Corporate Real Estate and Environment Responsibility – Image, Reality and Transparency

September 21, 2010

The following post was written by Barry F. Hersh. Mr. Hersh is a Clinical Associate Professor at the New York University, Schack Institute of Real Estate where he teaches graduate courses and conducts research related to environmental aspects of real estate. He has over thirty years experience as a real estate executive (with Reynolds Aluminum), developer, and public planning official. NOTE: Mr. Hersh and Larry Simpson (CRE3 Forum Publisher) have formed collaboration to Co-Author a book entitled, “The Convergence in Corporate Real Estate” to be published later this year.

Corporate real estate executives have pretty much figured that most companies want to be, or at least perceived to be, “green”.  Adopting environmental mission statements, hiring sustainability directors, corporations have joined the green tsunami. Over a longer period there has been a regulatory drive for more disclosure of environmental liability. What this means for corporate strategy and profitability is becoming clear in several specific arenas directly relevant to corporate real estate.

The first thought may be of the dramatic growth of “green buildings”, with many international corporations adopting policies calling for their own spaces, leaseholds or ownership, to meet LEED (Leadership in Energy and Environmental Design – US Green Building Council) or EnergyStar (US EPA and DOE) or comparable international standards such as Green Globe.  Corporations from Google to Hearst have built green headquarters, and some companies have green requirements for all their facilities.

There have a slew of studies asking if going green pays, most focusing on US office buildings and using CoStar data (Eichholtz, Kok and Quigley, 2006 and updated in 2010, Miller and Spivey, 2008, Muldavin, 2009).  The results have been varied – but consistently positive, showing stronger lease rates, occupancy and value for certified green buildings – even during the recent downturn.  One note is that the most hard-nosed observers, from both the environmental and real estate perspective, focus on energy costs as having the most measurable impact on the bottom line – and on green house gas emissions. The somewhat softer analyses relating to tenant satisfaction, employee attendance, health and performance; as well as aesthetics, image and marketing, have greater potential but are harder to demonstrate.

As dramatic as the shift to green buildings has been, perhaps the more financially significant change for companies with manufacturing or other non-office operations has been the shift in dealing with contamination and reporting requirements.  BP showed the world one cannot be “green” and a polluter.

Regulators are strongly pushing corporations to report their environmental performance and liabilities. Sarbanes-Oxley disclosure requirements included revealing potential environmental liabilities from contaminated properties as well as other environmental risks.  While some consultants foresaw, and probably wished for, a dramatic change in corporate policy, the results have been more gradual.  In particular corporations have not rushed to dispose of contaminated site, but rather focused on identifying the problems, containing the risk, and selling properties into strong markets when secure that the environmental risk is limited. 

Recent FASB regulatory proposals for greater potential disclosure of loss contingencies may further impact corporate real estate practice, and litigation. In a recent letter to the Wall Street Journal responding to an editorial FASB’s Lawyer Bonanza”  FASB’s Chairman Bob Herz defends FASB’s proposed disclosures for loss contingencies, saying “new disclosures are aimed at providing information earlier to existing and potential investors in order to give them a greater understanding of the risks companies are facing,” and pointing out that, “the proposal allows companies to aggregate claim amounts, so that the plaintiffs attorneys would not be able to identify specific cases.” 

GE has been an illuminating example.  During the Welch era, GE developed a well-deserved reputation as recalcitrant. One former EPA official said, “Show most companies the edge of the cliff, and they will comply. With GE, you had to push them over the cliff and when they are a foot from hitting with a thud, they’ll start to reluctantly negotiate”.  One specific Welch dictum was that GE would not sell contaminated property, even to redevelopers who specialized in remediation – a strategy aimed at minimizing environmental litigation.  Well. GE is now the home of “ecoimagination”, realizing that many of its products, from light bulbs to turbines for windmills, sell in the green market.  GE is, perhaps still reluctantly, proceeding with a half billion dollar PCB cleanup of the Hudson River.  GE Capital has a humongous real estate portfolio of primarily apartment buildings, both mortgages and ownership, and is working to improve energy efficiency, led by a sustainability director – one of several former EPA experts and attorneys now working for GE.    

Perhaps the quietest revolution has been in the operational side of corporations. In a new Wal-Mart if you leave the big refrigerated room door open for a few minutes, you get an e-mail from HQ reminding you to close the door.  Every aspect of the supply chain: shipping, use of natural resources, transportation costs, energy consumption, packaging, and more are impacted by need to be more efficient.   This affects an entire range of corporate real estate decisions related to site selection, design and management of manufacturing, distribution and retail facilities.

The main point for corporate real estate executive is that environmental responsibility is all of the above – and more.  Creating a green, high performance company is analogous to designing a green, high performance building. Green wash can’t just be added at the end; sustainability has to be part of every step, especially the initial steps.  So the corporate real estate strategy, from site selection to lease negotiation, has to incorporate the company’s goals. Also, just as with building design, measuring performance is vital to going green.  Location productivity measurements will include employee satisfaction, health and attendance, as well as energy costs. Real estate decisions now have a new dimension, the impact upon energy use, and the environment.


CRE3 to Provide Corporate Real Estate Benchmarking White Paper

September 13, 2010

Would you like to know how your peers manage their corporate real estate assets?

Now may be your chance…CRE3 Consulting is undertaking a benchmarking survey that will collect information from corporate real estate executives about:

  • Total Cost of Occupancy/FTE and the Top Occupancy Cost Categories
  • How information systems are being used to support CRE Strategy
  • Preparation for the changes to the lease accounting standards
  • Top five data requests coming from senior management
  • Initiatives to move their portfolio toward sustainability
  • And much more

According to Stage-Gate International, “benchmarking encourages a company to become open to new methods, ideas, processes, and practices to improve effectiveness, efficiency and performance.”

Results from CRE3’s benchmarking survey will provide invaluable information and is intended to provide answers to the key questions:

How well is our portfolio performing compared to other companies?

What are some of the best practices in the corporate real estate industry

What occupancy cost reduction and sustainability initiatives should we focus on?

To participate in the survey visit the “Benchmarking Survey” tab on CRE3’s website at http://www.cre3.net/Survey.html. We’re asking you to spend a few minutes providing information in a couple of areas that will remain confidential and published in a white paper entitled, “CRE3 Corporate Real Estate Benchmarking Survey” and made available to those who take part in the survey.

Thanks in advance for your participation.


The Most Cost Effective Facilities in My Company’s Corporate Real Estate Portfolio are ________

September 8, 2010

How would you complete the sentence?

  • The office locations where we’ve maximized the space through an ideal balance of occupancy vs vacancy to support our current and projected headcount
  • The buildings that use alternative workplace design principles of hoteling and ‘hot desking’ making them 100% occupied, 100% of the time
  •  The facilities that are ranked highest along our financial performance benchmark

A good answer could be “all of the above” but, the best answer is, “the locations we no longer own/lease because we eliminated the need for them.”

The following are three featured practices and technologies you could implement to make better use of essential facilities and free up capacity in others that give you the option to consolidate multiple locations, dispose non-core assets through sales or exercise options not to renew on those facilities that are no longer needed.

Space Utilization

There are a couple of approaches to optimize space occupancy and vacancy utilized to the point where you have “swing space” for growth and the right amount of space for your current headcount. The first is the no tech, labor intensive ‘walk the floor’ technique with drawings in hand to determine who is sitting where and what spaces are available. Not a very effective approach but, you’d be amazed how many CRE professionals still use this practice…and you know who you are.

The second is to access space management systems (CAFM capabilities of ARCHIBUS, Centerstone, Planon, TRIRIGA, etc.) that automatically calculate occupancy/vacancy in real time based on moves/adds/changes and link CAD drawings with the staff listing database.

By adjusting your acceptable level of utilization you can determine which spaces you can consolidate into facilities that have more attractive rent rates or owned facilities that are more efficient to operate and either opt not to renew the lease or sell the surplus asset.

Hoteling/”Hot Desking”/Conference Room Booking

Another very effective way to achieve a higher rate of utilization and minimize the overall need for space is to employ tenants of alternative workplace strategies of hoteling or “hot desking” where employees are assigned temporary spaces to be used only when needed or having smaller cubes/offices and more meeting/conference space.

Again, technology can play a vital role to manage room reservations. One system by Agilquest is among the more sophisticated that interfaces the room/office inventory and a company’s email and calendar functions. By utilizing space on as needed basis a company can dramatically eliminate its overall need for space and reduce its portfolio footprint.

Financial Performance

The final approach highlighted in this post is to evaluate the overall financial performance of facilities within your portfolio and assess whether or not they meet, exceed and fall below acceptable occupancy cost benchmarks.

Once you aggregate your overall operational costs, leasing and ownership expenses you could utilize information systems to develop an optimum Cost/SF metrics and readily identify those facilities in your portfolio that could be subject to cost reduction, consolidation, or disposition based on a financial performance benchmark.

Dashboarding and reporting tools found within Integrated Workplace Management Systems (IWMS) systems, your own ERP or an integration of systems using cloud technologies can give you the ability to categorize the financial performance of facilities of deemed “essential” and remain in the portfolio or “non essential” and be removed.

These are just a few approaches you could take to justify the reduction in your overall occupancy costs of office, manufacturing, distribution/warehouse, and retail locations.

The most effective way is to identify leased or owned properties that can be eliminated entirely and become among the “most cost effective facilities in your portfolio.”


Tomorrow’s ‘Workplace of the future’ Impact on Today’s CRE Strategy

September 1, 2010

What is your organization’s corporate real estate occupancy costs per employee? $1,000? $5,000?

According to discussions at a recent meeting of the Carolinas CoreNet Global Chapter the 300 participants cited their companies were spending $8,000 to $12,000 per employee.

Chances are it’s much higher than that when you include all of the 250+ categories that comprise the total cost of occupancy (TCO). Given the cost’s impact on your organization’s bottom line there are a number of evolving dynamics of the “workplace of the future” that will offer benefits of higher worker productivity and lower your TCO today.

Some of the steps you could incorporate into current CRE strategy that will anticipate the new “workplace of the future” include:

  • The standard 250 SF/employee cubicle may be no longer viable given the cost of new construction against a growing workforce
  • Replace the rows of individual cubicles with better lit yet smaller (110 SF) cubes with more open work areas for team members to interact with one another and feel more productive
  • Expand the use of WiFi networks throughout the office environment so workers can collaborate and share anywhere in your office
  • Design ‘Starbucks style’ spaces with pleasing colors and curved lines, soft music, multiple seating options (inside, outside, small table, large table, cushion chair, firm chair, sit down table, bar stool table, etc.) that create a heightened “sense” about the employee
  • Create meeting areas with raised tables without chairs which generally create a more engaged person and can dramatically reduce the length of a meeting and get people back to work faster by avoiding the conventional “one hour meeting” that shouldn’t take longer than 15 minutes
  • Build your brand through the design of spaces that incorporate your company’s logo, mission, quotes on walls to create ambassadors for the company – when employees embrace its core mission and values, employees from around the corner and across the globe engage more quickly
  • Relocate perimeter executive offices that typically block all the light and move them to the core of the building to open up larger windows to make better use of natural light
  • Enhance worker’s work-life balance by creating a workplace that extends employees’ time with amenities like a gym, rooms for nursing mothers, on-site cafes offering healthy foods – organizations that embrace amenities that give employees options to help them balance their lives will demonstrate that the health of their workers is a key contributor to employee retention and hiring
  • Move your entire portfolio of future workplaces toward sustainability by conserving energy – both of the employees within an office and for the physical building systems themselves.  Incorporate window shading technologies that manage heat gain and loss for an office building, as well as cutting glare on computer screens that can cause headaches and eyestrain for employees. Replace traditional HVAC systems with individual under floor air units that can be controlled by employees and give them flexibility over their own temperature and comfort, while also help lower an office’s overall power consumption.
  • Go “green” with paints, fabrics, carpeting and office furnishings and finishes designed to be biodegradable and made with low- or no-VOCs. In addition, technological advancements will allow workers to store paper files on-line, mitigating the need for extensive file storage.

In its Office of the Future: 2020 Survey and Report, staffing agency OfficeTeam identified several technologies that will alter the workplace of the future, including:

Sensory-recognition software – Computers in the future will increasingly be able to respond to voice, handwriting, fingerprint and optical input.

“Knowbots” – These future programs scan databases to filter and retrieve information for users. For example, the program could summarize key points of a report, and deliver an e-mail and voicemail to the device a user is working on.

Smart devices – Computers will use algorithm-based programs to learn the relationships between words and phrases, creating a smoother interface and enabling users to conduct more effective information searches.

Miniature wireless communication tools – These future devices will combine the personal computer, phone, fax, scanner, electronic organizer and camera all in one.

Wireless everywhere – Users can connect to the office in taxis, in buses, on planes, in parks, in building lobbies or even on beaches.

Interactive office spaces – By 2020, offices will be embedded with sensors that monitor and maintain the environment, including temperature, humidity and lighting. For example, a sensor in a desk chair could detect back tension and signal the chair to give a massage.

Virtual conferencing technology – Offices may be equipped with walk-in facilities outfitted with wall-sized screens that project 360-degree views of videoconference participants.

Automated business process management – Collaborative software will streamline the process by which teams work together on documents, eliminating the need for email as the means of document transmission and sharing.

By factoring in the many dynamics of the ‘workplace of the future’ as part of your current CRE strategy you and your department can create office environments that will enable greater worker productivity, enhance recruitment/retention of top talent, and, most importantly, reduce your total cost of occupancy through more energy efficient facilities.