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The State of the Economy and Why Real Estate Technologies are Critical to the Recovery Plan

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Speech at the Manhattan Software Annual Executive Summit June 2009

Speech at the Manhattan Software Annual Executive Summit June 2009

Published in: Business, Economy & Finance

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  • 1. The State of the Economy and Why Real EstateThe State of the Economy and Why Real Estate Technologies Are Critical to the Overall Recovery Plan Presentation by George Bouri, National Managing Principal, Capital & Real Estate Transformation, Deloitte Consulting LLP Manhattan Software Executive Summit June 5, 2009
  • 2. Agenda Background • Global EconomyGlobal Economy • Impact on Corporate Real Estate Real Estate Technology Enablement • Visibility into Total Cost of Ownership How Does IWMS Fit Into the Enterprise • Advantages and BarriersAdvantages and Barriers • IWMS Trends Critical Success Factors for a Smooth Implementation Summary Copyright © 2009 Deloitte Development LLC. All rights reserved.1
  • 3. Global Economy
  • 4. The Credit Storm continues to have a negative impact on the global economy… Then Now Perfect Calm Perfect StormPerfect Calm Irrational Exuberance A Wall of Capital Subprime/Alt-A Credit Equity Priced as Debt Perfect Storm Irrational Fear The Capital Crunch Junk Debt/Toxic Waste Debt Priced as Equity Cap Rate Compression Highly Leveraged Returns Conduits/CMBS/Shadow Banking Covenant “Lite”/No-Doc Loans Financial Engineers Credit Spread Expansion Return of Negative Leverage Balance Sheet Lending Complete and Prudent Underwriting Professional Investors/OperatorsFinancial Engineers Laissez-Faire Government Professional Investors/Operators Government as Lender of Last Resort Source: CoreNet Global Summit, Orlando, November 2008 Copyright © 2009 Deloitte Development LLC. All rights reserved.3 Source: CoreNet Global Summit, Orlando, November 2008 “The Economic Outlook for Corporate Real Estate: Crisis or Opportunity?” Kenneth Rudy, Jones Lang LaSalle
  • 5. … leading to an unprecedented economic response to the global crises International • UK to invest £37 billion in 3 of its largest banks • ECB makes weekly injections of unlimited euro funds at 3.75% interest • Germany approves plan to inject €500 billion into credit markets • UAE ministry of finance added $19 billion liquidity injection to domestic banks • Japan announces a plan to support the financial system • Australian government unveils a $10.4 billion stimulus package • ECB, UKCB lowers discount rates by 75 to 150 bps • China announces $586 billion economic stimulus plan Domestic • U.S. Senate and U.S. House of Representatives passes $700 billion TARP plan • Worst October in the stock market in 75 years • Fed provides $900 billion in short-term cash loans to banks • Fed makes emergency move to lend $1.3 trillion directly to companies • United States injects $250 billion of public money into the U.S. banking system • Federal Reserve lowers discount rate by 50 bps • Treasury revises AIG bailout to $150 billion Copyright © 2009 Deloitte Development LLC. All rights reserved.4 Treasury revises AIG bailout to $150 billion Source: CoreNet Global Summit, Orlando, November 2008, “The Economic Outlook for Corporate Real Estate: Crisis or Opportunity?” Kenneth Rudy, Jones Lang LaSalle
  • 6. The complexity of the challenges and the duration of the downturn is increasing as economic conditions continue to spread globally Global weather map April 2008 April 2009 Sunny Sunny with clouds Sunny, but rain Cloudy Rainy Thunderstorms Accelerating growth, falling unemployment Clouds over growth, some sunny prospects Clouds over growth, outlook could be worrying Sudden change in outlook, now uncertain Deteriorating outlook, long term issues Serious disruption, likely to last Legend: Source: Deloitte Research, EIU, Financial Times • Maintaining competitive position • Demand uncertainty • Fluctuating energy, currency, and commodity prices S li b di ti Key Challenges Copyright © 2009 Deloitte Development LLC. All rights reserved.5 • Tight credit conditions • Supplier base disruption • Fiscal stimulus programs
  • 7. However, leading companies are using the downturn to make strategic and structural changes, even in industries facing severe market pressure Global industry weather map Providers Health Care EnergyConsumer BusinessFinancial Services Technology, Media & Telecom Public Sector Power &Banking Consumer Technology National Govt Aerospace & Manufacturing Providers Health Plans Life Sciences Delivery Oil & Gas Banking Insurance Investment Mgmt. Real Estate Products Retail Consumer Services Tourism & Hospitality Technology Media Telecom National Govt. International Sub-National Education p Defense Industrial Products Automotive Process Industries Sunny Sunny with clouds Sunny, but rain Cloudy Rainy Thunderstorms Accelerating growth, falling unemployment Clouds over growth, some sunny prospects Clouds over growth, outlook could be worrying Sudden change in outlook, now uncertain Deteriorating outlook, long-term issues Serious disruption, likely to last Legend: Financial Services Consumer Business • Adopting new governance and risk models • Making targeted investments Illustrative actions by leading companies: • Adopting new governance and risk models • Institutionalizing customer retention programs • Standardizing front-office models • Absorbing the financial impact of moving to IFRS • Preparing to make strategic acquisitions • Making targeted investments • Rationalizing suppliers based on risk assessments • Applying rigor to pricing execution/inventory management • Realigning product mix to focus more on value Copyright © 2009 Deloitte Development LLC. All rights reserved.6 Preparing to make strategic acquisitions • Adopting business model changes
  • 8. Some economists are predicting signs of recovery in 2010, but a sustained recovery is not likely to occur until Q4 2011 or Q1 2012 Source: Moody’s and Deloitte Consulting Copyright © 2009 Deloitte Development LLC. All rights reserved.7 Source: Moody s and Deloitte Consulting CoreNet Global Summit, Orlando, November 2008 “The Economic Outlook for Corporate Real Estate: Crisis or Opportunity?” Kenneth Rudy, Jones Lang LaSalle
  • 9. I R l EImpact on Corporate Real Estate
  • 10. The ‘perfect storm’ effects of economic, financial, employment, and political events melded to create unprecedented uncertainty for the markets in general External factors impacting corporate real estate include: • Sub-prime residential mortgage crash • Demise of commercial mortgage-backed securities (CMBS) • Drop in housing prices and values • Oil’s upward, then downward, cost spiral • Stock market volatility • Credit market turmoil • Resulting near absence of credit • Investment and spending freezes • Failure of investment banks Source: Stone & McCarthy Research, the Conference Board Failure of investment banks • Government bailouts of banks globally • Massive layoffs in and beyond banks • U.S. national elections U S t i d t b il t• U.S. auto industry bailout • Decrease in consumer confidence Copyright © 2009 Deloitte Development LLC. All rights reserved.9 Source: CoreNet Global 2009 State of the Corporate Real Estate Industry Report , March 31, 2009 Source: Wall Street Journal, NAR, Stone & McCarthy Research
  • 11. The turbulence has had a significant impact on the corporate real estate industry so the CRE focus has shifted to risk management, resource optimization and cost cutting Effect on CRE CRE Response • Banking and credit crises freeze transactions, deals, • Trade term for valueBanking and credit crises freeze transactions, deals, investments, and corporate spending • Tight credit is limiting access to capital • Growing emphasis on better capital planning • Renegotiate leasing and service contracts to find hidden t Trade term for value • Aggressively explore moves to low cost centers • Continue to lease facilities versus build to suit • Defer capital spending and large expense projects • Hold expenses where possible to off set increased costs costs • Increased pressure on cost cutting yet again • Access to capital is viewed as the problem and solution in tax and utilities • Offer alternative workplace as an option • More aggressive hoteling to downsize lease requirements • Increase the value and manage expense through• Increase the value and manage expense through aggressive partnering • Invest in technologies such as Cisco telepresence and HP Halo • Understand and eliminate the obstacles that diminish l d ti it Source: CoreNet Global Source: CoreNet Global Summit, Orlando, November 2008 and Deloitte Consulting employee productivity Copyright © 2009 Deloitte Development LLC. All rights reserved.10 Source: CoreNet Global 2009 State of the Corporate Real Estate Industry Report 31 March 2009 Source: CoreNet Global Summit, Orlando, November 2008 and Deloitte Consulting “The Economic Outlook for Corporate Real Estate: Crisis or Opportunity?” Kenneth Rudy, Jones Lang LaSalle
  • 12. Real Estate Technology Enablement Visibility Into Total Cost of Ownerships b ty to ota Cost o O e s p
  • 13. The selection of IWMS as a strategy positions clients to function more strategically, enabling them to better execute their mission Copyright © 2009 Deloitte Development LLC. All rights reserved.12
  • 14. IWMS cuts through the fog and provides visibility into the Total Cost of Ownership • Cycle Time • %Leased • %Owned • Cost per SFp • SF per Employee • Number of Transactions • Office to Cubicle Ratio Integrated Workplace Management SystemIntegrated Workplace Management System (IWMS)(IWMS) Ratio • Carbon Emissions • Number of Projects (IWMS)(IWMS) • Completion Rate • Satisfaction Copyright © 2009 Deloitte Development LLC. All rights reserved.13
  • 15. Implementing technology helps identify these 10 symptoms indicating that there may be opportunities for real estate and facilities cost reduction 1. Knowledge and information about the CRE portfolio is lacking 2. The portfolio is not aligned with current and future business direction — from physical, location, or financial perspectives 3. Supply chain and distribution channels have not been optimized 4. Space utilization and location of facilities have not been challenged 5 Excess properties have not been identified and sold5. Excess properties have not been identified and sold 6. Current market value of properties is not known or is significantly greater than book value or utility value 7. Creative financing structures have not been considered 8. Operating costs have not been effectively measured and controlled 9. Opportunities to leverage volume buying or outsource low-value-added services have not been explored 10 Capital projects are not aggressively bid value engineered or change orders challenged10. Capital projects are not aggressively bid, value engineered, or change orders challenged and controlled Copyright © 2009 Deloitte Development LLC. All rights reserved.14
  • 16. “You can’t manage what you don’t measure” – Jack Welch Copyright © 2009 Deloitte Development LLC. All rights reserved.15
  • 17. The data governance framework offers the organizational and business view on managing the data for accuracy and consistency To ensure future systems’ success, organizations should establish a framework for driving data governance. • Establish a data governance organization to proactively monitor data integrity and quality • Identify, document, and incorporate appropriate data quality standards to eliminate data redundancy and inconsistency • Prescribe a consistent approach to consolidate and manage shared dataPrescribe a consistent approach to consolidate and manage shared data Metadata Availability Security AuditabilityAccuracy Consistency Data Supporting Businesses Document steps to ensure data is available to users and applications when needed Define how data is stored, archived, backed up, and protected from mishaps, theft, or attack Define the set of controls and audit procedures to ensure ongoing compliance Standards Policies & Processes Organization Define steps taken to ensure data is complete, valid, and appropriate Set of controls to ensure the meaning of data is consistent across systems/ applications Data Definitions, Classifications, and Organization Master Data Technology and Tool Standards Creation, Development, and Management of Data Business Rules Access Control Ongoing Monitoring and Measurement Planning and Prioritization Manage Changes to Data Organizational Structure Data Owners and Stewards Roles and Responsibilities Training and Education Data Security Change Management Copyright © 2009 Deloitte Development LLC. All rights reserved.16 a age C a ges o a a (Including Communication)
  • 18. How Does IWMS Fit Into the Enterprise Advantages and BarriersAdvantages and Barriers IWMS Trends
  • 19. Consideration # 5: Find 10 Technology Enablers to Increase EfficienciesTaking a broader enterprise and portfolio approach to deploying CRE technical enablers to support functional capabilities and provide efficiencies Copyright © 2009 Deloitte Development LLC. All rights reserved.18
  • 20. There are many advantages to implementing IWMS across a global workplace … Copyright © 2009 Deloitte Development LLC. All rights reserved.19
  • 21. … but some technology challenges must still be overcome Copyright © 2009 Deloitte Development LLC. All rights reserved.20
  • 22. IWMS Trends in 2009 1. CRE has become the most important vertical within the IWMS arena Both driven by the Credit Crunch and the disproportional real estate prices, organizations started to focus on the corporate real estate domain as the primary cost reduction source.p p y 2. IWMS’s are undergoing a transformation from a local to global orientation Triggered by the rapid evolution of the Internet, FM and RE have evolved to become a C- level strategic management domain. 3. Cost reduction is the key driver for investing in IWMS’s The customer demand for ROI, Metrics, Benchmarks, and Management Reports is increasingly having an impact on the IWMS domain. 4 S t i bilit i i t t4. Sustainability is important There is a clear distinction between those IWMS vendors who have embraced sustainability as an organizational obligation and those who have not. 5 Decision making support is driving executives5. Decision making support is driving executives CRE Managers, Project Managers, and other senior executives need to decide on specific investments, disposals, relocations, or other programs based on data, so reports, dashboards, and Business Intelligence are driving decision support. Copyright © 2009 Deloitte Development LLC. All rights reserved.21 Source: IWMSnews.com, Steven Hanks 4 May 2009
  • 23. Critical Success Factors for a Smooth Implementation
  • 24. Follow these tips for avoiding project failure The Standish Group has reported high failure rates among IT projects for years and a recent study by KPMG found that about half of the respondents reported at least one failed project in the past year. CRE must be able to speak the language of IT and understand their concerns • A single system requires less database platforms and applications to support, resulting in less staff • Ensure the solution complies with corporate IT Standards • Configure your IWMS, so the FM and RE professionals can do modifications to the systemsg y , p y • Consider having the software hosted and maintained by an Application Service Provider (ASP) Some of the common reasons projects fail include: • Lack of clear scope of workLack of clear scope of work • Not defining the project success criteria and expectations • Lack of communication • Inadequate planning L k f kill d• Lack of skilled resources • Unrealistic time, budget, and/ or scope • Lack of risk management • Lack of Senior Management and business ownership support and involvement Copyright © 2009 Deloitte Development LLC. All rights reserved.23 IWMSnews.com, March 20, 2009, Don Wood; April 2, 2008, Steven Hanks
  • 25. SSummary
  • 26. Real estate technologies will influence how effectively CRE is able to have an impact on the recovery • As a result of the global economic crises, CRE has raised its visibility in the C-suite, becoming a more strategic player in identifying solutions to the problems faced in the current operating environment • CRE must take an enterprise view of the organization and gain visibility into managing the Total Cost of Ownership for the entire portfolio of assets • Implementing IWMS into the broader enterprise technology stack enables efficiencies and increases productivity, allowing the CRE department to do more with less • Like many business cycles before, technology will be a key enabler to help corporations recover from the current crisis Copyright © 2009 Deloitte Development LLC. All rights reserved.25
  • 27. About DeloitteAbout Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Copyright © 2009 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu

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