04/01/2000

Corporate America Embraces the New E-conomy

By Todd Zeldin and Lee Asher

ACG Professionals, Inc.

Over the past several years there has been a growing trend for corporate America to outsource their real estate operations. Unlike years past when the motivation to outsource was based exclusively on reducing in-house personnel, today companies can improve their bottom line if they can focus on their core competencies and hire expert professionals to manage their real estate.

With increased pressure on senior management to reduce costs and improve earnings, outsourcing becomes a valuable method to achieve these goals. Traditionally companies outsourced their real estate to only the largest providers who emphasized transaction-based services and their national network of brokers. Strategic consulting is what corporate America demands from the brokerage industry that has historically been more interested in its own bottom line than its clients'.

Today companies are demanding more than just brokerage services – they want to establish strategic relationships with firms who provide value-added services and programs that will improve their bottom line. Creative solutions are coming from the most unlikely of firms – local, niche companies delivering better technology, communication, analysis and integrated solutions. While many of the national corporate real estate providers battle each other (and sometimes themselves) and are slow to change, their local counterparts are successfully signing up national accounts by differentiating themselves through these value-added services.

"Brokerage is a commodity business," says Bob Boyd, Director of Corporate Real Estate Services of Advantis, a wholly owned subsidiary of St. Joe Company. "Corporations want more than just a transaction facilitator – they want value-added services. It is imperative that we find creative ways to add value to our clients if we are going to grow our business."

The industry is clearly looking for solutions that remove it from offering just transaction-based services. Those companies that do not find other value-added opportunities could face a shrinking market. "The last place we want to be is the low cost provider of a commodity service," adds Boyd.

Technology is Key

Leading service providers are leveraging technology to understand the dynamics of an existing portfolio and the resulting impact new decisions make on the bottom line. Specifically, technology allows a company to access the mountains of data that are held hostage in paper format and filing cabinets and to use that information to better understand the impact of real estate costs to net earnings. For example, document management systems are a beginning step to determine what corporations have accumulated over the years and the resultant financial obligations that in many cases have yet to be understood.

Intertech Information Management, Inc., an Atlanta-based company with industry leading web-enabled document management technology, is making great inroads to provide the real estate industry with tools that will help reduce costs and understand future financial considerations. According to David Brehmer, an InterTech executive who focuses on the real estate market , there is increased demand for web access to lease documents that historically has been stored in filing cabinets. "Instead of running around the office looking for a lease, companies are scanning in their documents so they are accessible anytime, anywhere by those who have privileges to view them,"adds Brehmer.

Imagine having the ability to view a CAM clause in a lease abstract and instantly be able to refer directly to the location in the lease itself where that CAM clause resides – all over the web. Such creative solutions are being developed and are expected to hit the streets before year-end.

One of the most important considerations is the underlying marketing appeal of embracing technology. Going forward, clients' expectations will be significantly raised by the elegant adoption of technology across all industries. Real estate service providers must acknowledge this trend.

Adrian Schmidt is President and CEO of Crowd Control Interactive (www.crowdcontrol.com), a company that develops web-based analytical software for Application Service Providers (ASPs). An ASP is a company that provides the use of an application – from basic e-mail to enterprise applications – based on on-going usage fees. The ASP either hosts the applications on the customer's site or houses the applications at data centers. If the ASP houses the applications, it is ultimately responsible for maintaining the hardware, software and network services as well as linking the applications to the customer base. According to Mr. Schmidt, the real estate industry has been inordinately paper and data intensive. "The proliferation of the browser and networked devises make the ASP model ideal for the real estate industry," says Schmidt.

Communication and Analysis

The adoption of technology boils down to how people communicate, what information they want to share and how they access that information. It will no longer be acceptable to simply provide corporate clients with periodic spreadsheets that track current and future leasing activity. Furthermore, given the demand on the corporate executive's time and the amount of work that preferred vendors must do to maintain relationships, face-to-face and live phone conversations will become increasingly difficult to coordinate and execute.

Electronic and web-based communications allow clients to access any piece of information anytime and anywhere. Gone are the days of Excel and ACT! serving as the primary tools used by corporate real estate service providers. With the proliferation of the web, communication away from the desktop and on to hand held devices like the Palm Pilot will become the norm.

The next generation of web-based applications for the real estate service provider will allow brokers to add-value to the relationship beyond negotiating the deal or overseeing the construction management. The commercial real estate service provider will be able to convert the mounds of data into knowledge and develop proactive strategies to reduce occupancy costs, maintain current information about leased properties and communicate the current inventory of assets by property type, location, square footage and the like. Brokers will be able to combine the commoditized property and market data being made available today by CoStar or LoopNet with the corporate client's lease information and then analyze it in ways never before considered.

Commercial real estate service providers will be able to better understand costs – both facilities costs and other per desk charges – and communicate to their clients how to reduce their operating expenses. For example, a law firm will be able to evaluate the costs associated with each office, department and desk and analyze trends so that they can hire new attorneys into the practices that are contributing most to their bottom line. Partners who choose to occupy multiple offices and mismanage their department's allocation of space will be charged accordingly and their personal earnings will be impacted.

E-volution versus Evil-ution

Profit and survival of the organization are the highest concerns. Knowing what exposure one has is paramount to its survival and profitability. Companies want to align themselves with corporate real estate service providers so that they contribute to key strategic and organizational issues and not just deliver transaction-based services. An integrated technology solution that includes lease administration, transaction management, accounting, human resources and payroll will create opportunities for real estate providers to be asked to participate in key strategic decisions. One way firms are adding value is through creative partnerships that are changing the traditional compensation structure of the corporate real estate provider.

As new technologies come to the corporate real estate industry, the traditional brokerage commission will slowly evaporate and what will emerge is a compensation structure more consistent with a traditional consulting firm. Corporations have already started sharing fees and forming strategic alliances with their outsource partners in order to share in the wealth that they themselves generate. New technologies will change the role of a broker from dealmaker to strategic consultant. How service providers react to this role change will directly influence their future success or failure. Smaller, niche companies from local markets are embracing these new roles and are landing national accounts. As corporate America moves away from the model that several firms will provide them with services and replace that with a single outsource provider who will manage all of their real estate needs, creative solutions including the elegant adoption of technology and the restructuring of the traditional commission-based compensation schemes will prove to be the differentiator in a crowded field of providers. Old-school brokers may refuse to accept these changes, blaming management and attributing evil intentions to their competition. Those sentiments will not land them future business and will only increase the likelihood that their existing clients will take their business elsewhere. The industry has evolved to the point where corporate America is more savvy with respect to who they embrace as their partners, and the early adopters of this new E-conomy have a running start. There is good reason to be paranoid, for only the paranoid will be assured a place in tomorrow's history books.

If you would like to address any interests, you may contact Todd Zeldin at tzeldin@acgpro.com.