You get what you measure,” said Zappile, who was charged with the task of eliminating $50 million in costs over three years from a global portfolio of 100 million sq. ft. (9.3 million sq. m.) in 5,000 different locations.
“Our goal is to reduce the overall cost of real estate for United Technologies,” Zappile said. “Since launching Project Intrinsic Value, we have identified $46 million in cost savings over a two-year period.”
It wasn’t easy, admitted Zappile. The project began with a thorough accounting of every square foot of space owned and managed by UTR. In order to extract the “hidden value” of the UTR portfolio, Zappile and his staff had to conduct site visits to verify their real estate data’s integrity. In the Hartford-Farmington area of Connecticut alone, the company had 16 plant locations that required site visits.
Project Intrinsic Value revealed that in North America alone UTR owned or leased a total of 64.5 million sq. ft. (6 million sq. m.) of space. Some 359 transactions later, the company had reduced its total inventory by 6.9 million sq. ft. (641,000 sq. m.) and achieved $45.9 million in cost savings.
“Our overall target was essentially achieved one year early,” said Zappile. “On top of that, we identified another $6.6 million in real estate cost avoidance in 2002.”
Zappile also presided over a department that changed from a decentralized, in-sourced management of real estate to a centralized and outsourced model. UTR partnered with service provider USI, also based in Connecticut, to identify and extract the cost savings.
Zappile wasn’t the only presenter at the USI forum to challenge the audience – which included corporate real estate executives from such firms as Sherwin-Williams, United Parcel Service, Delta Air Lines, Cingular Wireless, Manpower International, Earthlink, Clear Channel, Sprint and Turner Broadcasting – to measure and analyze.
Scott Tibbo, director of real estate services for Boston-area advisory firm Expense Management Solutions, and Roy Dohner, CEO of California-based consulting firm GAINS, both emphasized the need to measure performance continuously. When you measure real estate performance, Tibbo said, you should do five things:
• Define and document the detailed scope of work.
• Formally identify responsibilities.
• Delineate service-level expectations.
• Clearly define limits and boundaries.
• Articulate all the rules.
More importantly, Tibbo noted, there are six critical success factors to effective performance measurement.
“Measure the right actions and results,” he said. “Ensure objectives are tightly linked, top to bottom. Obtain buy-in from all parties involved. Consider linking compensation to performance. Implement the program consistently. And make sure your measurement system is both flexible and scalable.”
Dohner stressed the need to place real estate results in proper context in terms of history, competition and industry.
“Metrics can establish the relationship between cost reduction and productivity improvement,” he said. “Published metrics reinforce the business unit’s link to real estate.”
Dohner advocates that corporate real estate executives adopt at least the following two metrics: total cost of real estate as a percentage of gross revenue, and total real estate cost per head count.
“What we often forget is that common metrics make sense for all of us,” noted Dohner. “The hardest thing to do is to change someone else, but that’s what we must do if we are going to be appreciated in our jobs. The reality right now is that corporate real estate is under-appreciated, and it’s our own fault.”
Effective, consistent measurement and reporting of true real estate performance can go a long way toward changing that perception, he said.
Other presenters throughout the all-day forum covered topics such as “Corporate Real Estate Integration and Sourcing Trends,” “Workplace Churn Cost Reduction Strategies” and “Process Improvement Through Technology.” Several recurring themes emerged:
• Corporate real estate departments at many large companies typically are being cut in half as more real estate management is outsourced.
• The pressure to reduce cycle time on projects is immense. At a company called Interface, the targeted efficiency rate is to improve project delivery time by 33 percent.
• Facility costs are rising, as companies get stuck with larger amounts of vacant space, rising utility costs and rapidly expanding health-care costs.
• Project planning is suffering from a lack of oversight. Last year, for example, 80 percent of all corporate build-to-suit projects were completed over budget.
• Worker turnover and movement are big challenges, evidenced in part by the average suburban office churn rate now topping 38 percent per year as new adjacencies and consolidations occur.
The consensus of the roundtable was that real estate management reform would begin only when high-level decision-makers take charge of the process. Thus, corporate real estate executives were challenged to secure high-level sponsorship of their cost-reduction programs; implement automated lease administration programs; align their real estate strategies with their corporate strategies; and measure everything.
“If you can’t measure it, you can’t manage it,” said Steve Quint of RBC Dain Rauscher, a U.S. subsidiary of the Royal Bank of Canada based in Minneapolis, Minn.
Quint should know. His job when he was hired two years ago was to rebuild the corporate real estate department. Today, he said, his firm’s parent company is recognized as “the best company in Canada.”
