Atlanta Law Firms Reducing Office Space to Improve Bottom Line

As reported in Atlanta Business Chronicle

Atlanta’s biggest law firms are giving up floor after floor of the best office space in the city as they try to slash tens of millions of dollars in real estate costs.

Large firms that can combine the best talent with the lowest overhead will have the advantage as their clients continue to cut back on legal work and fees, industry insiders said.The latest giant on the verge of making a move is Alston & Bird LLP, which leases about 435,000 square feet between two buildings, One Atlantic Center and Atlantic Center Plaza at West Peachtree and 14th streets. Atlanta Business Chronicle has reported that many expect the law firm will consolidate into about 300,000 square feet within the 50-story One Atlantic Center.

The developer Daniel Corp. has also pitched the law firm on a new office tower.A decision could be reached in September, according to sources familiar with negotiations.Alston & Bird, the city’s largest law firm, declined to comment on negotiations, as did its broker,Cushman & Wakefield of Georgia.

Alston & Bird isn’t alone.

Given the slow recovery, and no clear picture on when job growth in Atlanta will return to the pace it saw in the mid-2000s, other big law firms are either downsizing their current office space or being much more cautious about factoring room for expansion.

Kilpatrick Stockton LLP, the city’s third-largest law firm, gave back about three floors of office space when it renewed its lease at 1100 Peachtree earlier this year.King & Spalding LLP has subleased two floors at 1180 Peachtree, real estate insiders said. The 41-story tower was built for the firm in 2006.

Troutman Sanders LLP, the city’s fourth-largest law firm, is trying to sublease two floors at Bank of America Plaza, a spokesman confirmed.In recent months, other Midtown law firms Bryan Cave LLP, Holland & Knight LLP, and Nelson Mullins Riley & Scarborough LLP have each put at least one floor of office space on the market for sublease.

The moves stem, in part, from reducing real estate costs.

Space in Midtown’s most prominent towers is expensive, often running at least $29 a square foot in gross annual rent.At that rate, a firm that signs a 15-year deal for 100,000 square feet (about four floors of office space) would pay roughly $43 million in rent over the term of the lease, excluding escalation and concessions.
A decade ago, law firms made up some of the largest deals in the city. They still do, but the days of the 400,000-square-foot deal might be coming to an end.“They don’t see any job growth on the horizon,” said Ben Raney of Raney Real Estate, which specializes in representing law firms. “Law firms of the past weren’t always as frugal with their real estate. That’s not the case anymore.”

Job losses are coinciding with the downsizing.

Alston & Bird went from 430 attorneys and 848 total Atlanta staff in 2008 to 398 attorneys and 726 total staff in 2010. King & Spalding reduced its number of attorneys from 420 and it staff from 1,050 in 2008, to 360 attorneys and 908 staff in 2010.

CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their  costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com  

AOL Subleasing Space from Google

As reported on www.techcrunch.com

Google apparently has a lot of empty office space in Silicon Valley laying around under long term leases. One three story building – all 225,000 square feet of it – was just subleased by Google to AOL. AOL will be moving their Silicon Valley office, currently in Mountain View, to the new location at 395 Page Mill, Palo Alto, CA.

That’s just down the street from Stanford University, and just a block away from a new Chipotle. Apparently parking won’t be a problem either, based on the satellite image.AOL only needs a third of the space they’ve leased and are moving into the third floor. But instead of leasing a smaller building, they decided to take far more than they need and sublet to startups, Brad Garlinghouse tells me. Garlinghouse is the most senior AOL exec on the west coast.

SSE Labs, a Stanford affiliated organization that operates an incubator, has already signed up to move in. Other companies are moving in as well, says AOL, but they are looking for more startups. Interested? Email Trent Herren at trentherren@aol.com to get the details.

Why all the bother? Garlinghouse says he wants the energy of the startups to rub off on AOLers: “In addition to creating a new convenient space for our AOL employees – we’re all about fostering a culture around creativity and new ideas which is why we plan to sublease our space to entrepreneurs and start-ups in the valley.”

CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their  costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com  

Pfizer Negotiates Lease Termination in Pennsylvania

MS Health Incorporated (IMS Health) has signed a lease totaling approximately 150,000 square feet at Highview I and Highview II at Providence Corporate Center in Collegeville, Pennsylvania.Highview I and II were developed by BPG in 2002 as a 100 percent build-to-suit lease agreement with Wyeth Pharmaceuticals, which now operates as Pfizer. In 2009, Pfizer chose to exercise its year end 2010 termination option for the lease at Highview II thereby making the space available for re-lease to IMS. Additionally, Pfizer chose to negotiate a termination of its lease at Highview I which ran through 2013 in order to vacate the space and accommodate the expanded transaction for IMS.

IMS Health is a provider of market intelligence to the pharmaceutical and healthcare industries, offering product and portfolio management capabilities; commercial effectiveness innovations; managed care and consumer health offerings; and consulting and services solutions that improve productivity and the delivery of quality healthcare worldwide.

The surrounding area has experienced population and business growth within the past ten years and offers access to highways and commercial centers. Currently, at the interchange, more than four million square feet of office and lab space is occupied by such leading companies as Pfizer, GlaxoSmithKline and Quest Diagnostics.

CFO Best Practice Sponsor:

Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their  costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com  

Blue Cross Blue Shield May Reduce Real Estate to Save Costs

As reported in News Observer
By David Bracken

Blue Cross and Blue Shield of North Carolina's decision to review its real estate portfolio as it looks to slash expenses is part of a worrisome trend for the local real estate market. Like GlaxoSmithKline, Blue Cross is one of the larger and more stable employers in the Triangle, and one that wasn't expected to be a major contributor to the region's rising vacancy rate.

Blue Cross owns roughly 825,000 square feet of office space in Durham and Chapel Hill. The majority of that space is at the company's 40-acre campus along U.S. 15-501 in Chapel Hill and its customer service center and campus buildings on University Drive.The company also leases about 70,000 square feet in Durham's University Tower.

Although it's too early to tell how much of that space might become expendable, the results of a similar exercise undertaken by GSK are not reassuring.GSK is vacating six Triangle buildings it owns and also leaving nearly 90,000 square feet of leased office space in downtown Durham's American Tobacco complex.

The moves by GSK and Blue Cross are reminders of how the fragility of an economic recovery based largely on corporate cost-cutting is delaying improvement in the real estate market.

CFO Best Practice Sponsor: Cambridge Consulting Group was formed more than 10 years ago to help large organizations reduce their  costs by eliminating their leasing obligations for excess commercial real estate space. Founded by Dave Worrell, a former Corporate/Facility Director, Cambridge Consulting Group offers companies a better option than subleasing office space they no longer need or use. Using a newer financial strategy- Negotiated Lease Buyouts, Cambridge Consulting has saved Fortune 500 companies millions of dollars in commercial lease obligations. For more information please visit their website- www.ccgiweb.com  


Still in Survival Mode

"Every good business person knows that you can't save your way to prosperity," Highwoods Properties CEO Ed Fritsch said. "These are hopefully temporary measures until the economy gets back on its feet ... ."

The Triangle office vacancy rate was 18.3 percent in the first quarter, according to Karnes Research, a Raleigh firm that tracks commercial real estate trends. That's the highest it's been in more than a decade and nearly three percentage points higher than it was in the first quarter of 2009.

While there are local companies that are expanding to meet their own increased demand, iContact and Cree to name two, the majority of businesses continue to be in survival mode.Much of the activity in the market during the first half of the year involved companies searching for ways to reduce real estate expenses, said Rich Harris, managing director at Synergy Commercial Advisors in Durham.

"That's what a lot of brokers have been doing, sitting in meetings where the likelihood that you're going to achieve anything is pretty low but everybody needs to go through the process to see whether there's something that can be done," he said.

As large companies that own and lease space, Blue Cross and GSK are among those able to do something about their real estate costs.

Even the bigwigs haggle

Many large companies also negotiate termination clauses into their lease agreements that allow them to exit early for a fee. GSK, for example, took advantage of such a clause to leave its space in American Tobacco in May.

For others it's a matter of seeking relief from their landlord. One option is to try and reduce the rent by agreeing to a lease extension.When Highwoods considers such a request, it looks at the company's long-term prospects."We don't want to necessarily give relief now only for them not to be around to honor the lengthened commitment," Fritsch said. "You expect that most are and you do your homework."

Highwoods is also in a position to offer cash-strapped tenants other concessions, such as making improvements to a space in exchange for a longer commitment.The companies in the toughest position now are those that signed leases shortly before the economic downturn took hold and rents started falling. With too many years left on their leases, they aren't in a position to renegotiate. and can't take advantage of concessions being offered by landlords.

Harris said he sees signs there will be more serious tenants looking for space in the second half of the year. Venture capital is starting to flow again, and many companies looking have a year or less remaining on existing leases.

"The groups that we're seeing out there right now are more real," Harris said. "The probability that they're going to do a deal is higher."
david.bracken@newsobserver.com or 919-829-4548

Read more: http://www.newsobserver.com/2010/07/15/581990/vacancy-rate-may-grow-as-blue.html#ixzz0tqqlLE7d

Green Leases Need to Reviewed Carefully

The topic of green leases and ways tenants and landlords can protect the financial interests associated with green building has been a big area of discussion over the last few years — and for good reason. As building owners continue to adopt green building practices both in newly constructed and existing buildings, they want to protect their investment and the value created by earning LEED green certification of their portfolio. On the flip side, many more tenants are looking to lease space in green buildings, are persuading landlords to seek LEED certification of existing buildings as part of the lease negotiation, and are building out tenant space as LEED for Commercial Interiors projects. To assist the industry in navigating this new market reality, the U.S. Green Building Council (USGBC) developed the “Green Office Guide: Integrating LEED Into Your Leasing Process,” a new resource to help tenants and landlords collaborate and provide specific tools and information that will help integrate green decision making throughout the leasing process.

There are now numerous examples of green leases ranging from full lease forms to specific sustainability riders. While these are important tools for the real estate industry, what the market lacked was a comprehensive resource that guided tenants, owners, brokers and attorneys through the process of integrating green thinking into the entire leasing process, not just into the lease terms. The leasing process constitutes much more than just the legally binding agreement. Building qualification and selection, leasing, landlord qualification and green tenant build-outs are complex processes, and while the lease terms frame key legal areas of the tenant-landlord relationship, decisions are made throughout the process that impact the success of the project’s green goals.


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Geared toward corporate tenants and their brokers, the “Green Office Guide” provides specific tools that help teams navigate the nuances of successful execution. Building owners, agency representatives and attorneys find value in understanding what prospective sustainability-focused tenants are looking for when selecting a prospective landlord or building. Among the topics covered in the guide include selecting the right team, qualifying and selecting buildings and landlords, lease negotiations and specific legal language, the tenant build-out, and the tenant’s ongoing operations and relationship with an existing landlord.

One of the challenges with green leases is that there is no “one size fits all” when it comes to negotiating a green lease. By educating practitioners on the process and the options, tenants and landlords can better collaborate to achieve a solution that works for both parties. The “Green Office Guide” tackles areas in which tenants and landlords may not be familiar, from background on LEED and green building, to the different steps of the leasing process, to how to actively build green thinking into standard practices. Other invaluable tools such as sample RFP language, site selection checklists, criteria for qualifying brokers and other project team professionals, and sample green lease provisions with extensive drafting notes are all covered.

This resource is the first in a suite of commercial integration guides by USGBC aimed to educate and be a companion resource to those interested in green building but are not immersed in the process on a daily basis. The “Green Operations Guide: Integrating LEED Into Your Property Management” will be released in August 2010 and will be an invaluable resource for those real estate professionals working towards the greening of existing buildings. Practical solutions for energy, water and waste reduction will be discussed and purchasers of the guide will receive access to editable electronic policy templates and tools that can aid in certification documentation. The “Green Retail Guide: Integrating LEED Into Your Leasing Process,” also available this summer, will focus on the nuances of a successful green leasing process with a specific focus on the retail marketplace.

With every sector now playing a vital role in the green building movement, understanding how sustainability can be incorporated and lucrative for all is a vital component of achieving green buildings for all within a generation.


Katie Rothenberg
Katie Rothenberg is manager of the commercial real estate sector at the U.S. Green Building Council.

Some banks have a special technique for dealing with business borrowers who can't repay loans coming due: Give them more time, hoping things improve and they can repay later.

Banks call it a wise strategy. Skeptics call it "extend and pretend."

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Extend
Darryl James for The Wall Street Journal

A Portland, Ore., bank has extended the original 2007 loans taken out to purchase this lot. The planned residential community remains undeveloped.
Extend
Extend

Banks are applying it, in particular, to commercial real-estate lending, where, during the boom, optimistic borrowers got in over their heads to the tune of tens of billions of dollars.

A big push by banks in recent months to modify such loans—by stretching out maturities or allowing below-market interest rates—has slowed a spike in defaults. It also has helped preserve banks' capital, by keeping some dicey loans classified as "performing" and thus minimizing the amount of cash banks must set aside in reserves for future losses.

Restructurings of nonresidential loans stood at $23.9 billion at the end of the first quarter, more than three times the level a year earlier and seven times the level two years earlier. While not all were for commercial real estate, the total makes clear that large numbers of commercial-property borrowers got some leeway.

But the practice is creating uncertainties about the health of both the commercial-property market and some banks. The concern is that rampant modification of souring loans masks the true scope of the commercial property market weakness, as well as the damage ultimately in store for bank balance sheets.

In Atlanta, Georgian Bank lent $13.5 million to a company in late 2007, some of it to buy land for a 53-story luxury Mandarin Oriental hotel and condo development. The loan came due in November 2008, but the bank extended its maturity date by a year. The bank extended it again to May 2010, with an option for a further extension to November 2010, according to court documents.

Georgia's banking regulator shut down the bank last September. A subsequent U.S. regulatory review cited "lax" loan underwriting and "an aggressive growth strategy…that coincided with declining economic conditions in the Atlanta metropolitan area." Some of Georgian Bank's assets were assumed by First Citizens Bank and Trust Co. of Columbia, S.C., which began foreclosure proceedings on the still-unbuilt luxury development. The borrowers contested the move, and settlement talks are in progress.
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Also in Atlanta, Bank of America Corp. has extended a loan twice for a high-end shopping and residential project. Three years after a developer launched the Streets of Buckhead project as a European-style shopping district, all there is to show for it is a covey of silent cranes and a fence. The developer, Ben Carter, says he is in final negotiations for an investor to come in and inject $200 million into the languishing development.

Regulators helped spur banks' recent approach to commercial real estate by crafting new guidelines last October. They gave banks a variety of ways to restructure loans. And they allowed banks to record loans still operating under the original terms as "performing" even if the value of the underlying property had fallen below the loan amount—which is an ominous sign for ultimate repayment. Although regulators say banks shouldn't take the guidelines as a signal to cut borrowers more slack, it appears some did.

Banks hold some $176 billion of souring commercial-real-estate loans, according to an estimate by research firm Foresight Analytics. About two-thirds of bank commercial real-estate loans maturing between now and 2014 are underwater, meaning the property is worth less than the loan on it, Foresight data show. U.S. commercial-real-estate values remain 42% below their October 2007 peak and only slightly above the low they hit in October 2009, according to Moody's Investors Service.

In the first quarter, 9.1% of commercial-property loans held by banks were delinquent, compared with 7% a year earlier and just 1.5% in the first quarter of 2007, according to Foresight.

Holding off on foreclosing is often good business, says Mark Tenhundfeld, senior vice president at the American Bankers Association. "It can be better for a bank to extend a loan and increase the chance that the bank will be repaid in full rather than call the loan due now and dump more property on an already-depressed market," he says.

But continuing to extend loans and otherwise modify them, rather than foreclosing, amounts to a bet that the economy will rebound enough to enable clients to find new demand for the plethora of offices, hotels, condos and other property on which they borrowed. If it doesn't work out this way, the banks will end up having to write off the loans anyway.

At that point, if they haven't been setting aside sufficient cash all along for potential losses on such loans, the banks will face a hit to their earnings.

Banks' reluctance to bite the bullet on some deteriorating commercial real estate can have economic repercussions. The readiness to stretch out loans puts a floor under commercial real estate and keeps it from hitting bottom, which may be a precondition for a robust revival.
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More broadly, the failure to get the loans off banks' books tends to deter new lending to others. It's a pattern somewhat reminiscent, although on a lesser scale, of the way Japanese banks' failure to write off souring loans in the 1990s contributed to years of stagnation.

It's a Catch-22 for banks. As long as some of their capital is tied up in real-estate loans that are struggling—and as the banks see a pipeline of still-more sour real-estate debt that will mature soon—their lending is likely to remain constricted. But to wipe the slate clean by writing off many more loans would mean an even bigger hit to their capital.

"It does not take much of a write-down to wipe out capital," says Christopher Marinac, managing principal at FIG Partners LLC, a bank research and investment firm.

Federal bank regulators tackled the issues in October with a 33-page set of guidelines. Bank regulators have said they were concerned about commercial-property losses and debts coming due on commercial property.

Another problem they sought to resolve was that banks and their examiners weren't always on the same page. In some cases banks weren't recognizing loan problems, while in other cases, tough bank examiners were forcing banks to downgrade loans the bankers believed were still good.

The guidance was intended "to promote both prudent commercial real-estate loan workouts by banks and balanced and consistent reviews of these loans by the supervisory agencies," said Elizabeth Duke, a Federal Reserve governor, in a March speech. The guidelines came from the Federal Financial Institutions Examination Council, which includes the Fed, the Federal Deposit Insurance Corp. and the Comptroller of the Currency.

Although one goal was greater consistency in the treatment of commercial real-estate loans, in practice, the guidelines appear to have fed confusion in the markets about how banks are dealing with commercial real-estate debt. "I just don't believe that the standard is being applied consistently across the industry," says Edward Wehmer, chief executive of Wintrust Financial Corp. in Lake Forest, Ill.

In a May conference call with 1,400 bank executives, regulators sought to clear up confusion. "We don't want banks to pretend and extend," Sabeth Siddique, Federal Reserve assistant director of credit risk, said on the call. "We did hear from investors and some bankers interpreting this guidance as a form of forbearance, and let me assure you it's not."

Restructurings increased at some banks, like BB&T Corp. of Winston-Salem, N.C. Its total of one type of restructured commercial loan hit $969 million in recent months, the bank reported in April. That was a huge jump from six months earlier, when the figure was just $68 million.

The increase was "basically a function of implementing the new regulatory guidance," the bank's finance chief, Daryl Bible, told investors in May. "We are working with our customers trying to keep them in the loans."

BB&T's report showed a significant number of cases where it was extending loan maturities and allowing interest rates not widely available in the market for loans of similar risk.

Banks don't have to disclose how terms on their loans have changed, making it hard to know whether they are setting aside enough cash for possible losses.

In a large proportion of cases, modifying the terms of loans ultimately isn't enough to save them. At the end of the first quarter, 44.5% of debt restructurings were 30 days or more delinquent or weren't accruing interest, up from 28% the first quarter of 2008.

A case in Portland, Ore., shows how banks can keep treating a commercial loan as current, despite the difficulties of the underlying project.

A client called Touchmark Living Centers Inc. in 2007 borrowed $15.9 million, in two loans, to buy land for a development. The borrower planned to retire the loans at the end of the year by obtaining construction financing to build the Touchmark Heights community for empty-nesters.

Because the raw land produced no income, the lender, Umpqua Bank, had provided "interest reserves" with which the developer could cover interest payments while obtaining permits and preparing to build. The bank extended Touchmark a $350,000 interest reserve—in effect increasing what Touchmark owed by that amount.

In December 2007, the U.S. economy slipped into recession. When the loans came due that month, Touchmark didn't pay them off. Umpqua extended the maturity to May 31, 2008.

The bank also added $600,000 to the interest reserves. Though supplying interest reserves is common at the outset of a loan, when an unbuilt project can't produce any income with which to pay debt service, replenishing interest reserves is frowned on by regulators.

Asked to comment, a spokeswoman for the bank said, "Umpqua and Touchmark had determined that the project was still viable but not yet ready for development." Touchmark said it didn't pursue construction financing at that time because "it was not prudent to proceed with developing the property until the economy improves," as a spokeswoman put it.

In 2008 the bank extended the loans again, to April 2009. During this time, Touchmark began paying interest on the loans out of its own pocket.

Then in May 2009, Umpqua restructured the loans, lumping what was owed into one $15 million loan that required regular payments on both interest and principal. Touchmark paid down the principal a little and Umpqua set a new maturity date—May 5, 2012.

Accounting

With many of today’s companies struggling to weather the storm in a difficult economy, the C-Suite is looking to cut operational expenses and trying to adopt a social responsibility strategy recognizing “green has become the new black.”

Realizing real estate comprises one of the top two or three largest impacts on their financial performance, the three important questions senior management are asking their corporate real estate/facilities executives are:

   1. “What is our total cost of occupancy?”
   2. “How can we reduce it?”
   3. “How can our real estate assets serve our organization’s operational needs and contribute to our company’s desire to achieve environmental stewardship?”

Tough questions? Maybe, if the CRE professional doesn’t have access to the information needed to identify areas where costs can be cut. The first challenge in the equation is determining the cost categories that make up the “total cost of occupancy.”

A great place to start is by taking a look at the International Total Occupancy Cost Code developed by London-based IPD Occupiers. The code includes over 250 categories organized in the five super categories of:

   1. Property Occupation (Rent, taxes, acquisition, debt service)
   2. Adaptation and Equipment (Fit out, improvements, capital investment)
   3. Building Operation (Energy/utilities, maintenance, repair, moves, churn, security, cleaning)
   4. Business Support (Reception, catering, mail room)
   5. Management (Fees for real estate, facilities and project management)

The next challenge is to determine where, within the enterprise, the information resides and be able to summarize and standardize the information across the portfolio of leased and owned properties. Once achieved, (no small feat given the resources available to the CRE professional and silos of information that exist in many organizations) the information is collected, analyzed, and prioritized a benchmark can be developed and the “bigger buckets” targeted for the greatest degree of cost savings.

The information then becomes actionable business intelligence that can be used as a foundation of a strategy.

In typical organizations, the top ten cost items for a leased facility are:

   1. Net Rent
   2. Rates (local property taxes)
   3. Total utilities (energy + water)
   4. Total repair & maintenance
   5. Total property management
   6. Total cleaning
   7. Internal & external distribution
   8. Service charges
   9. Security
  10. Catering & vending

“Think, Build, Operate”

With the total occupancy costs calculated and a cost benchmark established, the CRE professional can now answer senior management’s question #1.

To answer the subsequent questions, the CRE department will need to put together a strategic plan. Through facilitated sessions with internal constituents and outside consultants the process will help to develop a plan that will get the organization to “crawl, walk and then run.”

Along with a consultant CRE departments will co-develop a strategic and tactical solution unique to the organization might utilize a process driven approach that will challenge the internal team to:

THINK: What is the real estate portfolio’s current and desired future state?

BUILD: What are the specific initiatives to be implemented across the real estate/facilities department(s) and portfolio that bring about the desired efficiency, economic and environmental sustainability results?

OPERATE: How/who will implement the plan, what will become the KPIs to measure progress and define success, and how will the momentum be maintained until the desired future state is reached?

Departmental and Portfolio Efficiency

At a departmental level, in order to effectively bring about change, the CRE professional needs to be realistic about ‘where they are’ (current state) and where the enterprise ‘wants to be’ (future state). Is it simply to reduce operating costs, rationalize your portfolio, dispose of non-core assets or something much more?

A key component to determining whether the organization will be heading in the right direction is to articulate the KPIs they will use to assess the portfolio and processes and help them manage change. These KPIs become the “gauges on the dashboard” and determine how to measure success and whether they are driving costs out of the portfolio.

But, before addressing the overall portfolio of leased and owned facilities the CRE professional will be well served to look in the mirror and examine the internal business processes, departmental core competencies and the role outside service providers play. Getting the management piece addressed is the fundamental component can be streamlined and improved to set the efficiency train in motion.

At this stage it’s best to incorporate a plan of how to orchestrate the ”people” (who will implement and affect the desire results?); the “process” (what are the workflows that will be refined or developed that will become the framework for making and managing change?); and the “technology” (how will the use of technologies help the organization measure, manage, automate, and report on portfolio/building information about occupancy costs that will support strategic decision making?).

Tackling the low and high hanging fruit of the economics of the portfolio

The next piece of the puzzle is to identify and implement the specific initiatives that begin to carve out costs. The most efficient building in the portfolio is the one you no longer use because you’ve disposed it. While every organization is unique some common threads of initiatives to cut costs could be:

    * Deploying alternative workplace strategies
    * Addressing operational efficiency of your owned facilities
    * Reducing energy consumption
    * Evaluating and executing leasing strategies into commercial properties that can contribute to your company’s sustainability goals
    * Decreasing the utilization of expensive facilities with space management designed to show vacant and under performing facilities
    * Developing the visibility into your under performing facilities
    * Rationalizing your portfolio and consolidating staff/facilities to dispose of non-core assets

By effectively managing the size and cost of the portfolio, real estate executives can have a dramatic impact to their organizations’ bottom-line and profitability while contributing to corporate social responsibility (CSR) initiatives important to many companies today.

The ‘holy grail’ – achieving environmental sustainability

In today’s new economy the challenge has become how to maintain profitability while moving your organization toward environmental stewardship.

While the debate about whether climate change is truly caused by the emission of greenhouse gases continues, it is clear that adopting environmental sustainability initiatives can contribute to the positive financial performance of the company.

Some of these practices that involve operational efficiency include:

    * ‘Green’ and LEED certified design practices
    * ‘Smart’ building systems
    * Energy demand/consumption
    * Use of renewable energy sources

It makes good business sense to adopt these enviro-friendly principles because it reduces costs and moves the organization toward societal responsibility of the environment. While “green has become the new black” it no longer means it creates “red ink.”

In developing a sustainability strategy plan the blue print starts with determining the overall sustainability goals of the organization and identify initiatives are already in place to address sustainability.

A contributing factor to company’s CSR strategy is for the CRE professional to bring the real estate perspective by:

    * Evaluating the financial and environmental impact of capital investment decisions focused on resource consumption and carbon efficiency
    * Outsourcing non-core services to ‘green, cleantech’ providers
    * Streamlining and ’greening’ departmental workflows
    * Automating corrective and preventive maintenance schedules and alerts to maintain facilities at peak resource and energy efficiency
    * Establishing carbon disclosure reports and creating sustainability scorecards
    * Exploring the feasibility and benefits of alternative and renewable energy sources (solar, wind, geothermal, hydroelectric, Co-generation, etc.)

By achieving greater efficiency of business workflows and facility operations, carving out occupancy costs and implementing environmental sustainability measures not only makes good business sense but, it’s the right thing to do for the environment.

Back in the day ‘tree hugging, do gooders’ were pushing for recycling, turning off the lights, adjusting the office thermostat and copying on both sides of paper. Being good to the environment seemed like an expensive nuisance. Now? It makes fantastic business sense due in large part to the fact that, “you don’t pay for what you don’t use.”

What do you think? What are your ideas of how you could implement cost avoidance initiatives that support an overall real estate strategy and help you don’t pay for what you don’t use?


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