Business Research - Corporations Shift from Facility Centric Operating Models to People Centric Models and Become Global Firms
1. Corporate Real Estate A Strategic Asset
John Reardon
Cornet Global - COO & Director
Global Integrated Strategies
The 90's See A Structual Change To Corporate Operations
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CORPORATE REAL ESTATE (CRE)
Corporations represent the largest owners of commercial real
estate in the United States
The Global Corporate Real Estate (CRE) Platform: 40 Billion
S.F. of Commercial Real Estate Worldwide
Real Estate constitutes from 25-40% of the value assets on
the corporate balance sheet
What is corporate real estate (CRE/CIR)
management ?
Simply stated, corporate asset managers strive to add to
values of shares of stock in their companies by wise
deployment of real estate needed for current business
purposes.
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The International Development Research Council
A Global CRE Learning Organization (www.IDRC.org)
3600 Corporate Real Estate Executives in 27 Countries Controlling 23 Billion sf of
facilities worldwide
The Average Corporate member has a minimum of 1.6 Billion USD in Assets with
annual sales exceeding 1 Billion USD per year
Corporate members employed from 5000 to 400,000 workers and undertook over 200
real estate transactions per year
IDRC
– Operates full time offices in the United States, Europe, Asia, Australia and the Americas.
The World Wide Global Offices are headquartered in Atlanta Georgia.
– Manages active Corporate Real Estate Research on five continents and within 27 countries
working with senior level corporate executives and key universities within each region.
– Provides professional training to senior executives of corporate real estate departments,
service industry support firms and not for profit public facilitators of the industry groups.
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PRESENTATION FOCUS
Corporate Real Estate’s Rise To Visibility
CRE A Fifth Resource In The Corporate Expansion/Recovery Strategies
of the 80’s; The 80s & 90s Global Mergers, Acquisitions and Expansions
driven in part by Real Estate as a Fifth Resource.
Changes In CRE That Brings A New Strategic Operating Focus For
Corporate Real Estate, Business Managers and Shareholder Value
;Moving From CRE Place Centric Focus, To A People Centric Focus, with
Technology as an Enabler
Corporations and Service Providers Restructure To Meet The new CRE
Just In Time Real Estate Models and Create a Liquid Asset ;The evolving
service alliances, new mergers, expanded portfolios, access to just in time
capital, global communication systems and global real estate delivery
capabilities for an integrated global corporate cultures driving new accelerated
business cycles and just in time Value Added CRE/CIR services…”
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Business Survival, Leading To Restructuring &
Globalization
In the early 1980s business and general operating companies began to
move out of the roaring seventies and into the depressed eighties faced
with a major U.S. down turn, overbuilding in real estate and a glut of surplus
properties in N. A..
To Survive, Firms Began to Address Three Strategies
1. Tighten Operational Costs and Wait out the Cycle
2. Consolidate national and regional centers and acquire other firms, new
products and services to reposition the firm
3. Free Up capital in corporate real estate and acquire new capital to
expand further into new markets.
HOW DID CRE GET TO WHERE IT IS TODAY
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Testing New Global
Structures
Early 80’s
Key Global
Technical
Advancements
Early 90s
Concepts of People
Centric Work VS Place
Centric Work
Globalization Of Real Estate & Operating Companies
NewGlobalStructuresRestructuring
U.S. Corporate Restructuring Cycle
Global
Repositioning
Recession
Reductions &
Tightening of
Operations
Repositioning
Nat’l & Global
Mergers &
Acquisitions
New Down Cycle
Begins
Early 2000’s
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First Strategy Early 80’s
Tighten Operational Costs and Wait out the Cycle
The first strategy saw new concepts in TQM to refine operations
and squeeze out excess costs and inefficiencies. The move in this
direction would bring forward the European and Asian systematic
approach to refined operations under such models as ISO
management.
Indirectly these new operational refinement strategies would begin
to build new tiers of B2B relationships with U.S., European and
Asian operating firms, service providers and CRE executives
laying a foundation for a new global community
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Second Strategy Late 80’s Early 90’s
Consolidate national and regional centers acquire other
firms, new products and service lines and reposition the
corporation
• The second strategy would fuel the surplus property glut in N.A even
further and assist in driving real estate values to record lows
• The loss in real estate values would be the foundation for major banks,
investors, developers and a host of institutional collapses
• Litigation Related To Environmental Issues Would Surface During This
Consolidation And Disposal Period Driving Critical CRE Operating
Facilities Decisions Into Off Shore Locations
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Third Strategy Mid 90’s
Free Up Capital from Corporate Real Estate To Expand
Further Into New Markets
The third strategy would use real estate in an expanded way
Many firms in N.A. throughout the sixties and the seventies had paid down their real estate
mortgages and depreciated the assets on their books. This hidden equity became known as the
“Fifth Resource” and as attention was focused on these assets for rebuilding, the $ billions of
untapped equity would fuel a round of hostile take overs that would begin the reshaping of corporate
America, Europe, and Asia.
Beginning in N.A. firms leveraged the acquisition of other firms in part through their real estate as a
major hidden asset. European corporate raiders would build on this trend as would Asian
partnerships. The eighties and nineties would become the decade of change and reorganization
The foundation pieces that would build a new global community of capital, business operations and
managers was falling into place.
The late 90s would bring the “Big Boom” of technology and communication that would place
globalization into hyper drive and real estate into a world platform with a fluidity that we see new
models for tested daily.
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What Is Happening Now
PLACE
FOCUS
CENTRIC
PEOPLE
FOCUS
CENTRIC
As Business Moves Towards A Global Community
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Place
Fixed
Location Specific
Costs related primarily to asset
Costs relatively insensitive to
usage
Cost decisions are fragmented
between different functions
Costs are indirectly linked to the
work performed
People
» Variable
» Mobile (follows the user)
» Costs related primarily to individual
needs
» Costs directly related to usage
» Cost decisions are integrated
» Costs directly linked to work
performed
Place Centric Vs. People Centric
17. THE BEGINNING
Separation of People, Technology And Space
Creating and Refining New Models Defining Real Estate
As A Virtual and Flexible Platform Maximizing Individual
Usage, Value Added And Cost Benefits
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IBM
Testing New Concepts
25,000 employees in program
Primarily field sales personnel
Hoteling Office , Density Ratios 8:1 Low, 12:1 High
Primarily a “Mobility Program.” Telecommuting on an as needed basis.
Annual Real Estate Savings: $1 Billion (30% off base)
Key Issues:
– Laptop Memory
– Access costs
– Band Width
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Coopers & Lybrand
Testing New Concepts
Office Hotel Model (Telecommuting on an individual basis)
Targeted at all professional and managerial staff (including partners)
$60 Million per year annual real estate savings off a $160 M Base. (38%)
2.5 years into program
4.5 M sq. ft. reduced to 2.0 M sq. ft.
Targeting suburban locations...maintain customer meeting facilities in CBD.
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ABB
Testing New Concepts
30% reduction in floor space
Factories in Europe consolidating into small, multi functional, low cost facilities
Aiming for 3-5 year lease terms for factories
Over 50% of products are less than 5 years old
Products assembled and distributed close to the customer.
Expect occupancy costs to be 1% of revenues
21. Inversion of Real Estate Value
4/1 Cost ratio
$400/Technology Unit Costs to $100/Real Estate Unit Costs
Productivity
Driven By Technology & People
Creating New Corporate Value
Physical Space Changes To Any Place, Any Where, Any Time
Note: Product/Service Life Cycles Changes Evolving
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TRADITIONAL PRODUCT/SERVICE LIFE CYCLE
New Product or
Service Concept
Introduced
Idea Gains
Support &
Acceptance
IDEA Joins
Main Stream
Competitors Create
Knockoffs
Competition Grows
Original
Replaced By
Next
generation
15-25 yrs60’s
80’s 7-10 yrs
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PRODUCT/SERVICE LIFE CYCLE
In A Networked Global World
New Product or
Service Concept
Introduced
Idea Gains
Support &
Acceptance
IDEA Joins
Main Stream
Competitors
Create Knockoffs
Competition
Grows
Original
Replaced By
Next
generation
90’s
3 months-
3 yrs
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GLOBAL CRE TRENDS
CRE:Corporate Real Estate Changes To CIR : Corporate Infrastructure
Resources Management…..Convening the Work Place…. [CIR Combines CRE, IT,
HR, Productivity and Shareholder Value Over Time]
Owned CRE
Leased CRE
Alternatives
Entrepre-
neurism
Just In Time
CRE/CIR
Maximum Control
No Flexibility
Control
Limited
Flexibility
Control
Greater
Flexibility
Synthetic
Leases
Sale Lease
Backs
High Costs
Capital & Exit
High Exit Costs
High
Exit Costs
Lower Costs
Maximum Flexibility & Speed
Convening
and
Maintaining
The
Workforce
Environment
Time
Sharing
Models
Matching
Market
Options
Merged
Service
Providers&
CRE
Portfolios
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CRE/CIR TRENDS
CRE/CIR Managers
– Becoming Business Strategists
– Other Activities Being Outsourced
Taskmasters
Controllers
Dealmakers
Entrepreneurs
Business
Strategists
Engineering
Buildings
Minimizing
Building
Costs
Standardizing
Building
Usage
Matching
Market
Options
Convening
the
Workforce
Technical Analytic Problem
Solving
Business
Planning
Strategic
26. CRE END GAME
Flexible Occupancy of Just In Time Real Estate
Maximum Control
Maximum Productivity
Maximum Bottom Line Shareholder Value
Cost Cycles With Product/Service Life Cycle
Traditional Models of Cost,
Productivity, and Limited Flexibility Move Towards Real Estate as a Liquid Asset
