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Transcript of Business Research - Corporations Shift from Facility Centric Operating Models to People Centric...
Corporate Real Estate A Strategic AssetJohn Reardon
Cornet Global - COO & Director Global Integrated Strategies The 90's See A Structual Change To Corporate Operations
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CORPORATE REAL ESTATE (CRE)
Corporations represent the largest owners of commercial real estate in the United States
The Global Corporate Real Estate (CRE) Platform: 40 Billion S.F. of Commercial Real Estate Worldwide
Real Estate constitutes from 25-40% of the value assets on the corporate balance sheet
What is corporate real estate (CRE/CIR) management ?
Simply stated, corporate asset managers strive to add to values of shares of stock in their companies by wise deployment of real estate needed for current business purposes.
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The International Development Research CouncilA Global CRE Learning Organization (www.IDRC.org)
3600 Corporate Real Estate Executives in 27 Countries Controlling 23 Billion sf of facilities worldwide
The Average Corporate member has a minimum of 1.6 Billion USD in Assets with annual sales exceeding 1 Billion USD per year
Corporate members employed from 5000 to 400,000 workers and undertook over 200 real estate transactions per year
IDRC – Operates full time offices in the United States, Europe, Asia, Australia and the Americas.
The World Wide Global Offices are headquartered in Atlanta Georgia.
– Manages active Corporate Real Estate Research on five continents and within 27 countries working with senior level corporate executives and key universities within each region.
– Provides professional training to senior executives of corporate real estate departments, service industry support firms and not for profit public facilitators of the industry groups.
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PRESENTATION FOCUS Corporate Real Estate’s Rise To Visibility
CRE A Fifth Resource In The Corporate Expansion/Recovery Strategies of the 80’s; The 80s & 90s Global Mergers, Acquisitions and Expansions driven in part by Real Estate as a Fifth Resource.
Changes In CRE That Brings A New Strategic Operating Focus For Corporate Real Estate, Business Managers and Shareholder Value;Moving From CRE Place Centric Focus, To A People Centric Focus, with Technology as an Enabler
Corporations and Service Providers Restructure To Meet The new CRE Just In Time Real Estate Models and Create a Liquid Asset ;The evolving service alliances, new mergers, expanded portfolios, access to just in time capital, global communication systems and global real estate delivery capabilities for an integrated global corporate cultures driving new accelerated business cycles and just in time Value Added CRE/CIR services…”
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Business Survival, Leading To Restructuring & GlobalizationIn the early 1980s business and general operating companies began to move out of the roaring seventies and into the depressed eighties faced with a major U.S. down turn, overbuilding in real estate and a glut of surplus properties in N. A..
To Survive, Firms Began to Address Three Strategies
1. Tighten Operational Costs and Wait out the Cycle
2. Consolidate national and regional centers and acquire other firms, new products and services to reposition the firm
3. Free Up capital in corporate real estate and acquire new capital to expand further into new markets.
HOW DID CRE GET TO WHERE IT IS TODAY
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Testing New Global Structures
Early 80’s
Key Global Technical
Advancements
Early 90s
Concepts of People Centric Work VS Place
Centric Work
Globalization Of Real Estate & Operating Companies
New
Glo
bal S
truc
ture
sR
estr
uctu
ring
U.S. Corporate Restructuring CycleGlobal
Repositioning
Recession
Reductions & Tightening of Operations Repositioning
Nat’l & Global Mergers &
Acquisitions
New Down Cycle Begins
Early 2000’s
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First Strategy Early 80’sTighten Operational Costs and Wait out the Cycle
The first strategy saw new concepts in TQM to refine operations and squeeze out excess costs and inefficiencies. The move in this direction would bring forward the European and Asian systematic approach to refined operations under such models as ISO management.
Indirectly these new operational refinement strategies would begin to build new tiers of B2B relationships with U.S., European and Asian operating firms, service providers and CRE executives laying a foundation for a new global community
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FrankfurtParisMunich
Dublin
Milan
Amsterdam
Helsinki
Copenhagen
Madrid
Stockholm
Zurich
London Berlin
RomeLisbon
Birmingham
Lyon Vienna
Dusseldorf
Barcelona
Glasgow
Hamburg
Brussels
Oslo
Athens
Prague
Budapest
Warsaw
Moscow
EUROPE
ISO
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Singapore
Sydney
Hong Kong
Tokyo
Brisbane
Melbourne
Beijing
Guangzhou
Bangalore
YokohamaOsaka
NagoyaSeoul
Taipei
Jakarta
Kuala Lumpur
Bangkok
Delhi
Mumbai
Shanghai
Manila
Tianjin
Global Growth LeadersDeveloping Business CentersDeveloping CitiesEmerging Markets
ASIA PACIFIC
TEAMS
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Second Strategy Late 80’s Early 90’sConsolidate national and regional centers acquire other firms, new products and service lines and reposition the corporation
• The second strategy would fuel the surplus property glut in N.A even further and assist in driving real estate values to record lows
• The loss in real estate values would be the foundation for major banks, investors, developers and a host of institutional collapses
• Litigation Related To Environmental Issues Would Surface During This Consolidation And Disposal Period Driving Critical CRE OperatingFacilities Decisions Into Off Shore Locations
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MontrealToronto
New YorkWashington D.C.
ChicagoLos Angeles Boston
North America Real Estate Market Collapse
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Third Strategy Mid 90’s Free Up Capital from Corporate Real Estate To Expand Further Into New Markets
The third strategy would use real estate in an expanded way
Many firms in N.A. throughout the sixties and the seventies had paid down their real estatemortgages and depreciated the assets on their books. This hidden equity became known as the “Fifth Resource” and as attention was focused on these assets for rebuilding, the $ billions of untapped equity would fuel a round of hostile take overs that would begin the reshaping of corporate America, Europe, and Asia.
Beginning in N.A. firms leveraged the acquisition of other firms in part through their real estate as a major hidden asset. European corporate raiders would build on this trend as would Asian partnerships. The eighties and nineties would become the decade of change and reorganization
The foundation pieces that would build a new global community of capital, business operations and managers was falling into place.
The late 90s would bring the “Big Boom” of technology and communication that would place globalization into hyper drive and real estate into a world platform with a fluidity that we see new models for tested daily.
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FrankfurtParisMunich
Dublin
Milan
Amsterdam
Helsinki
Copenhagen
Madrid
Stockholm
Zurich
London Berlin
RomeLisbon
Birmingham
Lyon Vienna
Dusseldorf
Barcelona
Glasgow
Hamburg
Brussels
Oslo
Athens
Prague
Budapest
Warsaw
Moscow
Global Growth LeadersDeveloping Business CentersDeveloping CitiesEmerging Markets
EUROPE
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Singapore
Sydney
Hong Kong
Tokyo
Brisbane
Melbourne
Beijing
Guangzhou
Bangalore
YokohamaOsaka
NagoyaSeoul
Taipei
Jakarta
Kuala Lumpur
Bangkok
Delhi
Mumbai
Shanghai
Manila
Tianjin
Global Growth LeadersDeveloping Business CentersDeveloping CitiesEmerging Markets
ASIA PACIFIC
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What Is Happening Now
PLACEFOCUSCENTRIC
PEOPLEFOCUSCENTRIC
As Business Moves Towards A Global Community
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Place Fixed Location Specific Costs related primarily to asset Costs relatively insensitive to
usage Cost decisions are fragmented
between different functions Costs are indirectly linked to the
work performed
People» Variable» Mobile (follows the user)» Costs related primarily to individual
needs» Costs directly related to usage» Cost decisions are integrated
» Costs directly linked to work performed
Place Centric Vs. People Centric
THE BEGINNING
Separation of People, Technology And Space Creating and Refining New Models Defining Real Estate As A Virtual and Flexible Platform Maximizing Individual
Usage, Value Added And Cost Benefits
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IBM Testing New Concepts
25,000 employees in program Primarily field sales personnel Hoteling Office , Density Ratios 8:1 Low, 12:1 High Primarily a “Mobility Program.” Telecommuting on an as needed basis. Annual Real Estate Savings: $1 Billion (30% off base) Key Issues:
– Laptop Memory– Access costs– Band Width
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Coopers & Lybrand Testing New Concepts
Office Hotel Model (Telecommuting on an individual basis) Targeted at all professional and managerial staff (including partners) $60 Million per year annual real estate savings off a $160 M Base. (38%) 2.5 years into program 4.5 M sq. ft. reduced to 2.0 M sq. ft. Targeting suburban locations...maintain customer meeting facilities in CBD.
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ABB Testing New Concepts
30% reduction in floor space Factories in Europe consolidating into small, multi functional, low cost facilities Aiming for 3-5 year lease terms for factories Over 50% of products are less than 5 years old Products assembled and distributed close to the customer. Expect occupancy costs to be 1% of revenues
Inversion of Real Estate Value
4/1 Cost ratio$400/Technology Unit Costs to $100/Real Estate Unit Costs
Productivity Driven By Technology & People Creating New Corporate Value
Physical Space Changes To Any Place, Any Where, Any Time
Note: Product/Service Life Cycles Changes Evolving
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TRADITIONAL PRODUCT/SERVICE LIFE CYCLE
New Product or Service Concept
Introduced
Idea Gains Support &
Acceptance
IDEA Joins Main Stream
Competitors Create Knockoffs
Competition Grows
Original Replaced By
Next generation
15-25 yrs60’s80’s 7-10 yrs
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PRODUCT/SERVICE LIFE CYCLEIn A Networked Global World
New Product or Service Concept
Introduced
Idea Gains Support &
Acceptance
IDEA Joins Main Stream
Competitors Create Knockoffs
Competition Grows
Original Replaced By
Next generation
90’s 3 months-3 yrs
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GLOBAL CRE TRENDS CRE:Corporate Real Estate Changes To CIR : Corporate Infrastructure
Resources Management…..Convening the Work Place…. [CIR Combines CRE, IT, HR, Productivity and Shareholder Value Over Time]
Owned CRE
Leased CRE
Alternatives
Entrepre-neurism
Just In TimeCRE/CIR
Maximum ControlNo Flexibility
ControlLimited Flexibility
ControlGreater FlexibilitySynthetic LeasesSale Lease Backs
High CostsCapital & Exit High Exit Costs
High Exit Costs
Lower CostsMaximum Flexibility & Speed
Conveningand
MaintainingThe WorkforceEnvironment
Time Sharing Models
Matching Market Options
Merged Service Providers&CRE Portfolios
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CRE/CIR TRENDS CRE/CIR Managers
– Becoming Business Strategists– Other Activities Being Outsourced
Taskmasters
Controllers
Dealmakers
Entrepreneurs
Business Strategists
EngineeringBuildings
MinimizingBuilding Costs
StandardizingBuilding Usage
Matching Market Options
Conveningthe
Workforce
Technical Analytic ProblemSolving
Business Planning
Strategic
CRE END GAMEFlexible Occupancy of Just In Time Real Estate
Maximum ControlMaximum Productivity
Maximum Bottom Line Shareholder ValueCost Cycles With Product/Service Life Cycle
Traditional Models of Cost, Productivity, and Limited Flexibility Move Towards Real Estate as a Liquid Asset