By Cheryl Walker
After payroll, real estate and facilities are the next largest expense items for many companies, from 15 to 30 percent of the operating budget.
“As with any cost related to operating a business, owners may choose to pay no attention to their facilities planning, which allows inefficiencies to develop,” says Kevin Gallagher, vice president, Colliers Turley Martin Tucker. “The other option is for business owners to be strategic, viewing real estate expenses as an investment and aligning the real estate plan with corporate objectives.”
This normally requires a savvy real estate department or a partnership with expertise in all aspects of real estate and facilities.
David Thiemann, area president, Trammell Crow Co., adds, “This concept of real estate outsourcing has been gaining momentum in St. Louis over the past 24 months. This is a conservative city, but we’re embracing a progressive concept, because it adds value and can save up to 30 percent on a variety of real estate services.”
For companies whose core business is not related to real estate, outsourcing facilities and location planning to a strategic partner might be an ideal alliance. The process of real estate outsourcing forges a partnership between a client company and a real estate management firm with capabilities that match the client’s current and future needs.
According to R.A. Herrington, senior vice president of the CB Richard Ellis Corporate Advisory Group, other benefits of real estate outsourcing or corporate advisory services include simplifying the process and shortening the cycle time of real estate planning for each location.
“It’s about integrating real estate’s function within the company, so it isn’t disjointed,” Herrington observes. “The attraction for a company with a multi-market environment is that a national real estate provider can give consistency to the process rather than having 50 different approaches to handling the same real estate issues.”
Though real estate outsourcing got its start during the real estate market downturn of the early 1990s, Gallagher sees it as a service that can add value whether a client’s business is growing or consolidating. “The ability to analyze a company’s facility needs, develop and implement a real estate plan, should be essential regardless of the economic conditions,” Gallagher observes.
Herrington adds, “Mergers and acquisitions are a major reason for the rise of corporate real estate services. Firms like CB Richard Ellis can share their knowledge of industry best practices as two companies develop a new plan to manage their consolidated portfolio.”
Services under a real estate outsourcing contract might include: planning and budget development, contract negotiation, lease and portfolio administration, facility management, brokerage services, construction or remodeling, move or transition management, interior design and furnishings. And in the area of facility management, clients get the benefit of their real estate partner firm’s bulk purchasing power, lowering the cost of items such as light bulbs and wastebasket liners.
Real estate outsourcing is known as corporate services at Colliers Turley Martin Tucker (CTMT), a familiar name in St. Louis real estate. According to CTMT’s Gallagher, corporate services makes a science of the entire real estate process, giving clients the most value for their real estate dollars.
One of CTMT’s major accounts is Edward Jones Investments with offices in the U.S., Canada and the United Kingdom. Gallagher explains CTMT provides a suite of services to Edward Jones from analysis to management, including leases, transactions and moves. The benefits of outsourcing for Edward Jones are consolidation of more than $3.7 million in monthly rent payments, development of a corporate real estate information systems, and implementing a turnkey transaction approach that allows for more than 100 new Edward Jones offices to open each month.
Thiemann says Trammell Crow’s 75 corporate services clients have access to the expertise of the company’s 6,000 member staff worldwide. He adds, no two contracts are identical. Each set of services is customized.
“We’re a facility management partner for NationsBank,” Thiemann continues. “Trammell Crow assumed real estate coordination for all properties following their acquisition of Boatmen’s Bank. The services include brokerage, lease administration, building management and analysis.”
Nationally, Trammell Crow is the real estate services provider for many companies including IBM, Xerox, Travelers, and Baxter Healthcare. In addition, Trammell Crow has assisted Solutia Inc. in its planning and move to a new headquarters, which will consolidate its staff of more than 1,000 into one facility. Plus Trammell Crow operates the new building that opened in August.
Trammell Crow recently saved Solutia $250,000 by reviewing lease documents that allowed them to recover certain expenditures that were actually the landlord’s responsibility.
National and international presence is a key factor for many clients who are choosing to outsource real estate services. CB Richard Ellis’ 9,000-member staff handles more than $1 billion in transactions for its clients in 32 countries.
Earthgrains, a St. Louis-based bread company, now has nearly 900 properties worldwide. Formerly a subsidiary of Anheuser-Busch, Earthgrains wanted to expand through acquisitions of other bakeries. Herrington explains this required aggressive management of the real estate portfolio because acquisitions often result in redundancy.
Using CB Richard Ellis’ Corporate Advisory Group, Earthgrains’ real estate department obtained a strategic review and evaluation of an 84-property portfolio of retail and distribution facilities in California. Through this analysis, Earthgrains and CB Richard Ellis were able to establish benchmarks relative to revenue and number of routes per square foot. These benchmarks were then applied, where appropriate, to Earthgrains’ distribution system nationwide to increase efficiency.
