COVER STORY, SEPTEMBER 2009

MANAGING TO WIN
Implementing the proper real estate management strategies produces saving son the environment, your time and your company's bottom line.
Ron Tate

Tate

Real estate is one of the largest expenses for most corporations (often behind personnel and IT costs). With today’s struggling economy, the need to focus on real estate’s impact on the bottom line has never been greater. Yet, companies don’t spend much time thinking about their real estate because it’s not their core business. Real estate managers can gain a strategic seat at the C-level table by showing executives how millions of dollars can be saved through basic real estate management changes.

Strategy One: Target operating expenses

Analyze the resources you apply for general operations. What is your mix of in-house versus contracted services? What are the contract terms and how were they negotiated? Who is responsible for managing contracted services and what is their expertise? Do you rely on one engineering company for all HVAC maintenance orders? Do you monitor all maintenance orders placed throughout the company? If you don’t have a system to track all maintenance calls, you could be blind to the savings opportunity of channeling simple requests to a lower-cost vendor or an in-house resource, rather than consistently calling upon a higher-priced contractor. Having a contractor monitoring system and process allows you to keep an eye on vendor contracts and, therefore, expenses.

A Texas-based healthcare provider with clinics across the United States used its local administrators to run the practice and fulfill facilities-related needs. They were great at running the practice, but cost overruns in the facilities group were enormous. By outsourcing the management, operation and maintenance of the facilities, they realized a 15 percent savings on an annualized basis in service categories by targeting specific operating expenses where, previously, accounting data only provided gross expense dollars. By analyzing specific expenses like HVAC, plumbing, electrical, landscaping and janitorial services, opportunities were identified to drive service improvements and reduce costs. The savings came from standardizing work scope, leveraging scale and applying the right local contractors where necessary.

With the right training, systems and processes, a company can save millions of dollars in facilities operations and contracts.

Strategy Two: Improve Business Controls

Paper is a necessary evil in the real estate world: leases, contracts, amendments, addendums and all legal documents that can have a financial impact on the bottom line. Properly managing the paper by centralizing your real estate information will yield significant benefits.

Corporations lose track of how many locations they have, how much it’s costing or critical lease dates simply because managing real estate is not their business. Take inventory and put the findings into a system that allows for strategic analytics for when leases should be renegotiated and exactly what the payments should be. In today’s economic environment, many landlords have become more aggressive in the interpretation of acceptable common-area maintenance (CAM) charges. This kind of audit can save millions of dollars.

Of course, a real estate portfolio audit can generate a ton of data, so use technology to manage it. Look for a system or partner that enables you to examine past bills for everything from maintenance charges to real estate taxes and collecting sub-tenant rent.

Strategy Three: Establish an Energy Program

Energy costs are rising as a result of environmental issues, shifting markets and new legislation. According to the International Facilities Management Association, many corporations are looking to positively affect the economic, environmental and social impacts of the buildings for which we are responsible. Your energy management plan should address these issues and be a road map for no- or low-cost solutions that have a positive impact.

For example, a current client is focused on the demand side of its energy consumption. They installed equipment to track real-time energy consumption in different parts of their buildings. Based on these detailed load profiles, they looked for improvements that will save money. This retail company, with 400 properties across North America, is now projecting a 10 percent savings through an integrated energy management and facilities services program. The plan is to increase preventive maintenance on energy consuming assets, install energy-efficient lighting and put in HVAC controls to ensure that systems run to match the operating hours of each location.

Conclusion

Taking steps to effectively manage your corporation’s real estate portfolio during a challenging economic time results in a double win. Not only will you boost your bottom line when you need it most, but a powerful base of real estate will enable you to accelerate your success when the economy recovers.

Ron Tate is NorthMarq Capital’s vice president of business development in Dallas.

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