Equity Office Properties Trust CIO Scott Morey discusses the Internet and the technological challenges of M&A activity.
Like many extraordinarily bright people, Scott Morey's mind moves at the speed of light, so it's not always easy to keep up. As chief information officer at Chicago-based Equity Office Properties Trust, Morey must think fast and think ahead of the curve as the top technological strategist for the largest publicly traded office owner in the United States.
Morey's been on the job at Equity Office since June 1, 2000, but has more than 12 years experience as a consultant for office and retail owners as well as real estate service firms and other industries. As a partner at Ernst & Young and chief of the firm's Midwest real estate technology practice, Morey worked on Equity Office's technology strategy for two years before joining the office giant.
RETech recently caught up with Morey to discuss Equity Office tech initiatives and get a big-picture view of applications affecting commercial real estate.
RETech: How does Equity Office use the Internet in the leasing process?
Morey: The most visible application we've launched is E-Space, an online service designed to offer existing and prospective customers, as well as brokers, easy access to information about our available spaces. From our Website, www.equityoffice.com, users can search for office suites according to any combination of a variety of criteria - by city, submarket or property; by size, availability date or rate; or even by on-site amenities. Currently, we have approximately 975 spaces listed online. In its first month, 9,000 listings were viewed on E-Space. By year-end, use of E-Space increased to 13,000 viewed listings per month.
E-Space also includes an interface for our employees. Through our intranet, our internal E-Space tools allow our leasing staff to update and publish their properties' information using the most current data available.
We also have made our FasTrack lease, a simplified office lease document we developed to streamline the leasing process, available internally through our intranet.
RETech: How is the Internet changing the process?
Morey: Technology is being used as an enabler to shorten the cycle of the physical documents moving around. The Internet created an environment in which we can better manage the revision and approval process. There are a number of good e-commerce startups out there that are starting to present solutions like this. There are also some new tools for content/document management that give us that ability.
RETech: How is Equity Office using the Internet in the procurement and management process?
Morey: One of our efforts in this arena is our participation in Constellation Real Technologies, a company we formed with other commercial real estate firms to incubate and sponsor real estate-related Internet, e-commerce and broadband enterprises. Not too long ago, Constellation made an investment with FacilityPro.com.
On the procurement side, it's a combination of vendor rationalization in total, and then looking at these maintenance, repair and operations (MRO) e-procurement solutions, which for us is FacilityPro. We are currently in the early stages of deploying FacilityPro internally.
RETech: What's the time frame as far as deploying FacilityPro?
Morey: We're at an exploratory stage now. If we follow the strategy we use for many new initiatives, we may pilot the program in a couple of key markets before rolling it out on a national basis.
There's a paradox in the dynamics between process and technology within commercial real estate. If you look at putting in an accounting system, it's 70% technology and 30% process. It's simple, right? Cutting checks is cutting checks.
But, if you look at leasing, management and procurement, it almost reverses. It's 60% to 70% process and 30% technology. The technology piece is easy to set up. The challenge is aligning the organization's processes around [technological applications] to really maximize efficiency. That's why we're tenacious in establishing applications that are realistic and executable.
We have a program management office (PMO) responsible for management, oversight and execution of these initiatives, and it's really the bridge between technology and operations.
On building management, a number of our internal applications are Web-enabled. We're exploring a number of options to streamline processes for customers, such as through the work order process.
RETech: What percentage of your portfolio has portals or specific property pages?
Morey: We basically stopped them as a result of a larger-scale initiative. But there are properties that have specific pages. For example, at Prominence in Atlanta we offer online work orders and some other features on that site. We deployed property-specific sites in a few places in prototype more to look at it and see that the money spent was of value and that there was a true ROI.
RETech: How is the economy's "soft landing" affecting the tech initiatives Equity Office has on the table?
Morey: The real question is how a softening economy would affect Equity Office, which in turn might impact our capital expenditures on technology. Also, we are well-positioned for a softened economy due to our geographical diversity.
I was formerly a partner on the consulting side, and I was used to being above the line, meaning the revenue side. Being below the line, there's one of two things you have to do - either minimize cost or increase value. We've been fairly definitive and explicit within the organization on defining total cost of ownership on ROI, as well as getting executive management onboard with some of these larger-scale projects. We've had discussions on re-evaluating and being sure we're not stepping on our own feet and/or doing things that aren't needed, but the net result is that [the soft landing] really hasn't shifted our direction on our tech initiatives. I don't anticipate any dramatic change in our investment in the tech initiatives we have on the table.
RETech: Tell us about some of the initiatives Equity Office has to attract and retain small- and medium-sized business tenants.
Morey: We've helped many small- to mid-sized customers gain high-speed Internet access. Equity Office got a jump start on wiring buildings by obtaining a Private Letter Ruling from the IRS in 1999 before the REIT Modernization Act was passed. The Ruling allowed us to pursue alliances with telecom providers to wire our buildings.
As a result, our customers, many of whom lease 10,000 sq. ft. or less, had easy access to the risers installed in our buildings. Without this access, many of the companies would have been hard pressed to invest in the more expensive alternative of wiring the building from the street to their office suites.
More specifically, we have an alliance with CenterBeam, which is a company backed by Microsoft, Dell and Intel, among others. CenterBeam offers subscription-based hardware, software and an outsourced IT infrastructure, which is particularly beneficial to small- to mid-sized companies. These customers face greater challenges in investing the resources necessary to attain in-house IT staff and to develop comprehensive IT strategies.
For example, let's say you're a company with 30 to 100 employees, CenterBeam basically drops an IT package in and completely supports the back-end maintenance as well as the help-desk aspects.
If you have a laptop and you travel a lot, CenterBeam backs up the desktops nightly. If you lose your laptop on the road, you can call CenterBeam, and they reimage it and FedEx one to you the next day in whatever city you're in. And [CenterBeam] is wireless, so you can just pick it up and go. Or if you travel and remote-office and it's all through CenterBeam, you call them up and say, "I'm in this office" and you boot up, and you're on the network.
RETech: In regard to the acquisition of Cornerstone Properties and other M&A activity, what are some of the keys to merging cultures technologically? How is that process progressing relative to Cornerstone?
Morey: Given the number of acquisitions and mergers that Equity Office has entered into, [Equity Office] is accustomed to integrating other companies and cultures into the organization. When you look at it more tactically from a technology standpoint, we've gone through a standardization process, both through our network and our desktop, that's made it fairly easy for us to go with Cornerstone and get the company incorporated into the organization from. Cornerstone is completely integrated within our infrastructure and has been for some time.
We completed the systems part in total, including accounting systems, a couple of months ago. Culturally, there was a lot of work done in advance to when the initial transaction was announced to the public. By the time they were through (with the merger), the organizational and process goals were defined and being executed. The technology piece was rolled out immediately behind that.
The hardest part is making the organizational decisions. When you see the mergers that don't work, it's because of deferrals on those kinds of decisions - if people aren't sure where they stand or you have retention issues. I think we did a great job early on in making those decisions, and then it's just a matter of execution.
The hardest part of the accounting side was that Cornerstone actually had just converted to a new accounting system about a year ago. They were on their legacy systems for some time, so there was a certain amount of pain involved because people have their initial responsibilities plus assimilating new systems. The larger part of the technology piece was migrating Cornerstone to the system we use, J.D. Edwards. The desktops, the access and the e-mail were done immediately, and the accounting migration took a little more time. That process is now complete.
RETech: What kind of online training do you do?
Morey: We do a combination of classroom and Web-based training, and Web-based where it's more computer-based training (CBT) where you do it on your own. And we do some through Web-casting, where employees log into an online classroom.
RETech: Are we realizing "Internet efficiencies" yet? How long before the rest of the world catches up with the Internet world?
Morey: There are three tiers of value. One is enhancement of a process. For example, all of us were sold a bill of goods on all the efficiencies to be gained with the ERP systems, the accounting systems. The reality is there's some of that occurring, but in many cases it's process enhancement, and suddenly we're making people much better knowledge workers and then just trying to get the information.
The second level is true efficiencies, the automation of the process. Historically, real estate and systems and technology was an oxymoron. But in the past four or five years, because of the maturity of the public markets and the influence of REITs, technology has been more fully adopted. As part of that, if you look across the markets in general, everybody has replaced their accounting systems.
In the past two or three years, there has been more of a push to look at front-line processes like leasing, management or procurement. If you look at procurement, true efficiencies have been achieved that have quantifiable, positive results that benefit our tenants in a number of ways, whether it's passed through due to lower operating expenses or other means.
The third level of value is revenue. Can we deploy technology solutions that enhance revenue? Our focus certainly is on enhancement efficiencies. Everything we're doing now looks at true ROI and the payback that you would expect on any other capital investment, so the net result is we're gaining realizable efficiencies.
In many ways, the realizing efficiencies stuff has been oversold, but now the e-commerce companies are really talking about quantifiable, bottom-line savings. The reality is, [the efficiencies] are there, but it's a combination of the organization, the operations and the technology that make it work, not just the technology. The technology is an enabler.
RETech: We're starting to see some of the Internet companies fall by the wayside. In your eyes, what do they have to do to survive?
Morey: It's two-fold. The most obvious factor is adoption, and if you look at some of the Internet companies, they started in one of two ways. Either a company like us or some of the real estate services firms backed them and/or developed that solution. When they came out of the box, they were perceived initially as being biased in some way. If Company X and Company Y back them, why should I adopt something that benefits my competitor?
The other companies really came out on their own as Switzerland. At the same time these consortiums were being developed.
There's been a fight for adoption, and we're looking at it from an investment perspective - which then leads to questions on management teams, revenue model, viability - as well as for the usefulness of the product internally. We think there are still some tremendous opportunities and value to be achieved in all of those areas by some of these startups, but, clearly, there's going to be some consolidation and acquisitions like we've seen in the past few weeks, such as rbuilding and Comro falling off and SiteStuff's acquisition of OfficeRex.
Also, there are some traditional real estate product companies that are complementary. I think we'll see acquisitions and/or partnerships or joint ventures with some of these start-ups because it becomes much more of a complementary offering to their product vs. something that's got to be sustainable on its own.
We certainly have ideas about that and where it's going, but I don't want to be speculative on it. There's still tremendous opportunity. Even though the market appears bearish, there are some bullish opportunities, and we're evaluating them. I work hand-in-hand with [executive vice president of business development] David Helfand's group and folks in operations on evaluating e-commerce opportunities, so we're continually talking to companies that we think make sense, evaluating them and looking for places to deploy their technology. But I think we'll see more fallout and acquisitions and mergers in this space.