Prudential Strategic Partners Initiative Roundtable

A firm commitment to commerical real estate This is the compelling story of how, ever so quietly, one of the business units of one of America's largestfinancial icons, The Prudential-- The Rock-- is putting into place a program which, when completely integrated into the corporation's culture, will see a new commercial real estate services powerhouse.

Joined by a new program called the Strategic Partners Initiative (SPI), several business units within Prudential now work together to provide a one-stop services team of professionals that can handle nearly any facet of a company's commercial real estate needs, from relocation of corporate offices and employee group moves, to providing access to capital markets on Wall Street, employee benefit programs, trusts and charitable gift services and commercial real estate financing.

And PREA is taking that synergy into the franchise field, aggressively seeking to sign on new commercial real estate affiliates in all of America's markets.

Recently, executives from each Prudential division involved in the Strategic Partners Initiative gathered for a roundtable discussion at Atlanta's Swissotel in Buckhead to discuss the state of the firm's commitment to commercial real estate and how each division forms part of a complete team.

NREI: Give me some of the thought processes that went into creating the Strategic Partners Initiative.

Claude Gardner: I've been charged by Prudential to develop the highest-quality commercial network in the country. A group that's second to none. When you look at the market there are some extremely strong firms. So I took a look at what we needed to do to make sure that I'm at least competitive with these folks and as you examine it, one of the advantages that you absolutely have to have is a strong menu of services. Within Prudential we have business units that provide all manner of corporate real estate services and in many cases those business units are calling on the same customer. All I needed to do was to bring together those business units under one umbrella, the Strategic Partners Initiative, and a highly competitive menu was developed, all under the Prudential brand. It will allow the individual business units to continue to focus on what they do best; also allowing all the business units to introduce the opportunities available with the other Prudential business units. It has worked very well so far.

NREI: When was it started?

Gardner: The first discussions occurred about 15 months ago. We started doing deals seriously about nine months ago. At that time we got in touch with Craig Forbes and he's been tremendous in Richmond in embracing this initiative with us and navigating the other parts of Prudential. As we started having successes, it became apparent that we all have the same needs in terms of generating additional business and it's worked very well.

The idea is to work toward making the Prudential business unit invincible when they're going in and to get the business they're going after. Meaning, we're all going in to present our own product first and foremost, but the idea is to make the customer look at us and say, 'There's no way that I need to go out to anyone else.'

A nice thing about what we're doing is it's all under one brand. And even if you take a look at our competitors, I don't believe you'll find there's a competitor out there that can bring together the services that we're bringing together under one brand.

NREI: How important is the brand name Prudential, The Rock?

Gardner: There's 98% name recognition. It is awesome.

Craig Forbes: And that's also true if you take the reverse of that if you step outside the real estate and look back at it. If we were doing all of the other things we do -- be it investment management, benefits consulting, raising capital -- outside of real estate, and you look at the normal competitors in the marketplace, none that I'm aware of is fully linked in with their real estate piece even if they have it. We have a true edge over anybody else I've seen out there and it's a real plus when you have all of the people around this table out there trying to talk to clients about everything we can possibly do.

Gardner: Here's an example. I was on a plane and you know how airplane talk goes. The gentleman next to me said he is looking to go public within 18 months with his company. Then he reached up in the overhead and he pulled down a copy of BusinessWeek and there he was on the cover. I said, 'Would you entertain another proposal?' So we introduced him to Prudential Securities through Craig. It looks like he is going to be able to make a bid for the Prudential account. So it went his way as well, but in 18-24 months we will complete the IPO if it happens. PCS is going to locate all of the sites as they expand around the country. PRM and PREA will handle all of his employee relocation business. And it looks like we will also be able to absorb the father's real estate company into one of our affiliates. It's just simply a matter of knowing that all of these services are available and mentioning them. We can bring them all to bear in one corporate services package.

Clay Lebhar: I would add to the name recognition. One of the reasons I was interested in coming over from Prudential Securities to the 'other side of the river' in Newark and head up this conduit mortgage business is that Prudential's name recognition or reputation in the mortgage business is so significant. They've been a multi-billion-dollar lender year after year after year and have really been one of the major forces in the commercial lending marketplace. So when you go out and you try to expand off that platform, you're not just making loans to the general account. You're still dealing with borrowers but there are a lot of the elements that are the same. That recognition has made it not only easier for us to bring loans and win loans when we're up against some of the big conduit competitors, it's also made it easier for us to get this conduit business off the ground, because they believe that Prudential is really committed to this sector, and has been committed for many years and there's a lot of comfort that they're not jumping from a very good job where they're doing well into a situation that's not going to have the stick-with-it-ness that they would want to see happen.

Peter Wayman: We talk about the brand and how powerful and recognized it is. When a customer talks with us, they assume that we know all of the aspects of the Prudential that touch them. There has been an enterprise-wide push to bring units together to synergize and to really know how to touch customers together. For clients and from the outside looking in, we look like one rock and on the inside, we are now starting to work more closely together whether it be the Prudential Connections, the One Prudential initiative, the Strategic Partners Initiative. We are all reaching out and saying, 'Together we actually can do more.' We do have more opportunities working closely together and frankly that's how the marketplace has looked at us.

Gardner: One Prudential has been the main catalyst. When Art Ryan came in, the strength of the business units and our collaborative efforts grew and is many times what it was because of the collective that's now coming together and the power behind it.

Rick Ingwers: I think it's working smarter, more efficiently and more competitively. With One Prudential, the mindset reinforces collaboration and putting the client's long-term goals right in front of us and making the appropriate introductions so that the client knows what resources are available. We were very intrigued by that aspect of it.

Lebhar: I have someone who works with me in Prudential Mortgage Capital and said, 'Gee, I know this CEO of this major REIT and I think maybe I should pick up the phone and call him. My sense is they're going to do some mortgage financing, and they're not quite investment grade so they're not quite to the point of doing unsecured yet.' I said, 'We'll coordinate with Pru Securities because they're probably talking to that REIT, they have a big real estate group. Let's take the five minutes to talk to PSI, see who there is talking to the REIT so we're not stepping on each other's toes. It turned out there was someone at PSI who's also very close with the CEO who grew up in the same town who although they're not in the real estate group had helped with the relationship with PSI and this particular customer. So it's a simple matter to coordinate something like that. A couple of years ago, you might have just had the business units acting independently.

As it relates to my business unit, we do have some added motivation because of how competitive the market is. One Pru is a good concept and we're motivated because it makes good business sense. We coordinate with Pru Direct and Dave Stewart and his team, we coordinate with Pru Securities and I think there is some added fuel to us wanting to make sure we get every last bit of mileage we can out of the different resources.

A point that was being made a second ago, PMCC (Prudential Mortgage Capital Co.) was really created to be a kind of coordination point of things that already existed. PSI was already there with great real estate relationships, Pru Direct already had a lot of expertise in relationships. PruExpress was this great resource of affiliates and those things were there and there was the question of how do you coordinate those resources by tapping the capital markets component of the company.

Dave Stewart: To follow on Clay's remarks with regard to commercial real estate: We occupy a very special niche in the market. We don't do everything that everybody else does. We specialize in the top tier of the market. Of all the deals that we see, we probably only do 2 or 3% of the deals. So being able to pass those other deals off to Clay and pick up a much larger percentage overall for the enterprise is a tremendous opportunity.

Lebhar: It's really a broadening of the commercial product line if you look at it. It's having this very high quality requirement general account and now we can better serve our customers and borrowers because even if it doesn't fit the portfolio there are other ways we can deal with it.

Wayman: It is a leadership issue from the top down that's really opening the doors and starting to ask questions about what these other products and services are, have you made that phone call? No industry is an island and no company is an island. We have institutional relationships with so many different organizations. The increased integration, due to technology and initiatives like this, have made it easier to contact the appropriate person throughout the company to at least find out who the points of contact are on the institutional side. Whether it be the Strategic Partners Initiative or individual business center initiatives, there is a way to find out if there's somebody else touching that organization. Because the chances are, nine times out of 10, there's another Prudential business unit doing business with that institution. Through synergizing we can position ourselves better and ultimately drive added value to the customer by bringing units together.

John Rhodes: I think also there is a dynamic in the marketplace that although this may be perceived as internally driven, there is an external reason why it will be successful, and that is, there is a high growth in our economy for the mid- and small-size companies. Then there's the outsourcing mentality of the larger companies. If you can integrate yourself with a broader package of services and make it seamless and make it with lower headaches, then the smaller and mid-size companies say we never had that expertise and we need all of it, and the bigger companies are saying we had it but we don't want it as a core competency. And therefore if you can bundle yourself together, whether it be real estate, whether it be investment, whether it be the financial resources you need, or relocation services and all of the other HR-related services, a lot of opportunities are starting to form. The winners of this game are going to be those who have amalgamated together to make it a more seamless part of their company. They don't have the people inside keeping track of the pieces anymore. If we can coordinate the pieces, we're going to win.

NREI: Mr. Schweiger, how does this future partnering affect you on the charitable side?

Robert Schweiger: Speaking specifically about gifts and charitable gifts from real estate, in order to obtain a major client takes a long time. You have the element of trust that's injected. With the brand name Prudential you don't have to explain that away. They know who you are instantly, and it gives the connotation of trust and strength, all these adjectives that are necessary to get their business. I think it's a very positive thing.NREI: Do you think it will help you win some new business?

Schweiger: It already has.

NREI: We've talked a lot about branding and the Prudential track record, but let's talk about quality measurements. You are now involved in the new ISO (International Organization for Standard-ization) 9002 certification program. How important is that?

Gardner: That's the second part of the component. I started out by saying, 'What do I need to be competitive?' The first part is I need a formidable menu of services, I need a Strategic Partners Initiative. But then when you look at the major competitors we're going after, they're good competitors. They know what they're doing out there and they're doing a good job, so how can I make sure that the quality of this new initiative is going to be equal to the quality of their initiative. I would also add that you've got two different stratas that you're dealing with now. You've got the major brokerage houses which everyone knows. Then you've got the networks.

I did a lot of research on the networks and one of the biggest problems I saw was they're suffering from varying levels of quality service throughout their system. There is a fear of sending your best client that you've had for years to another broker. I struggled and looked long and hard to figure out how to deal with the quality issue. Ironically it was my brother who mentioned did I ever think about ISO 9000. I said, 'What's an ISO 9000?' just like almost everyone else did. ISO 9000 grew up in the '40s and primarily for the industrial and manufacturing sectors. Several years ago, it moved toward the service sector. It doesn't guarantee that you're going to get a quality product, but it guarantees that a quality process goes into the manufacture of the product or service. You get 21 standards that come from Geneva and you can petition them to say, 'This is applicable to us or it's not.' We did that and there are 16 standards applicable to commercial real estate companies. We took those 16 standards into six of our best companies and we totally turned them into commercial real estate standards. The end product is we have a quality manual and operating procedures for commercial real estate that I think is one of the finest quality programs in the country.

Now, it's easy to say we have a quality program. Everyone says they have a quality program. The difference with ISO is it is an audited standard. If a franchisee comes on board, they have to agree to the ISO standard, they have to agree to an independent auditor coming in and making sure they are adhering to the standards. If the auditor finds a nonconformance then there is 30 days to cure the nonconformance. If it's not cured they lose their certification. It's as simple as that. It's a self-cleansing system where when we say we're going to do something we're going to do it. It makes you walk the talk.

To give you an example, it's OK to have a customer complaint. But if you have a customer complaint, you have to document why it occurred, you have to document what you did to satisfy the customer and you have to document what you put in place to make sure that it won't happen again. There has to be a direct line to management authority so that there's no question as to who's running the organization so that there's no question to whom the customer should go to seek relief. There is a process for contract review, and in the environment in which we deal today with all of the liability issues we're facing, it only makes sense to make sure there is a documented process for contract review. In our ISO process, there are stop points along the way, and if it's up for contract review it better be in the file with initials. If not, that's a noncompliance when the auditor comes in, and the broker will have to explain why that happened and what they put in place to make sure it doesn't happen again.

One of the advantages we also have is not only is the franchisee subject to it, but as the franchiser I'm subject to it. So when I tell the folks that are joining our system and the folks that are in our system that we're going to do it, I better well do it. It'san audited standard for me as well. It actually puts teeth in the statement that you have a quality assurance program. As you know, NACORE is advocating all of its members to become ISO certified. Pacific Bell announced that its corporate real estate department was the first to become ISO certified. So we're going to lead the way in that regard for commercial real estate advisers.

NREI: How are you going to get that message out to the divisions?

Gardner: We're bringing in divisions and we're talking to them about what we're doing. Everything is evolving at this point.

Forbes: As we go out and talk to companies now, we're making a concerted effort to present the services of these business units and what Claude has done by being the first in the country to have this new service standard.

Ingwers: Our role is to be a corporate fiduciary for corporate clients, which means we have to be very objective in the service providers that we hire for them. For instance, if we're repositioning a property or whatever, we typically interview two or three brokerage companies and our task is to get the best team for that property in that market. So obviously as much as we like Claude and his group, we can't just hand them the business. We certainly want to invite them to the party and interview them to make them compete and evaluate them objectively, but a program like this starts setting them apart. It helps them compete more effectively, enabling us to hire them on their own basically.

Gardner: Internally, if any of these folks trusts us with business, an account, and something goes wrong they would submit to us something that is called a corrective action report. We have to answer the corrective action report. It is auditable. Since we have had this in place, the improvement has been incredible. A lot of times you'll have a problem and say, 'Oh yeah, I'll take care of that problem' and then all of a sudden you forget it. But when there's a corrective action report, and you're going to be audited on that corrective action report, action is required and necessary in order to pass the audit.

NREI: Where can I sign up for this?

Gardner: It's amazing the business it has generated for us already and I don't see any other way of doing business at this point because it just makes you run a business as a business. It's a risk-reduction program.

Ingwers: It seems like a real benefit in that it makes you do the right thing for the client. You're trying to ensure that the client is getting the best service, and with a check and balance like that in place, it starts the internal thinking on the right path.

Gardner: With Rick, it's especially important because with him being a fiduciary, we've got to make sure that things are handled right for him.

Patricia Walker: I was impressed. Claude has been talking about ISO 9002 since we've met him and no one really knew about this. We did have a problem, although minor and when a corrective action did appear on my desk I was impressed. I'd been dealing with brokers for quite some time and this was the first time that a problem was recognized and a resolution was suggested. And I think what's nice is that we are one Pru. It would be very easy for Claude to assume that we did not have to be approached regarding the problem. But it was there, the resolution was there, and I was impressed. This sets them apart in my opinion. We've just never been approached this way by a broker. They are setting themselves apart.

Ingwers: Do you see your competition doing the same thing now? Won't the other major houses follow suit?

Gardner: I've had two of the other major houses, which you know very well, already tell me that they are in the process of trying to develop their own ISO 9002 program. To my knowledge, we are the first to have a compliant program up and running. We hope to go to full registration in the second quarter. We intend to be leaders. We intend to be innovative. We've got to be because there are good competitors so we've got to stay on the leading edge of it.

Mike McLean: I think when you look at the clients who have gone through the process becoming ISO certified, they understand how difficult that process is. When you walk in saying you are ISO compliant and soon to be ISO certified, they appreciate that. They understand what it takes to go through that process and again, that's going to be a differentiator for us and it's already meant a difference to some of our brokers out in the field who have called on companies that are ISO certified. NREI: How will the ISO program plus the branding help you sell franchises?

Bill Theomont: It's of dramatic importance. I've spent most of my adult life in franchise marketing and I think this makes a huge difference. One example, internally, is it's a part of demonstrating to the Prudential family that we've become involved in something that's very special and gives them cause to pay attention to us and trust us. Certainly when myself or my team is calling on a non-franchised independent commercial real estate operation, we're asking that person to make an incredibly large decision, a life-changing decision with the most important aspect of their life outside of their family, their business. It gives us a tremendous double-barreled power when we walk in the door. We're walking in with the rock behind us and ISO 9002, and it gives me reason for optimism in terms of will we accomplish our task, that we become a premier network of commercial brokers. And the people who won't participate are the very people we don't want to participate anyway. We eliminate the people who are less than quality through the process as well.

Wayman: This is very consistent with Prudential's overall philosophy on business, which is not necessarily to be exclusively Prudential. If you look at so many of the benefits programs or what financial advisers can do, or what we can do from a fiduciary standpoint and operate other products and services that are not Prudential branded, but deliver the best for our client. In the relocation industry we work very tightly with Prudential Real Estate Affiliates on the residential side, and there was initially the question. As Prudential Relocation and as a Prudential Real Estate Affiliate, aren't you guys really too cozy together and am I going to get the best deal as a result. And we go to great lengths to get value added to the client as a result, whether it's through training, through ISO standards and certification or other initiatives that we take, not to necessarily say it's the exclusive relationship and that they will always be the right answer in every market in every place for every situation because we do have a fiduciary responsibility. I think if we can communicate that to the ultimate client and customer then they will put their trust in us and that ultimately drives a lot more business to the Prudential enterprise if we are faithful to not drive business that we can't properly service.

NREI: Are there specific qualitative measurements you will be taking?

Gardner: Let me answer that by sharing with you the vision I had 10 years ago when I joined. I've always been on the commercial side of Prudential Real Estate and I've always had the vision of us doing our own thing for commercial real estate because I thought it was needed. The overriding vision is to just build the highest quality network that exists in the country today. We're already strong in the secondary markets. We're now targeting the primary markets.

Rhodes: If you're trying to put your arms around who we all are and what we do, you would break it into two categories. Corporations are trying to manage their human resources and their facilities or fixed assets. The majority of people around this table are trying to help you either find, acquire or divest of these assets to optimize that portfolio. There are other people around the table that are trying to help you on the human resources side, which is moving people around from one asset to the other with a minimum amount of breakage to the organization. And then Moran Stahl & Boyer is trying to help make sure that you drop your assets in the proper locations that strategically meet your business needs.

Ingwers: I view Claude's group as almost our eyes and ears out in the market. We're all marketing to our prospective target market and if we had a large group of capable brokers out there that's more information that comes into us and itis helpful to all of us. It's broadening our base of information.

Participant in the Prudential roundtable met at the Swissotelin the Buckhead area of Atlanta.

Craig Forbes, Prudential Securities; Claude Gardner, Vice President, Prudential Commercial Services; Rick Ingwers, Prudential Corporate Real Estate Advisors; Jeff Jinks, Prudential Marketing-Richmond; Clay Lebhar, Prudential Mortgage Capital; Mike McLean, Manager Business Development, Prudential Commercial Services; John Rhodes, Moran Stahl & Boyer; Robert E. Schweiger, Prudential Trust; Dave Stewart, Prudential Express; Bill Theomont, Prudential Commercial Services Network; Patricia Walker, Prudential Corporate Real Estate; Peter Wayman, Prudential Resource Management.

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