Corporate Real Estate: An Interview With Experts

Real Estate Issues, Spring 2009 by Holland, Peter L

Panelists:

Michele Flynn, CRE

President, Expense Management Solutions, Inc., Southborough, Massachusetts

Barbara Hampton

Consultant, Providence, Rhode Island

Von W. Moody, III, CRE

Senior Vice President, Corporate Real Estate, Wachovia Corporation, Denver, North Carolina

Martha A. O'Mara, CRE

Managing Director, Corporate Portfolio Analytics, Boston, Massachusetts

INTRODUCTION

IT'S ALWAYS BEST TO START AT THE BEGINNING. AND BEFORE real estate can be discussed as an asset class or as something to be valued, leveraged, traded or securitized, it must first be seen as a place for the conduct of work. Put simply, the real estate industry begins with a tenant's demand for space to house its products, production or employees. All that follows in the real estate industry is the result of tenant demand. Accordingly, The Counselors of Real Estate does convene a standing committee on corporate real estate, and the topic is featured in a dedicated session on the program at each of our annual and mid-year meetings.

Recently, roundtable moderator Peter Holland, CRE, had the opportunity to speak with an exceptional group of thought leaders and practitioners in corporate real estate. In a discussion with CREs Martha O'Mara, Michele Flynn, Von W. "Buck" Moody, III, and also with Barbara Hampton, who has served in several corporate positions, most recently as vice president, Workplace Resources at Hartford Financial Services Group. Holland explored current corporate real estate practices and some of the ways in which Counselors could better engage with those charged with the responsibility of managing corporate portfolios.

HOLLAND: Let's talk about the role of the corporate real estate function within an enterprise-what it does and how it fits into the rest of the organization. Where should it report, for example?

HAMPTON: A real estate organization, or as I would prefer to describe it, a workplace organization, is responsible for housing a corporation's most cherished asset, namely its people. Employees are, after all, what creates a company's competitive advantage.

O'MARA: True, and I have observed that notwithstanding this importance of real estate, while it is not necessarily badly managed, real estate may be too often undermanaged. It has less to do with where it reports than with what it does. Clearly, being close to the CFO or close to power is helpful, but that is not the point.

HAMPTON: Correct-real estate needs to reside where it can do its best work, reporting to someone who understands the imperative of integrating human resources, information technology and real estate. This is no longer about bricks and mortar or even deals. It is about the conduct of work and the ability of a business to recruit and retain first-rate employees and to enable those employees to be as productive as possible.

FLYNN: Real estate may well report to a CFO, or perhaps to a COO in an industrial company-where it reports really depends upon the business of the organization itself. As companies begin to recognize how critical it is to integrate the functions needed to support their employee base, we are seeing the creation of an integrated shared services organization. In fact, the real estate or "box" is key, but so too are technology, human resources, food service, procurement, fleet, travel etc. They all enable work. We ask clients to think, and to think hard about the mechanisms and structures that make integration among these functions as seamless as possible.

MOODY: I, too, see corporate real estate's role as a facilitator of the core business. Real estate directors must ensure that they are fluent in the language of the business and that the real estate strategy is closely aligned with the corporate strategy.

HOLLAND: It strikes me that real estate directors are generally anxious about meeting corporate expectations. In particular, some of this angst would appear to be associated with a changing role for real estate within large organizations.

HAMPTON: Corporate real estate executives may well be nervous, and they are often at risk, but that is primarily in the event that they have failed to think and act strategically. But, directors of real estate really do need to make better decisions about their own roles, particularly considering the responsibilities they may have delegated to their outsourced service providers.

FLYNN: Both internal and external corporate resources must clearly understand what is required of themselves and of each other. The standard of performance is indeed very high, requiring excellent functional skills, an ability to enable technology, and flawless execution. The number of service providers who can manage the complexity-the depth and breadth-of a global real estate portfolio is, in fact, very limited. As more and more companies have outsourced, real estate directors now need to manage those outsourced relationships effectively. Given the tightening of the supplier market, we may see a return to "point" solutions utilizing multiple vendors. This has become more viable for corporations, as collaboration software tools now make it easier for companies to effectively manage multiple vendors.