Real estate optimization is a systematic process by which a corporation can get the maximum ROI on their expenditures for corporate real estate. The goals are to:
- Benchmark the portfolio against current market conditions
- Reduce or eliminate over market leases
- Maximize the utilization of current real estate assets
- Locate the sites that have the optimum fit for your corporate needs
- Increase transparency and collaboration amongst the stakeholders
Sound good? We think so too. Once achieved, these goals can reduce corporate waste by millions of dollars while actually improving the efficiency, productivity and user acceptance of corporate real estate assets. So, let’s get into the weeds.
How Does a Corporation Optimize Its Real Estate Portfolio?
Conceptually it’s really not that hard. Depending on the complexity of your portfolio, good tools used in the resources available to you the implementation is quite doable if approached in a systematic process.
Done right, the benefits far exceed the investment in time and money. Left undone, the corporation’s real estate portfolio, though often the second biggest expense for a corporation, does not get the due diligence commensurate with the size of this expense.
Luckily, REoptimizer®’s lease management software is a CRE optimization tool that allows you to balance your portfolio, save time and money, streamline communication, and manage projects across your entire organization with ease. Reach out to us today to learn how you can find a better lease management solution.
Yet, most corporations do not have in place and methodical system for benchmarking the corporate real estate against current market conditions. Forecast your need for commercial space
Seeing is Knowing
By seeing what you have, we mean plainly point out the true cost of all your real estate assets, both leased and owned. You want to aggregate all your costs into one report or dashboard. Of course, this is more than just base rent.
What you really want to do is clearly define all the factors that contribute to the overall occupancy cost of real estate. Want to make sure your system pulls in all your related expenses such as utilities, common area maintenance, cleaning, maintenance contracts, etc.
The system should be robust enough to give you a true analysis of your current cost, but also very importantly, project your future costs. Then, according to your corporation’s opportunity cost you should develop a discount rate for a net present value (NPV) value for each and every site within your corporate real estate portfolio.
The goal is to have an absolutely accurate and crystal-clear presentation of your current cost and the net present value of all your real estate commitments or leases going forward.
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It is only by understanding exactly where you are today can you have any hope of improving the situation. |
CRE Optimization
Real estate optimization is akin to losing weight. The first step is to put yourself on the scale and know where you are at. The next step is to check the statistics and find out where you should be for your height. Then, you can develop a plan, if necessary, to get yourself to your goal weight.
The corporate real estate portfolio is almost like a person. While there is a lot of muscle and bone, and almost all corporate real estate portfolios, there is an element of fat (over market rents and or underutilized space) that can safely be trimmed off the corporate real estate portfolio without negatively affecting the company’s productivity.
In actuality, doing so, improves the overall health of the company, making it more valuable to shareholders, thereby increasing the company’s share price.
Additionally, trimming the fat off the corporate real estate portfolio frees up monetary resources that can be used for such things as R&D, capital equipment purchases and even curbing layoffs. Read more about Using Smart CRE Moves to Curb Layoffs.
All things that increase the corporate muscle and allow the corporation to compete against other corporations successfully for market share.
Why Not Optimize?
So what are the possible downsides of real estate optimization? In one word, NONE! There really is absolutely no downside to optimizing your real estate portfolio. Only upside!
So why do corporations not practice real estate optimization? While frankly, it historically has not been an area of focus for most corporations. Most corporate real estate departments are overworked, under resourced, and pulled in many directions. They have a difficult job of appeasing the business unit manager, the CFO, the shareholders, and juggling usually too many balls with too few hands.
On the other hand, if a corporation does not have an internal corporate real estate department, (which may very well be your situation) real estate often falls upon the shoulders of an already overworked CFO or perhaps human resources department. These senior executives obviously have critical areas of responsibility beyond corporate real estate. Therefore, corporate real estate is something that they have even less resources for, less time for, but yet it must be done on an as needed basis.
Avoiding Conflicts of Interest
Both the senior executive and even the corporate real estate department often rely on outside commercial real estate brokers to provide them market intelligence, reports, site selection, and assistance in negotiating complex and significantly expensive corporate real estate transactions.
While there are many competent commercial real estate brokers out there, most work for the landlord or the seller, only a few by percentage specialize in representing corporate tenants. These are known in the trade as Tenant Representatives or Tenant Reps. Learn How to Find a True Tenant Representative and What To Avoid.
However, there are many commercial real estate brokers that often try to straddle both sides by representing both tenants and landlords. While your broker may not be directly connected to a prospected landlord, their coworker might!
The obvious folly in this is a distinct conflict of interest! One can be fairly well assured that conflicts will significantly cost the company. Ironically, many overworked directors of real estate have a suspicion about this, but no one ever got fired for using IBM. Many of these brokerage firms are big, reputable names. So in other words, if there’s ever a problem, how could you be blamed for going with the obvious option?
Recently, conflicted brokers are on edge. More lawsuits are popping up regarding the ethics of dual agencies and the proper protocol to disclose them. This may signal a turning point in the field of CRE representation. Read about the lawsuits, fallout, and which big players may be in trouble. Commercial Tenants: What to Know About Conflicted Brokers.
The other part, is that most corporations don’t know, what they don’t know. So if they overpaid, and their source of market intelligence was the conflicted broker, they may never know that they overpaid. Yikes!
So developing your sources of market intelligence is critical for the next step in optimizing your real estate portfolio.
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You must know (and know that you know) the true market value for your very valuable rent dollars. |
Investing in Productivity
A good way to look at a lease (and the rent you’ll be paying through that lease) is to see it as an investment your company makes to provide the most efficient and productive space for the dollars you’re paying. Therefore, corporate offices are an investment in your corporation’s productivity.
You are perhaps housing part of the brain trust of your corporation, or even leasing manufacturing space that makes the products that you sell, or warehouse/distribution space that allows you to distribute your products to your customers. The matter what, you want the most return on investment (ROI) for the millions of dollars that your corporation spends in real estate.
That’s why it’s so critical to never take chances with your CRE portfolio. This is especially true if you’re looking for new space. Keeping your employees happy in a space that anticipates their needs before they happen is no longer optional. CRE has become critical in the war for talent.
But finding the right space with premium amenities at the right price can be complicated. There’s a lot of factors to juggle from pinning down the right location and space utilization to touring and negotiating. So, get prepared with the free, informative course on how to possibly save millions on your next office lease
Optimize Your Portfolio with a Tenant Rep
Optimizing your portfolio doesn’t have to be complicated. Essentially, it boils down to taking a hard look at your properties and how they can be improved. Then, the scale expands to examine where there are opportunities to improve your portfolio as a whole. But, this can only be done with the right source of unconflicted market intelligence.
As True Tenant Representatives™, we have 30+ years of experience only representing tenants. We have helped our corporate clients save millions on single deals or grander scale portfolio optimization. Any organization can benefit from making their CRE a more efficient expense. Let the True Tenant Reps™ at iOptimize Realty® handle your next steps if you feel you want a helping hand in this process or don’t even know where to begin.
We can identify where you can save, leverage the value of your tenancy against landlords, and determine the best areas for you to move. True Tenant Reps™ also have access to software and programs out of reach of other professionals. In addition, they come prepared with a vast network of other real estate professionals who can aid the process of finding and securing corporate space.
So, don’t waste any more time and talk to an expert to start optimizing.
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