The Essential Guide to Corporate Real Estate

• Publisher: Corenet Global Inc
• Year: 2015
• ISBN:
  9781932935028
• Topic: Business
• Subtopic: Real Estate
• Index: Business

The Essential Guide to Corporate Real Estate is a fundamental examination of Corporate Real Estate ("CRE"). As a foundational manual, the guide covers the spectrum of variables shaping the daily decisions of CRE professionals and provides insights and strategies for effective management.

Chapter 1

Corporate Real Estate: What Is It All About?

Summary

This chapter provides an introduction to the corporate real estate profession. It is divided into three sections, with the first section offering a definition and overview of corporate real estate and highlighting how the traditional role of corporate real estate is changing. Section two discusses the structure of corporate real estate within organizations, and section three discusses the corporate real estate profession.

Defining Corporate Real Estate

Corporate real estate is a dynamic profession with a broad scope; it touches a wide range of property types, and many functions and careers fall under its umbrella. So, what is corporate real estate? Simply put, it is the real estate necessary to conduct business—the bricks and mortar of office buildings, manufacturing plants and distribution centers, retail stores, and similar facilities. It can include owned or leased space, buildings, and infrastructure, such as power plants or even airport runways.

Defined more technically, corporate real estate refers to the real properties that house the productive or business activities of an organization that owns or leases and, consequently, manages real estate incidental to its primary business objectives, which are not real estate. Herein lies an important distinction between corporate and commercial real estate. Although these are two closely related sectors and some real estate professionals may cross over between the two, there is a distinct difference in business objectives. In the commercial real estate world, the business is the real estate. The goal for commercial real estate is to provide a risk-adjusted return to the investor; whereas, in corporate real estate, the real estate supports the business function. In other words, corporate real estate represents the demand side or user side of real estate, while commercial real estate focuses on the supply side to meet that need.

To better understand the scope and challenge of corporate real estate and its management, it is necessary to consider the five roles of corporate real estate that have been identified over the years in research of this area:

•A strategic resource

•A corporate investment

•A corporate asset

•A commodity that is tradable and may be developed or redeveloped

•Public infrastructure—either as public and not-for-profit corporate real estate, or as contributing to the development of the public realm¹

Historically, corporate real estate has focused on managing the physical property for the business. Real estate professionals were charged with the basic tasks of acquiring, maintaining, and disposing of real estate throughout the “life cycle” or useful life of a facility. These functions still remain at the core of managing corporate real estate. However, the business landscape has changed, and the role of corporate real estate has also changed, and it continues to evolve. Corporate real estate isn’t just about managing facilities and taking orders from the business. It is now about partnering with the business and adding strategic value by contributing to workplace solutions, using real estate space more efficiently, and making recommendations to improve supply chain efficiency. Ultimately, today’s corporate real estate leaders are helping to change the conversation from that of real estate as a cost center to one where the role of real estate is to drive value for an organization.

Some view this evolution to mean that corporate real estate today is less about “bricks and mortar” real estate and more about the process of enabling work and helping a business be more productive and competitive in the global economy. The growth in alternative workplace strategies, such as hoteling, desk sharing, and remote working options, demonstrates how corporate real estate is dynamically changing and adapting to new trends in the workplace and the economy.

Organizational Structure

Today’s corporate real estate professionals are being challenged to support a variety of corporate initiatives, such as global expansion or contraction, sustainability, competition for talent, speed to market, cost reduction, and improving operational efficiency.² Real estate departments are under more pressure to put together a stronger, more efficient, and more effective team of both internal and external resources or partners to accomplish those goals. A number of factors are driving that shift, including:

•Macroeconomic conditions

•Globalization

•Technology

•Demographics

•Sustainability

•Corporate social responsibility

•Realization that corporate real estate can play a bigger strategic role for organizations

One of the notable impacts of the evolution of corporate real estate is that the profession is increasingly viewed as a business discipline, as much as—and possibly even more than—it is seen as a real estate discipline. The business nature of corporate real estate is shifting away from reactive, cost-focused real estate toward a strategic contributor to the business. That shift is most apparent in how corporate real estate is being structured within organizations, most notably with a more direct reporting line to the C-suite or senior corporate leaders such as the chief executive officer, chief finance officer, and chief operating officer.

This section will summarize the organizational structure for corporate real estate as it relates to three separate dimensions:

•The corporate real estate function within the organization

•The corporate real estate function as its own operating unit

•Resourcing the corporate real estate function (in-house sourcing and/or outsourcing)

Corporate Real Estate Function Within the Organization

There is no “one-size-fits all” as it relates to structuring corporate real estate within an organization. In some cases, the corporate real estate manager or department head reports to a company’s chief financial officer as real estate can have a significant impact on corporate finances. In other cases, corporate real estate may operate as a support department and report directly to business unit heads with a more client services approach.

In its white paper Better by Design: Reshaping the CRE Function for Greater Impact, global real estate services company JLL outlines four basic corporate real estate organizational models.² Many companies select one of the four models described below—functional, geographic, process, customer—or opt to create a hybrid matrix or combination of different approaches to best meet their needs. Like the business model, the corporate real estate organizational model is not static but responds and changes along with the needs of the business.

Functional. This traditional corporate real estate model promotes autonomy based on real estate function with each function or “silo” reporting up to the global lead. Examples of those functions would be facilities management, transactions, and construction.

Geographic model. This model allows the global lead to have overall control of the real estate functions with regional executives overseeing local business units and local service providers. For example, a regional head of corporate real estate in China will likely report to the corporate real estate head of Asia Pacific, who in turn reports directly to an organization’s global head of corporate real estate.

Process. This model involves structuring the real estate team and its functions around the process of real estate service delivery. Essentially, this model involves matching each activity, such as development, ongoing management or disposition of a property, to the life cycle of real estate.

Customer. A customer model assigns relationship managers to manage business demand from a particular business unit, while portfolio managers and subject matter experts manage the supply side. Relationship managers coordinate a range of strategic and tactical services on behalf of their “customer” or business unit.

A variety of factors go into shaping corporate real estate structure for each individual company, including:

•The corporation’s chosen business model, including its leadership and operating philosophy;

•The corporation’s position in the industry (i.e., market leader, market laggard);

•The corporation’s life cycle (early, high growth, mature, or declining stage); and

•The size and complexity of the real estate portfolio, the number of business operating units, and the frequency with which corporate real estate interacts with executive leaders.

Corporate Real Estate Function As Its Own Operating Unit

Often, the corporate real estate department acts much like its own small business operating within a larger enterprise. Today, experts frequently highlight the importance of aligning corporate real estate strategy with business strategy. As the central point in the real estate planning process, the corporate real estate function is positioned to understand both corporate and business unit perspectives. Real estate works across the entire organization, including the main business units and the various support groups, to ensure that multiple interests are aligned and to optimize cost savings. As such, it is essential for corporate real estate professionals to build relationships with other business units, such as human resources, IT, and operations. Corporate real estate is considered the glue that helps bond the business units.

Although real estate departments are often unique in their structures, they typically share a common objective. The end goal is to organize resources to best manage the real estate facilities, support business critical functions, and support the overall business strategy. Clearly, corporate real estate professionals are adapting to many changes brought on by the competitive business landscape and the ever-evolving corporate real estate environment. One of those changes is that businesses are increasingly using both centralization and outsourcing to “right size” real estate resources and staffing.

Resourcing the Corporate Real Estate Function

The current trend is toward smaller internal corporate real estate teams that engage at a higher level within their own organizations. The question for many firms is how to effectively adapt or change their organizational structures to meet those demands. Some in the profession believe that real estate teams will continue to shrink and centralize, which will require more skills in management, finance, communications, and client relationship management.³ This minimization of the internal corporate real estate team requires that the real estate consultants and service providers evolve from tactical roles to more strategic partners who anticipate the needs of their corporate real estate clients. That shift also means more attention must be paid to better managing both internal and external resources.

As corporate real estate organizations change from tactical to strategic orientations, service provider relationships are evolving to the partnership level in many companies.⁴ A cooperative working relationship between these partners is a critical component in maintaining the right balance between in-house and outsourced services. Since corporate real estate organizations are facing diverse needs, many are utilizing an outsourcing model. The size of an internal real estate department or the extent of the external, outsourced real estate resources can depend on many factors, including the size and geographic footprint of an organization’s real estate portfolio and its business philosophy.

Real Estate Functions

Functional real estate skills can be utilized in many different areas throughout the life cycle of a facility, such as handling transactions, managing facilities, administering leases, and overseeing and controlling construction projects. Each of those areas has its own layers of additional tasks and duties. Transactions, for example, can relate to the purchase, sale or lease of property. Facilities management includes numerous responsibilities, ranging from overseeing equipment maintenance and cleaning to energy management and catering and hospitality.

To that end, the broad corporate real estate profession includes a variety of d...