INTRO TO CORPORATE PROPERTY MANAGEMENT
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CORPORATE REAL ESTATE MANAGEMENT PAPER

CORPORATE REAL ESTATE MANAGEMENT PAPER

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INTRO TO CORPORATE PROPERTY MANAGEMENT INTRO TO CORPORATE PROPERTY MANAGEMENT Document Transcript

  • SUCCINCT INTRODUCTION TO CORPORATE REAL ESTATE MANAGEMENT {CREM}: “THE BUSINESS PERSPECTIVE” BY: BAKARE ISMAILA smilebak2004@yahoo.com, smilebak2004@gmail.com, Mobile no: +2348034656467 {Estate Management Department, OAU, Ile-ife, Osun State (2010)}Contents1.0 Introduction2.0 Definitions of CRE & CREM a. Definitions of CRE b. Definitions of CREM3.0 Perspectives of CREM a. Business Perspective of CREM - CREM Strategic Planning - CREM Organization Structure - CREM Performance Measurement - CREM Risk Management and Assessement4.0 Conclusion5.0 References1.0 IntroductionThe rare concept of Corporate Real Estate Management {CREM} appears to be relatively new toAfrican countries, although past literatures have shown that this concept has been applied withrecords of success in developed countries’ business organizations.It is apparent from the ‘few known’ Nigerian studies on the concept {Oladokun, 2010.,Njungbwen and Udo, 2010.}, that the practice of it in Nigerian corporations, is either in itsrudimentary stage, and/or not applied at all in some sectors of the nation.This has been the main urge of the few researchers in this distinct real estate discipline in Nigeriato make painstaking efforts to de-mystifying the concept of CREM, in its most pristine form, toNigerian students {e.g. In the university at Ife, and at Uyo}.This article humbly addresses CREM in a way that will make it understandable to the laymen,and particularly, to the practicing Estate Surveyors and Valuers, who are yet to understand it.This little effort was also meant to elucidate the Applied Property Management {ESM 506} classlecture on CREM at Obafemi Awolowo University, Ile-Ife, Nigeria in 2010 by Mr. T. T.Oladokun, in preparation of final year examination.I hereby hope that the reader of this article, after reading it, will understand the basic concept ofCorporate Real Estate Management {CREM}.
  • 2.0 Definitions of CRE & CREM a. DEFINITIONS OF CORPORATE REAL ESTATE {CRE} 1 Corporate Real Estate {CRE}, according to Zeckhauser and Silverman {1983} is defined as “the land and buildings owned by companies not primarily in the real estate business”. 2 Corporate Real Estate {CRE}, according to Brown et al {1993} applies to “properties that are either owned or leased by firms to achieve corporate objectives”. 3 Corporate Real Estate {CRE}, according to Joroff et al. {1993}, is termed as the ‘fifth resource’ of business corporations/organizations, after the traditional resources of People, Technology, Information and Capital. 4 Corporate Real Estate {CRE}, according to Brueggeman and Fisher {2001} refers to “the use of real estate as part of business operations and associated activities”. 5 Corporate Real Estate {CRE}, according to Brueggeman and Fisher {2001} refers to “the use of real estate, as part of business operations and associated activities”. 6 Corporate Real Estate {CRE}, according to Oluwoye et al. {2001} refers to “real estate owned by a corporation, also referred to as real property or physical facilities, or the buildings and land held by large organizations, both public and private”. 7 Corporate Real Estate {CRE}, according to Liow and Nappi-Choulet {2007} refers to “the land and buildings owned by companies not primarily in the real estate business”. b. DEFINTIONS OF CORPORATE REAL ESTATE MANAGEMENT {CREM} The management of CRE is known as Corporate Real Estate Management {CREM} and was defined by the following authors as shown below: 1. Corporate Real Estate Management {CREM}, according to Nourse {1990} refers to “the management of real property assets for use in business other than real estate”. 2. Corporate Real Estate Management {CREM}, according to Brown et al {1993} is “the optimum use of all real estate assets utilized by a corporation in pursuit of its primary business mission”. 3. Corporate Real Estate Management {CREM}, according to Bon {1994}, “concerns the Management of buildings and parcel of land at the disposal of private and public organizations that are not primarily in the real estate business”. 4. Corporate Real Estate Management {CREM}, according to Bon et al {1998} refers to “the management of property that is incidentally held, owned, or leased by an organization to support its corporate mission”. 5. Corporate Real Estate Management {CREM}, according to Lindholm {2006}, “concerns every real estate and facilities related issue in public and private organization, whose core business is not in real estate business”.
  • 6. Corporate Real Estate Management {CREM}, according to According to Ilsjan {2006}, “deals with the management of a corporation’s (enterprise’s) real estate portfolio, in both, private and public sector organizations”. 7. Corporate Real Estate Management {CREM}, according to Lindholm {2006} “concerns every real estate and facilities related issues in public and private organizations, whose core business is not in real estate business”. 8. Corporate Real Estate Management {CREM}, according to Fuerst {2009} is described as thus: “Most definitions of Corporate Real Estate Management {CREM} states that its core task is the active, solutions-oriented, strategic and operational management of properties regardless of whether they are necessary for a company’s business operations or not. Thus, CREM typically only comprises the real estate management activities of non-real companies”. 9. Corporate Real Estate Management {CREM}, according to Dewulf et al. {2000} is “the management of a corporation’s real estate portfolio by aligning the portfolio and services to the needs of the core business {processes}, in order to obtain maximum added value for the businesses and to contribute optimally to the overall performance of the corporation”.Inferably, from the above definitions, CREM could be referred to as “the strategicmanagement of Real estate held by Corporation/Organizations, be it Public or Private, in pursuitof its primary business mission. CREM could referred to as PuREM {Public Real EstateManagement} or PrREM {Private Real Estate Management}”.3.0 Perspectives of CREMLiow and Nappi-Choulet {2007} submits that “Current CRE practices suggest at least fourimportant areas in the light of a business management focus: CRE Strategic Planning, CREOrganization Structure, CRE Business Performance Measurement and CRE Risk Managementand Assessment.”a. Business Perspective of CREM- CREM Strategic PlanningCRE Strategic Planning facilitates the development of CRE asset management (CREAM)strategy that supports the overall business strategy {Liow and Nappi-Choulet, 2007}.This entails the development of CRE strategies, following from and linking to the overallCorporate/Business strategies of the company. This linkage of strategies is expected to bringabout operation decisions of the corporation’s real estate that will bring about added-value to thecore business of the corporation.CREM strategies are supposed to be formed after fully understanding the corporate strategies ofthe company, and that is why the CREM department head ought to operate at the board levelwhere he gets acquainted with the overall business strategies. This will largely help him in theformulation and implementation of CRE strategies.
  • CREM STRATEGIES • According to Nourse and Roulac {1993} Capturing the Real Estate Value creation of the Business Occupancy Cost Minimisation Flexibility Facilitating Production, Operations, Service Delivery Facilitating Managerial Process and Work Knowledge Promoting Marketing Message Promoting Sales and Selling Process Promoting Human Resources Objectives • According to Lindholm {2008} Increasing Value of Assets Promoting Marketing and Sale Increasing Innovations Increasing Employee Satisfaction Increasing Productivity Increasing Flexibility Reducing Cost • According to Ali et al. {2008} Corporate Social Responsibility • According to Rogers {1999} Strategic Positioning Operational Effectiveness • According to Oi {2010} Cost Reduction; {which relates to, ………….Property Management} Workplace Strategy; {which relates to, ………….Facility Management} Portfolio Optimisation; {which relates to, ………….Asset Management}- CREM Organization StructureCRE Organization structure that allows the effective implementation of the CREAM strategy{Liow and Nappi-Choulet, 2007}. The structure of the corporate real estate function concernswho, where and how decisions about corporate real estate are made within an organization{Gibson & Barkham, 2001}.In other words, the organization structure of CREM simply refers to the organization of theCREM department within a business corporation.The pioneering authors of CREM {Zeckhauser and Silverman, 1983}, advocated that theCREAM structure can be; Decentralized (where management of real estate is the responsibilityof each product department within the business organisation), Centralized (where all real estatedecisions for the firm are made in a centralized department within the business organization), ora Wholly-Owned Subsidiary (where control of some or all of the company’s real estate is
  • transferred to a subsidiary of the business organization, e.g. like the Intercontinental Homes andBriscoe Properties is to Intercontinental Bank and Briscoe Company respectively in Nigeria). An alternative is to classify the CREAM structure into profit centers and cost centers (Veale,1989). Moreover, profit centers appear to be aligned with wholly owned subsidiaries while costcenters appear to be aligned with centralized and decentralized departments (Rutherford andStone, 1989).- CREM Performance MeasurementCREM Performance Measurement simply refers to the assessment and determination of successof CREM, i.e. Assessing and Determining the contribution of the company’s real estate to theentire organisation as a result of effective and proactive CREM.An effective CRE performance measurement system helps identify areas of deficiencies and setcorrective actions into motion.Importantly, CRE managers needs to identify the Critical Factors Influencing the CREAMperformance {Veale, 1989}:- • Presence of a Formal and Organised Real Estate Unit Operation. • Use of Management Information Systems for Real Estate Operation. • Use of Real Estate Accounting methods. • Frequency of Reporting Real Estate Information to Senior Management. • Exposure of Real Estate executives to overall Corporate Strategy and Planning. • Availability of Information and Methods for Evaluating Real Estate Performance and Use and the Performance of Real Estate Assets relative to overall Corporate Assets. Business Management Concepts and Analytical Tools applied to CREAM Performance Measurement • Benchmarking • Balanced Scorecard • Building-In-Use • Post Occupancy Evaluation Technique {POET} • Performance Mark- CREM Risk Management and AssessementCRE risk management strategies must be integrated with the overall corporate risk profile. Froma strategic perspective, corporate managers need to understand the types of risks associated withan organization’s CRE portfolio, assess the intensity of these risks within the corporate contextand devise appropriate structure and strategies to avoid, insure, transfer, hedge or diversify therisks as appropriate. At least three major categories of the CRE risks are relevant. Financial riskrelates the impact of CRE on both the P& L statement and the balance sheet. Some examples ofthese risks include reversion risk in lease/purchase decisions, liquidity risk, default risk andinterest rate risk {Liow and Nappi-Choulet, 2007}.CRE ownership is also systematically exposed to the property market risk as any other propertyinvestors, quantified in term of volatility of real estate returns. Finally, business risk is linkedback to the business. These risks include changes in the business condition, the firm’s
  • competitive market position, the cyclicality of demand and the demand elasticity that will affectbusiness performance. Consequently, the requirements for business real estate are affected{Liowand Nappi-Choulet, 2007}.4.0 ConclusionThe relatively new nature of the contemporary strategic Corporate Real Estate Managementmakes it a worthwhile area to be researched on. The crux of the international bandwagonapproach of advanced countries towards Corporate Real Estate Management is to tap from theneglected real estate resource of corporations.Proactive measures towards corporation’s real estate is a sure way to add value to the corebusiness of the organization, and a source of succor in the problems of economic fluctuations tocorporate organizations {Bakare. 2010}.5.0 ReferencesAli, Z. {2008}: “Corporate Real Estate: Another Real Estate Area”. Integration & Dissemination, pp. 8-10.Ali, Z., McGreal, S., Adair, A. and Webb, J. R. {2008}: “Corporate Real Estate Strategy: A Conceptual Overview”. Journal of Real Estate Literature, 2008.Bakare, I. {2010}: “An Appraisal of Corporate Real Estate Management Practice in the Hospitality Industry in Nigeria {A Case Study of Hotels in Lagos State}”. Unpublished thesis Submitted to the Department of Estate Management, Faculty of Environmental Design and Management, Obafemi Awolowo University, Ile-Ife, Osun State. December, 2010.Bon, R. {1994}: “Ten Principles of Corporate Real Estate Management Performance”. Facilities Vol. 12 No. 5, 1994, pp. 9-10.Breitenstein, O., May, A. and Eschenbaum, F. {1998}: “The Components of Corporate Real Estate Management”. LACER No. 3, 1998, pp. 473-478.Fuerst, F. {2009}: “Managing Real Estate Investments: Key Concepts and Definitions”: A review of International Concepts and Definition. Henley University of Reading. January, 2009Gibson, V. A. and Barkham, R. {2001}: “Corporate Real Estate Management in the Retail Sector: Investigation of Current Strategy and Structure”. Journal of Real Estate Research, Vol. 22 Nos. 1/2 2001Lindholm, A-L. and Leväinen K.I. {2006}: “A Framework for Identifying and Measuring Value Added by Corporate Real Estate”. Journal of Corporate Real Estate, Volume 8, No 1, 2006, pp 38-46.Lindholm. A-L. {2008}: “Identifying and Measuring the Success of Corporate Real Estate Management Performance”. Dissertation for the degree of Doctor of Science in Technology, Helsinki University of Technology, Faculty of Engineering and Architecture, Department of Surveying, {A42}, May, 2008.Liow, K. H. and Nappi-Choulet, I. {2007}: “Corporate Real Estate: Perspectives, Evidence and Issues”. Institute of Real Estate Studies {IRES} Working Paper Series.Oladokun, T. T., Aluko B. T. and Odebode A. A. {2009}: “Corporate Real Estate Management: A Need For Paradigm Shift in Nigeria”. The Estate Surveyor and Valuer, Journal of the Nigerian Institution of Estate Surveyors and Valuers {NIESV}, pp. 67-73.Oladokun, T. T. {2010}: “Towards Value-Creating Corporate Real Estate Assets Management in Emerging Economies”. Journal of Property Investment and Finance, Vol 28, Issue 5, pp 354-364 , 2010.Oluwoye, J., Karantonis, A. and Fakorede, A. {2001}: “Corporate Real Estate Asset Management: A Conceptual Framework”. UTS Property Research Unit University of Technology, Sydney. Pacific Rim Property Research Journal, Vol 7, No 1, 2001.Njungbwen, E. and Udo, G. O. {2010}: “Benefit Of Corporate Real Estate Management To Higher Education Institutions”. Department of Estate Management, University of Uyo, Nigeria.