As you scale your business, you have the opportunity to scale the way you operate and manage your real estate as well. This scale means something different to each company, based on their ownership structure, capital stack, size, trajectory, skillset, and vision. I have helped clients across the country of every shape and size. The right real estate strategy can have an outsized impact on the trajectory of your business as you scale.
While executive approval of real estate decisions never goes away, the day-to-day responsibilities and management often do. As businesses scale, it is more common to have a corporate real estate director, real estate manager, general manager, or VP with a similar title handle all of the company’s real estate. This person can either be the sole person responsible within their company or be part of a small team. This team usually then reports to the CEO or CFO, depending on the company structure.
SINGLE POINT OF CONTACT
The first thing that most executives consolidate when they scale is broker relationships. Having one broker located in every market seems like a good idea, but it is not enough. You do not want to have to explain to each broker everything about your organization’s inner workings, vision, and objectives. It takes time and experience to learn your preferences on communication, negotiation style, and personality. It pays to have one broker become a single point of contact for your company and then go about managing all of your local brokerage relationships. It is not that having a local broker is not important; it is quite the contrary. The issue is, managing local brokers is not usually of strategic value to executives as they scale their businesses.
In my experience, companies that have between ten and one hundred locations usually gravitate toward a single broker who demonstrates an aptitude and capability for multi-market brokerage. Anecdotally, this makes up less than 10 percent of brokers nationwide.
It takes time to understand how to scale, from a broker perspective. The first benefit of having the right multi-market broker is that they know how to create a successful working relationship with top talent in each market. There is always a push-pull relationship between who does what, who reports to whom, and when. The broker who understands this concept will take ownership of each assignment in every market, ensure all of their local partners have aligned incentives and expectations, and communicate early and often with their client and local brokers alike.
Your main point of contact is aware of what each local broker needs to know to be effective and can best communicate with them to make sure they are informed to do the best job possible. Your primary point of contact has the benefit of years of experience and knowing what works for you and what does not. This experience then begins to compound, saving you time and leading to better solutions as your relationship strengthens.
There is usually an event that creates the opportunity to consolidate to a single point of contact. Such events are new management hires, retirements, promotions, mergers, acquisitions, and reorganizations. There are also different methods of centralized and decentralized decision-making, where some leaders will have their local managers take care of their real estate and retain approval rights, whereas others will keep all real estate authority in their corporate office.
My company excels in helping clients level up their commercial real estate operations while retaining the entrepreneurial spirit that helped them grow in the first place. An example is with one client I have worked with for the last decade. They have twenty locations across the country in most major markets. We usually have two to three active real estate projects per year. We speak quarterly and are constantly scenario planning for different locations. I work with the CEO, CFO, general counsel, VP of finance, and multiple different levels of territory managers, general managers, and facility managers.
The main benefit to working as a single point of contact for this client can be summed up in the book The Speed of Trust, by Stephen Covey. The premise is that when you build a bridge of trust within a relationship, you can increase the speed at which you have high-level engagement to make informed decisions. With the national client example above, we are able to work through multiple different challenging assignments simultaneously. This is, in large part, due to our continued open and honest communication and respect for each other’s values and skillsets. Since we have worked together in this capacity for such a long time, we are able to use our complementary knowledge and shared experience in each market in which we do business.
LEASE MANAGEMENT AND TECHNOLOGY SOLUTIONS
Lease management is one of the first areas where growing companies reach a ceiling of complexity. Imagine having two kids. It is possible to keep track of their school schedules, sporting events, community functions, and friends. Now imagine you had ten, twenty, or one hundred kids. One hundred kids sound crazy, right? In many ways, this is what it is like for growing companies with complex real estate needs. Fortunately, industrial real estate does not require the day-to-day management that kids do, but there are genuine consequences with a poorly managed real estate portfolio.
Andrew Flint, co-founder of the preeminent lease management service firm Occupier, elaborates:
“The key to proper lease management is a tool that all key stakeholders can access easily. For some of our clients, this is not only the real estate team, but executives, HR, IT, business unit leads, finance, legal, and third-party vendors like brokers, architects, attorneys, accountants, and auditors. The key is to have a single source of data. The problem with legacy tools is they often have poor design and are difficult to use, which leads to apathy and poor adoption. Adding to that challenge, most legacy systems do not facilitate the integration of outside advisors who may need to access some or all of your lease data.”
For example, one company I worked with is in the energy business in Newport Beach, California. They had fifty locations across the country and had one person in charge of managing all real estate. This real estate manager had no prior commercial real estate experience and was learning as he went along. I am not against being self-made, but it does help to have the right skillset to get the job done. As time went by and the company grew, he began to receive notices from landlords that they had missed key contract dates to renew leases and had missed termination dates. In one instance, the company had to pay a 200 percent rent penalty for having missed a renewal date. Sadly, their disorganization in real estate matters was symptomatic of company-wide turmoil. The client ended up replacing many of their executives and outsourcing its non core-business functions.
Often, the shift to a centrally managed lease management database happens when the company hires an executive who has experience working with a lease management system. It is tough for most executives to recognize they have a need to implement a system on their own. Sometimes it is after the insistence of the company’s trusted broker. Brokers are continually working with different lease management systems and testing new ones to provide the best available resources for their clients.
When it comes to lease administration, the critical six steps to collecting real estate portfolio information are:
- Portfolio discovery
- Assembling all raw data and systems
- Setting data standards and populating the new system
- Verification and validation of data
- Establishing reporting standards
- Technology delivery and training
When dealing with data, it is easy to conceptually understand the need to consolidate data sets into a central system, but it can oftentimes be more difficult due to lack of standardization, missing documentation, and apathy toward learning a new system. Each step of the process ensures the finished system will report the most impactful and coherent information back to executives through intuitive dashboards. We routinely partner with third-party lease management systems to help clients make the transition as smooth as possible.
While every company has its unique blend of legacy systems, from paper leases to Excel spreadsheets, we find that all benefit from being aggregated, standardized, and digitized. When it comes to third-party software providers, there can be ten to twenty different options at any given point in time. Just like the property selection process is tailored to the client, the technology solution is, as well.
PORTFOLIO OPTIMIZATION
Once our brokerage team has effectively built a database of your company’s commercial real estate, we can provide a full portfolio analysis. The foundation for this is the company’s vision for the future. When we understand the overarching goals of the executives, we use this to chart a course toward portfolio optimization.
Most companies have inflection points in their growth trajectory that require adjustments to their real estate on a portfolio level. Mergers and acquisitions commonly produce multiple facilities that are redundant or in need of consolidation. This consolidation of facilities is prevalent with private equity firms and large parent companies. Offshoring, nearshoring, and reshoring are industry-specific portfolio changes that can frequently be related to legislation, economic incentives, and outside events. Additionally, a change in management can often lead to broad initiatives, new product launches, and expansion. Or it can lead to cost cutting, new standards, and consolidation.
Portfolio optimization begins with a review of all the existing operations and real estate documents. With each lease, we go through financial analysis, local market knowledge, market forecasts, real estate responsibilities, occupancy analysis, national market trends, and operational analysis. For industry-specific firms, we may layer on additional considerations such as pallet positions and unit counts, throughput key performance indicators (KPIs), inventory levels, and shipping schedules. Trusted material handling partners are often a consistent presence in these conversations to help advise how each building’s warehouse operations will need to adjust, along with property-specific adjustments.
The result of careful portfolio-wide analysis is that we can then build a multistage implementation roadmap, using it to work with the client to adjust each office and industrial space in a measured and methodical manner.
TRANSACTION MANAGEMENT
This book provides you with a framework to think through one single industrial transaction. Reproducing this process at scale is called transaction management.
We work with our clients to build out a unique transaction management process. Our commitment to this process provides us with the capabilities to go out into the marketplace and deliver consistent results. Some obvious benefits are financial and result in the minimization of real estate costs. In contrast, other benefits are intangible, such as improved workplace culture, the ability to forecast farther into the future, or the confidence to press on with growth initiatives.
While each process will have variations depending on the company’s needs, generally we follow these eight steps:
- Audit existing leases: Each agreement has its own set of terms, rights, clauses, and dates that must be understood.
- Analyze existing floor plan and site plan: Each industrial building has its unique characteristics, as does each operation. Analyzing the relationship between the two can help us understand what is within our control to improve.
- Interview the local business unit teams: We want to understand their local culture and workflow, and how they align with corporate objectives.
- Analyze market conditions and landlord relationships: We examine how the current lease agreement or owned property fits within the submarket context and provide market forecasts.
- Select local broker: We create a list of the region’s best talent within our network, utilizing our sixty offices, our existing best-in-class relationships, as well as industry associations like SIOR. We have the flexibility to work with an existing broker relationship or select a new best-in-class broker as desired.
- Determine the best option: We vet all potential property options and outcomes to formulate a specific strategy.
- Engage local broker: We work with our local broker to customize our market strategy with local market tactics, ensuring an optimal outcome.
- Execution: We drive the process with all parties until we have successfully reduced costs, maintained culture, and enhanced the client’s business.
When it comes to local broker selection, it is helpful to point out there are multiple ways in which we can optimize this process. For example, I am the single point of contact for one national client, and they provide me with an introduction to their local brokers if they wish for me to work with them. With another client, they allow me to select all the local brokers. I am always sensitive to clients’ existing relationships and do my best to keep all existing relationships intact when possible. I have found it can lead to a great outcome where the local team continues to provide valuable service and we are able to learn from each other.
OPEN ARCHITECTURE SOLUTION
The last concept that I will introduce here is the open architecture solution. This basic concept is that we do not dictate whom you use for vendors, such as architects and consultants. In fact, it is just the opposite: we provide you with access to the right vendors and help you select the best one for the matter at hand. We help you choose the best and brightest who can execute in your ideal time frame.
This concept applies to all the resources we have discussed throughout the book: lease audit firms, local brokers, furniture vendors, IT/telecom vendors, project managers, move managers, material handling, supply chain consultants, labor analytics, and site selection firms.
Some brokerage firms restrict their brokers and clients to specific vendors that already have financial relationships with the brokerage. Our firm does not do this and encourages freedom for clients to choose the vendors that best match their needs. Certain firms may not have the right talent across their platform to execute consistently or the network to access all talent. A great book to illustrate this point is Jocko Willink and Leif Babin’s Extreme Ownership: How US Navy Seals Lead and Win, where they describe the concept of commander’s intent. The idea here is that subordinate leaders have the ability to take charge of their smaller teams and can then execute based on a clear understanding of the broader strategy and standard operating procedures. This concept is what empowers our clients to select vendors based on their strengths and ability to execute on the needed assignments.
NEXT STEPS
This completes your executive playbook for industrial real estate leasing. We have gone from high-level strategy down into the weeds of tactical moves of each part of a transaction. We also holistically illustrated how larger organizations operate at scale. Now we will transition into the topic of ownership, as I have found most executives and business owners eventually desire to own and invest in industrial property.