How Corporate Real Estate Can Boost Your Company’s Share Price

March 25, 2010

“Second behind labor, facilities investments and operational costs represent more than 30% of corporate annual spending, offering a huge opportunity to reduce total costs through small percentage improvements.” (Source: Gartner 2009)

Ok, as the CRE professional, you’ve been given the “keys to the company car” by being tasked to manage your company’s real estate portfolio.

You want to be a hero, right? You want to move your company’s share price in the right direction and win wide acclaim from senior management, right? You may be able to do it by:

  •  Centralizing the real estate and facility management function – Centralizing can produce savings of 25-50 cents/SF and lead to greater management efficiency…not to mention expanding your personal empire.
  • Harnessing data across the enterprise of occupancy costs down to the invoice level – Through the evolving technologies of “cloud computing,” leveraging information held within your ERP, IWMS and other silo-ed systems, you can analyze portfolio financial performance and implement cost saving initiatives.
  • Creating appealing work environments and alternative workplace solutions – Boosting employee retention (the cost of losing an employee is often 50% of their salary) by designing appealing space and having employees work remotely makes them happier and more productive.
  • Shorten the cycle of integrating acquisitions – Quickly cataloging the newly combined portfolio allows you to dispose of non-core or redundant assets…”the most cost effective building in the portfolio is the one you don’t have because you no longer own it.”

No single initiative is going to have a measurable impact but as part of an overall strategy they can be “mind numbingly” positive. Consider this:

  • Company A has a portfolio of 50,000,000 SF
  • Their calculated occupancy costs are $125/SF (rent/taxes, fit-out, maintenance/energy, reception/mail room, and property management)
  • They set a realistic goal to reduce costs by 5% ($6.25/SF)
  • They implement a strategy that has a projected annual net savings of $312,500,000

So, if a realistic reduction of 5% can generate $312.5M in savings, do you think it would get the CEO’s or CFO’s attention? How much would this positively impact your company’s earnings per share?

The answers are “yes” and “a lot.” And, it just might get you a ‘nicer office’…oh, that’s right, a ‘bigger bonus’ because you now work from home.

What are your suggestions for ways corporate real estate can impact EPS?


“Jump in, the water is fine: 3 CRE Case Studies in Moving Portfolios toward Sustainability”

March 18, 2010

The “greening of America” has been coming on for the past five years and reaching a fevered pitch as evidence with just about every corporate and consumer product and service marketing message that includes some reference to “green or eco-friendly.”

But, now the results are pouring in that adopting a “going green” strategy for corporate real estate is generating financial rewards that make it a good business strategy and not just good for the environment. The following are 3 examples of how companies have adopted strategies that reduce occupancy costs and move their portfolio closer to sustainability.

Earthlink

The CRE team established 3 primary goals for the proj­ect: create an empowering and inspiring work­place by embracing green design principles; educate employees on sustainability and encourage their awareness of the environment; and, deliver a highly flexible and functional space to accommodate fluctuations in occupancy and department size.

The project cut overall energy use by re-using existing HVAC systems and supple­menting them with a digital climate control system. Energy efficient lighting programs were employed including high-efficiency light fixtures, skylights, day lighting controls, individual task lighting and Energy Star appliances. Materials and finishes including floor cover­ings, ceiling tiles and millwork were selected based on renewable materials and recycled content. Exist­ing furnishings were re-used where possible, and new furnishings met strict standards of post-consumer recycled content.

These initiatives resulted in: reducing water usage by 40% through the installation of ultra low-flow water and waterless fixtures; recycling over 30,000 pounds of ceiling tiles; 82% of construction debris was diverted from the landfill; to maximize indoor air quality, paints, surface coatings, adhesives, sealants and carpet sys­tems used during construction produced low or no VOC emissions. Source: Wirt Design Group.

Toyota

Toyota is seen as a leader in both car manufacturing, the green building industry and had developed an Earth Charter in 1992 outlining its policies on environmental attitudes and actions. The Charter is supported by a number of five year Environmental Action Plans that provide specific environmental goals and targets. The ‘Process Green’ initiative, developed by its CRE and Facilities Department, requires the development of an environmental strategy before any new facilities project is undertaken. The 3 principles of ‘Process Green’ are: procure and use resources in the most environmentally intelligent, cost-effective and reliable manner possible; participate in public, private, and professional organizations to share knowledge and accomplishments; and, pay it forward to affect a similar shift in the organization and culture of the business partners.

These 3 principles were used in the design and construction of its Portland Vehicle Distribution Center in the USA, which reduced energy consumption by 33% and water consumption by 75% in comparison with a conventional building and resulted in a gold LEED rating. Source: RICS “Sustainability and Corporate Real Estate.”

PNC Financial Services Group

PNC has become a leader in the move to sustainability by promoting the positive economic benefits and productivity impact of Green (Sustainable) Buildings and why building green makes sense for corporate America.  One prominent example is the construction of PNC’s Firstside Center, one of the largest certified green buildings in the world, and the collaborated efforts to obtain a LEEDTM Silver Certification.

PNC adopted a green building policy and has developed a new bank branch prototype that follows LEEDTM building standards.  PNC has built the first LEEDTM certified building in the state of Delaware and the first green bank branch in Pennsylvania, New Jersey and Ohio.  PNC currently has the most certified green buildings of any corporation in the United States and is the first company to qualify under the USGBC volume build program.  PNC also has the largest corporate LEEDTM certified green building in the world and recently completed the construction of a 780,000 SF mixed used project in downtown Pittsburgh including office space, hotel, condominiums and parking garage that will be LEEDTM certified.  The Fairmont Hotel, scheduled to open at the end of March will be the country’s first major flag Green Hotel. Source: Presentation by PNC’s Gary Saulson, Director of Corporate Real Estate.

These are just 3 of many examples of how companies are implementing corporate real estate sustainability strategies that have achieved a dramatic financial impact.

How about you? As a CRE professional, have you implemented strategies that have yielded results you’d like to share?

And, if haven’t, what are you waiting for? “Jump in, the water is fine.”


The three legs of a corporate real estate strategy stool

March 11, 2010

To develop an effective corporate real estate strategy there are many approaches a company’s internal team and their consultant may consider. The following highlight two I believe offer the best chances for success.

The first one is for organizations to go through a process that starts with their current state (“where you are today”) and moves toward their desired future state (“where you want to be tomorrow”) by implementing critical success factors or strategic initiatives, monitoring the key performance indicators to know you’re making process and anticipate how you will overcome the barriers to success.

The current state/future state approach factors the people, process and technology. Critical to this or any approach is to inventory your portfolio, establish a benchmark of occupancy costs/square foot, percentage of space utilization and an environmental sustainability assessment. Using these as starting points will allow you to develop targets that will have positive impacts on portfolio performance that directly relate to earnings per share and bottom line benefits to the company.

I believe a more effective approach is articulating the “three legs of a corporate real estate strategy stool” of “THINK, BUILD, and OPERATE.” The THINKing is the initial step of “planning the possible.” The BUILD requires a little more finesse of working with you internal team and external consultant to develop the strategic initiatives unique to your organization. And, the OPERATE can be most the challenging as it’s the implementation phase. The keys are to identify the sources of reliable information across the enterprise of the true costs of occupancy, actual occupancy and a meaningful determination of environmental compliance.

Susan Kerr, President of Advancing Inspiration, LLC  believes, “THINK is important for the vision, the planning, the dream. Without it you go nowhere fast. BUILD is the piece that makes sure you have your talent, ops, finances, services, products—all of IT in order. OPERATE is every day. One is not more important than the other, rather they are each an important leg on the stool. Without one you fall (and fail).”

“An indispensable factor of any real estate portfolio strategy is feedback to roll the wheel while strengthening the structure” says Seung Jun Shin Asset Manager at Grand Supercenter Inc. who believes, “there isn’t any way to assume the importance of one component over another.”

“Without the governance or glue to hold those three legs together, the stool might still wobble. The conviction to make decisions and decide whether to “go/no go” between each stage is the key, and that skill set and how that process works will strenghten or weaken any of the three legs.” says Robert Newlin of Treborn LLC.

What do you think? Which of these approaches to developing a real estate strategy is the most effective? Are there others you might suggest?


How Do You Get Your “Seat at the Table”?

March 4, 2010

In many corporate organizations, the real estate and facilities department is counted on to provide office, manufacturing, distribution, ,R&D, labs, retail and other space types to support their organization’s operational needs. The facilities need to be clean, appealing to the employees and project the appropriate image of the company.

The truth is the real estate portfolio of owned and leased assets sit on the balance sheet as the second or third most valuable or expensive single asset depending on whether they’re leased or owned. This places the real estate and facilities department in the envious position of managing a critical asset and one that can truly impact, positively and negatively, the financial performance of their organization.

Because of this simple truth, the CRE professional deserves a very prominent seat at the table  charting major decisions involving the financial and future direction of the company. By operating the portfolio in the most efficient manner possible, at the lowest of realistic total cost of occupancy and minimal environmentally impact, the CRE can have more profound impact on the overall organization than just about every other department.

It’s time you get your “seat at the table.” But, when you get there you better bring along solid actionable business intelligence about occupancy costs, space utilization/optimization, facility benchmarks, environmental impact and financial terms which may allow for dispositions or aquisitions to grow or contract in support of the direction of the company.

Go ahead, ask for your seat at the table! you deserve it!!!