Corporate Real Estate: An Interview With Experts

Real Estate Issues, Spring 2009 by Holland, Peter L

MOODY: In my view, large-scale M&A activity has created a new set of demands on the corporate real estate executive. Such events generally result in redundancy of facilities and accelerate the functional obsolescence of certain properties within a corporate portfolio.

HOLLAND: Does the current economic recession create an opportunity for corporate real estate professionals to display leadership and to accomplish heretofore unrealized goals?

MOODY: The unprecedented challenges in the financial services industry have elevated the role of the corporate real estate function. Again, the wave of M&A activity is just one example. A lot of strategic thinking and assumptions and policies about matters such as lease versus buy have completely changed. There are still companies that don't maintain an accurate database of their portfolios. I would advise anyone with portfolio-wide responsibility to understand and actively manage that portfolio and to identify consolidation and expense reduction opportunities, not to mention for valuation purposes during the due diligence process. In our M&A experience, integration needs to happen fast for both operational and expense reasons. Integration requires a well-oiled real estate function.

HAMPTON: We have always known that we need to minimize costs and maximize flexibility through strong contract language in lease documents and purchase and sales agreements. This is even truer today.

O'MARA: Just knowing the impact of real estate on financial statements reveals that real estate can influence overall corporate performance. As Buck indicated, real estate needs to revisit how it analyzes alternatives such as lease versus buy decisions. Some answers given in the past are simply wrong. It is possible, for example, for a long-term lease to be less flexible and beneficial to the corporation than an ownership position. To a large extent, these are also decisions that properly reside in treasury or finance and not solely in real estate. Maintaining a predetermined ratio of owned and leased property is not a portfolio strategy.

MOODY: An acquisition, merger or any "life-as-we-knowit" event creates an opportunity to advance alternative office techniques such as hoteling, mobile work force or what we call "touch down" space for employees who no longer have a fixed office. We need to increase the efficiency of our space utilization. We now have 10 percent of our corporate real estate employees working remotely, at least to some degree. Technology will make it possible to work more and more in non-traditional space.

FLYNN: It would be unacceptable for an industrial concern to operate at 50 or 60 percent efficiency in a manufacturing plant, but corporations do this all the time with their office space. There is a trade-off, however. The cost per square foot may increase due to more expensive collaboration space, technology and building systems, but the number of square feet can drop dramatically. I see less space, but better space, and space that is used for longer hours to accommodate businesses that span the globe and every time zone. We find that the math works on this exchange.