Technology, management-speak keys to success in the '90s

Participants in the 22nd annual International Association of Corporate Real Estate Executives (NACORE) Symposium and exposition held Oct. 7-11 at the Century Plaza Hotel in Los Angeles were hammered with two consistent themes -- make technology part of your everyday professional life and learn to talk in management's terms, or risk being left behind in the new Communications Age.

NACORE emphasized the importance of technology from day one by showcasing a special Technology Pavilion, sponsored by E&Y Kenneth Leventhal Real Estate Group, San Francisco, as a major part of the exhibit space.

Following on the heels of the Simpson verdict, outgoing NACORE chairman John Blake, senior vice president of The Hertz Corp., kicked off the symposium by making the audience take a solemn oath to not mention one Orenthal James O.J. Simpson during the symposium (you might remember the image of O.J. galloping through airports in long-ago Hertz television commercials).

Blake summarized NACORE's "orderly expansion internationally," including its opening of a London chapter with 125 members and plans to open a future chapter in Paris. NACORE also will concentrate on educational programs in Warsaw and Europe next year and is working on plans to create an Asian presence with the opening of a chapter in Singapore.

He also explained how the ongoing proposal to joint venture an educational program with the International Development Research Council (IDRC), Atlanta, had been rejected by the NACORE board of directors. NACORE has created a national honors program that will be implemented in 1996.

Steven Soboroff, managing partner of Los Angeles-based Soboroff Partners and president of the Los Angeles Recreational and Parks Division, said even though land prices in Los Angeles have dropped 40%, "the real estate business has survived, they are more efficient than ever and they're getting things done," said Soboroff. "It's a wonderful window of opportunity."

Robert Lowe, president of Lowe Enterprises, Los Angeles, spoke highly of the nation's industrial real estate market, and specifically L.A.'s. "For the first time in five years, demand is outpacing supply," said Lowe. "Besides, where else can you eat a kosher burrito, swim in the ocean and climb a mountain, all in one day?"

Jim Webb, real estate professor at Cleveland State University and executive director of ARES (American Real Estate Society), discussed the recent joint venture launched between NACORE and ARES called the NACORE/ARES Corporate Real Estate Research Foundation. The effort provides a unique blending of corporate real estate executives and members of academia. "The potential synergy here is tremendous," said Webb.

Essentially the venture is designed to provide important real estate research to NACORE members to use in their everyday work. it will be governed by a board of directors, including John Davis of Koll, Lane Premo of the Southland Corp., Dr. Webb, Stephen Roulac of the Roulac Group and one other member elected from outside either organization.

Mark Hoewing, NACORE executive director, begins his term on the ARES board in March 1996. In keeping with the technology theme of the symposium, Michael Evans, national director of real estate advisory services for E&Y Kenneth Leventhal Real Estate Group, San Franisco, challenged NACORE attendees to consider all of the ramifications that technology will have on their lives.

"Think about where we're going to be 10 years from now, and where you're going to have to be to take advantage of the new technologies," said Evans. "All of you are going to have to move to integrate technology into your businesses to satisfy your employers in the future. There's a need for real-time, worldwide data. Technology is nothing more than the means to an end," said Evans.

Grubb & Ellis' executive director of institutional and corporate accounts, John Carpenter, agreed that technology will provide answers to complex questions, but it may not necessarily be easy to embrace. "We'll be faced with new solutions to old problems, and also some new problems as a result of the new solutions," said Carpenter. "It's not enough to have these new technologies, but you must restructure your organization to effectively utilize them."

Ultimately, it still comes down to being a people and relationship business. "NACORE is all about friendships," said Richard Lackey Jr., vice president of Atlanta-based Bryant & Associates and named NACORE's associate member of the year.

George Fiore, vice president and general manager of real estate for The CIT Group, Livingston, N.J., agreed. "The key to success in this business is people. If I've learned anything in my 40+ years of real estate experience, the single most important aspect is people. And the heart and soul of NACORE is the networking."

New leadership will be key to the future direction of NACORE, and James Sipp, vice president of White Castle System Inc., was installed as NACORE'S new chairman for a two-year term.

"The IDRC investigative process is over, and now we are getting on with the future," said Sipp. He dispelled the myth that NACORE is not growing, saying it is the fastest-growing real estate organization in the country. He also stressed the importance of NACORE'S involvement with the MIPIM conference it helped to found in Cannes, France. NACORE is. also co-sponsoring the upcoming MAPIM retail real estate show in Cannes later this month.

Continuing its international expansion, an Asia MIPIM conference is being scheduled for 1996.

On to the seminars

Editor's Note: To provide you with the most important information available at the NACORE symposium, National Real Estate Investor attended a select group of on-site educational sessions. The following are summaries of those sessions.

Corporate reinvention: Meeting our customers' needs

"Corporate America is using real estate in ways it didn't think possible even two or three years ago," said Barry Libert, worldwide managing director of real estate at Arthur Andersen & Co., Boston. Libert also said a developing "infostructure" will link managers to their customers in the future.

Richard Kennett, director of corporate real estate at Xerox Corp., Stamford, Conn., said the new technologies allow Xerox to analyze data better and more efficiently, but it's not a perfect science just yet.

"Internally we are shifting from lone work to group work, while telecommuting is going against that," says Kennett. "The challenge is how do we connect the workplace."

Cesar Chekijian, senior vice president corporate properties group at Chemical Bank, New York, has seen the number of U.S. banks rapidly consolidate, perhaps hitting only 4,000 nationwide by the year 2000, down from 10,000 today.

Chekijian expects the merger of Chemical and Chase Manhattan to produce a total portfolio of 39 million sq. ft. worldwide. A large component of that space, some 8 million sq. ft. of it, is surplus third-party-tenanted space. Chekijian said that number will only increase in the future.

"We're starting to learn how to be landlords, and managing third-party-tenanted surplus properties," said Chekijian.

Learning new ideas to stay in front of the business was a common theme for many. Where once long-range planning was the order of the day, today's shifting marketplaces put a premium on flexibility and solutions management.

"The past three years have taught me that planning for five years is a long-term deal for the Disney Company," said George Garfield, director of facilities and services at Disney Development Corp.

"Change right now is at worst chaos and at best organized chaos," said Kennett. "The first thing to analyze is what business you are in. Study it. Think about it." New ways of thinking are the order of the day. "We're getting out of the space management business and we're getting into the workplace business," said Kennett. "The key driver is technology."

Garfield pointed to a recent example within Disney of how solving space-need requirements can demand a customized approach.

Disney's Interactive Division grew from 12 employees to 300 in just 18 months. The division was located on the 20th floor of a high-rise office tower. "That wasn't where they wanted to hang out anymore," said Garfield. In other words, the group's culture did not demand traditional office space.

From a functional perspective alone it didn't personify the group. They didn't want to ride up the elevator with the `suits,' said Garfield.

The division also needed more space, and it needed it to be more creatively organized. Disney changed its real estate model and went with a more industrial/R&D-type setting. This produced a more productive environment and slashed the division's cost structure by 55%.

"That's the kind of thing we're trying to coordinate across the board," said Garfield. Disney found that it could not necessarily standardize all parts of its real estate program, and it has instead turned to customization more and more.

Kennett is following a similar path. "I don't believe customization is a choice. It is being mandated."

The bottom line is that more corporate real estate executives are working less on transactions and more on strategizing and corporate consulting.

"We are moving away from the transaction business and into the consulting business for the client," said Kennett.

"We really have to become an internal consultant to the company's business units," said Garfield. "Manage the portfolio globally, yet have the flexibility to customize."

The future of corporate real estate:NACORE/ARES forecast

Over the summer, NACORE teamed with the American Real Estate Society (ARES), an association of 1,500 real estate professors, to create a new foundation called the NACORE/ARES Corporate Real Estate Research Foundation, which is devoted to corporate real estate research. In August, the first step in that relationship was a survey, conducted through the real estate department at Georgia State University in Atlanta, of 18 corporate real estate executives from across the country.

Neil Carn, a member of the real estate faculty at GSU's college of business administration, presented a lengthy report on the preliminary findings of the delphi study. For more specific information you can contact NACORE directly.

Benchmarking that works

A second NACORE/ARES joint study is being conducted in conjunction with the International Benchmarking Clearinghouse (IBC), a subsidiary of The American Productivity and Quality Center (APQC), Houston. The goal of the study is to provide corporate real estate executives with information from others who have conducted benchmarking studies, rather than relying on word-of-mouth.

Abstracts of case studies and benchmarking reports will be available to NACORE members via an on-line data service. "The goal is to collect precise summaries on what's been done (in benchmarking)," said Glenn Dickson, NACORE's assistant executive director. "The intent here isn't to offer a complete apples-to-apples comparison, but to give you leads," said Dickson.

NACORE is partnering with Re*View Online, a real estate database program created and run by Argus Business in Atlanta, the publisher of NATIONAL REAL ESTATE INVESTOR, SHOPPING CENTER WORLD, and three regional real estate publications. Re*View also has an Internet presence, which provides an instant database that is available to the world.

"We see it as taking advantage of the electronic capability and becoming a widely used tool for corporate real estate executives," said Dickson.

Dickson also said a semi-annual directory will be available for $20.

Many companies have adopted benchmarking as an important way to gauge their success or failure. But questions still remain about what types of benchmarking work best, who should be studied, and how should the information be interpreted.

Martha Whitaker, senior consultant at HOK Consulting, St. Louis, led the panel's discussion on benchmarking and how to use it effectively. "It's an education program throughout the organization. The first step in benchmarking is to know who you are."

"Our clients are looking to measure performance for the first time," said Ed Noha, senior vice president with LaSalle Partners, Chicago. "If you just give them the numbers you're only giving them half of what they want. It (measuring) enhances the credibility of the organization." LaSalle Partners has conducted 10 benchmarking studies with the real estate departments of more than 70 corporations since 1987.

Gail Dimitroff, director of APQC's western operations, said benchmarking is often linked with re-engineering. "With benchmarking, we free up our thinking. It stimulates the imagination and creativity."

More attention is also being paid to what other industries are doing, since ideas can come from anywhere. "The bulk of our clients are looking to do apples-to-apples comparisons, but we have seen more who want to look to other industries for comparisons," said Jonathan Webster, director of corporate real estate at London-based Procord Ltd.

"As you're about to present it (formalized benchmarking data to management), that's when the rubber meets the road," and you have to qualify and interpret what you've obtained, said Jean Boles, manager of business and strategic planning for Xerox Corp.

Making the most of outsourcing

Outsourcing will remain a favored avenue for corporations to cut or maintain their real estate costs.

Outside vendors offer special skills and can devote the required time to sometimes complex brokerage or management problems that corporations often can't. But without an adequate selection process for a service provider and the proper communication of goals, outsourcing can just as easy blow up in your face.

"Our RFP process is serious," said G.T. Morris, IBM'S southeast operations real estate services program manager who is responsible for the firm's 4 million sq. ft. portfolio in Atlanta. "Communication is key. We give them the information and let them do their jobs while telling our people to take a step back. We tell our managers that they are still responsible, and they need the vendor's help."

Morris stressed that there's no holding back on providing data. Vendors are involved early on in the planning and have e-mail access to management throughout.

Dana English, facility planning manager for Xerox Corp., said vendors are included in internal training sessions and thoroughly understand Xerox's goals.

Brokerage outsourcing by U.S. West has resulted in a 65% reduction in in-house staff and a 60% reduction in cycle time, said manager of real estate James L. Hayek.

Tim Taylor, director of corporate real estate for AT&T Capital Corp., said the firm has cut real estate costs by $512 million. And, "outsourcing has freed up the rank and file to focus on strategic issues," he adds.

Despite potential problems with service providers like personnel turnover, complacency and inefficient measuring systems, observers agree that outsourcing will continue to grow and contracts will get more performance-based. But they also say that there are as yet no full-service, nationwide providers. As a result, vendors are likely to form more alliances.

"In general, outsourcing has done what we thought it'd do, but during the past cycle, the market was in excess and there were many providers," Morris said. "Now the market is tighter and there are fewer providers. I think the next two years will be very interesting."

Thinking outside the box

It may come as no surprise that survival tactics are part of everyday corporate life, and the real estate function is often overlooked within the larger organization unless it becomes the squeaky wheel that gets the grease.

"We're in the real estate services business," said Gerard Vanella, vice president of the corporate properties group at Chemical Bank, New York. "Going forward, we must meet the strategic plans of the corporation. When was the last time we read the company's annual report? The message is, think on a higher level, not just transaction to transaction. God knows we loved transactions, but that's not what this business is about anymore."

A prime example is William Divine, former general manager of real estate for Volkswagen of America. VW's real estate division, Vorelco, Inc., right-sized itself from a peak of 42 people down to only 12 in 1994. Divine, along with corporate properties manager Michael Carroll and retail properties manager Al Murawski, saw the handwriting on the wall, but also recognized an opportunity at the same time.

So they got entrepreneurial. They came up with a plan for their own company that could at once serve both VW's outsourcing needs as well as capture other corporations' outsourcing functions. The end result is CORE Resource, formed in January 1995

On the compensation front, expert Ralph Parilla. president of Parilla & Associates, Plantation, Fla., presented an outline of a new compensation survey of the corporate real estate industry. According to Parilla, corporations are trending away from the traditional base salary and moving toward incentive compensation based on performance and corporate health.

This year, 9.1% more execs are bonus-eligible and bonuses went up more than base salaries. "That's an encouraging trend," said Parilla. Salaries rose 4.7%, while bonuses were up 5.2%.

The bottom line still hinges on fewer people doing more. "We're seeing smaller staffs, but they will be more noticeable," said Vanella. No one has time for transactions anymore. It affords us an opportunity at a much higher level. We have to start thinking and behaving like a consultant. The days of waiting for the next transaction to come to us are long over."

What do you do when you're a major 1990s corporation looking to cut your $700 million in anual real estate occupancy costs?

You stick your neck out and get creative, that's what.

Pacific Bell, a $24 billion firm with about $2 billion in real estate assets based in San Ramon, Calif., is 75% into a two-year re-engineering of its real estate department. The goal of the plan is to cut staff and reduce its decision-making cycle time; the was that the company's systems weren't compatible. In an industry as dynamic as telecommunications, the re-engineering of the Pacific Bell's real estate department could add tens of millions of dollars in collateral value to the firm.

The unique thinking brought to bear on the company's real estate holdings earned its CEO, Dave Dorman, NACORE's CEO of the Year Award at the organization's recent annual symposium.

In accepting the award for Dorman, CFO Peter Darbee cited Pacific Bell's open-office architecture as a key component in the overall plan to reduce costs and increase productivity. "I view real estate as a strategic component in creating a competitive advantage," said Darbee.

Pacific Bell first had to understand how it used its office space, and thanks to a benchmarking study it decided the best strategies for reducing its rental costs. "We asked ourselves if we needed all of the office space we had. The answer was no," said Darbee.

The communications company spends about $700 million in occupancy costs per year. Already, Pacific Bell executive director Marshall J. Cochrane, who heads a 515-person real estate department, has overseen the reduction of its portfolio from 30 million to 28 million sq. ft. and from 1,600 to less than 1,500 locations. By implementing and customizing compatible systems, he expects to generate a three-to-one payback, primarily by using technology and downsizing staff.

The goals were to reduce occupancy costs by 25% over the next five years and empower the corporate real estate executive as a decision-maker in all facility matters.

The end result is nothing short of a complete alteration of the traditional workplace. "The private office is an endangered species," said Darbee. Some of Pacific Bell's managers now work at home or on the road. Telecommuting is the word of the day. More than 1,700 managers telecommute. The company also opened a state-of-the-art hoteling center.

"If we don't use technology to empower, engage or lead change, then the ability to process the change will be overwhelmed," Cochrane warned.

The ambitious payback was a prerequisite to securing the financial commitment from Pacific Bell's management. The firm took an $800 millino writeoff to fund the changes, which, unlike many firms, allowed it to pursue a major commitment versus a series of small moves.

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