For purposes of the discussion on CRE strategic planning, let’s assume the following:
· The portfolio of leased and owned property is both long established and diverse. The corporate properties are primarily leased facilities with lease terms averaging five years with several renewal and expansion options. Most of the major headquarters offices and manufacturing sites are owned properties. The portfolio is split between domestic and international locations.
· The head of corporate real estate is new to the job and is not encumbered with past biases and cultural imperatives. The new director has extensive experience both as a CRE manager and real estate broker/consultant. The real estate team is fairly small consisting of leasing specialists, project managers, and a few specialists like designers and engineers.
· The new CRE director has been recruited to update and transform the real estate function. Reporting to the corporate treasurer, the CRE director has been given a year to demonstrate progress with the corporate portfolio.
· Corporate management has set three main goals for the CRE function. 1.) Improve the cost of occupancy 2.) Provide a contemporary and agile environment for the office workforce. 3.) Make the company portfolio more flexible and environmentally sustainable.
The Planning Team:
The CRE director forms a planning team with representatives from his staff as well as representatives from corporate finance, human resources, IT, and lawyers from the office of general council. He also tags representatives from corporate accounting to cover the requirements of the new FASB lease standard. (See earlier blog entries on this subject)
The planning team sets forth the following priority actions:
· Develop a master listing of all leased properties, with termination dates in descending order.
· Identify performance indicators of the leased portfolio, to include: cost/sq ft., space per person, net present value of annual rental, expansion options, renewal options, building age and condition, space availability or shortages, location status (security, access to public transportation, convenience to employees, convenience to customers if relevant)
· Run a parallel listing of leased locations using the new FASB/IASB leasing standard. Identify high impact leases, i.e. high asset value, candidate for purchase? Disposition?
· Identify performance indicators of owned buildings and properties to include age, condition, energy costs, expandability, highest and best use, current market value, net book value, land value, easements.
· Identify the technological status of all company properties i.e. telecommunication infrastructure, LANS, WiFi, printers, fax, HDTV, video conferencing, digital security.
Benchmarking:
The next step in the strategic planning process is to benchmark the key performance indicators of the portfolio against market benchmarks and competitive benchmarks.
Key questions:
· How do company lease rates compare to local market rates, competitor’s rates?
· What is the average space per person as compared to industry benchmarks? (IFMA, Corenet, etc.)
· How do owned facility values (NBV) compare to current market values?
· What are the most valuable, least valuable properties in the portfolio?
· Identify high cost, or facilities with constrained occupancy in need of expansion or relocation
· Identify energy efficient/ inefficient locations.
· Identify locations with significant maintenance / repair issues
· Identify feasibility of converting to alternative workplace strategy in select locations. (use of desk sharing, telecommuting, co-working sites like executive suites)
· Is there a need to update company office standards?
In the next Blog entry we’ll look at what a strategic real estate plan looks like and how it would be implemented.
