Four Tips to Consider when Scaling Operations

The Logistics of Leasing

Single Point of Contact

The first thing that most executives consolidate when they scale is their broker relationships. Having one broker located in every market may seem like a good idea. It’s good to have one a broker in every market, but it isn’t good to manage a brokerage relationship in every market. You don’t 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 communication preferences, negotiating style, and personality for that matter. It pays to have a single point of contact.

In my experience, companies that have between 10-100 locations usually gravitate towards one of their brokers who demonstrates an aptitude and capability for multi-market brokerage. This multi-market specialist isn’t just any broker. I would hypothesize that under 10% of brokers nationwide have any desire to grow outside the traditional role of farming a local territory and working for landlords.

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 and pull relationship between who does what, who reports to who, and when. The broker that has this concept figured out is the one that will take ownership of each assignment in every market and take it upon themselves to ensure that all their local partners are with the program.

There are many different ways that multi-market brokers go about running their accounts, just as there are many different size accounts in the market. For the FAANG (Facebook, Apple, Amazon, Netflix, and Google), they have master service agreements on the enterprise level. These companies span tens of thousands of employees globally with hundreds of offices and tens of millions of square feet. You will find that these conglomerates sometimes will pay to bring brokerage professionals inhouse and onsite to help manage their portfolio. These types of enterprise accounts are frequently loss leaders for brokerage firms, on a master service agreement level, because they can result in more ongoing support, analysis and handholding, than transactional fee brokerage work. They make up for it in ancillary service revenue. While this is ok for large enterprises, we have found that these accounts get bureaucratic and bloated quickly and tend to be less entrepreneurial and creative. You will find salaried account executives here.

On the other hand, most executives that are sophisticated and entrepreneurial have a trusted broker relationship that they gained over the years as they scaled their business. After several growth spurts, the company adds more management, more locations, and internal operations. There is usually an event that creates the opportunity for consolidation to a single point of contact. Some leaders will then have their local managers take care of the real estate and retain approval rights, where others will keep all real estate authority in their corporate office. We excel in helping companies level up their commercial real estate operations while retaining the entrepreneurial spirit that helped them grow in the first place.

Lease Management

Lease management is one of the first areas where growing companies reach a ceiling of complexity. Imagine having a family where you had two kids. Keeping track of all of their school schedules, sporting events, community functions, and friends is possible. Now imagine you had ten kids, or 20 kids, or 100 kids. One hundred kids sound crazy, right? Fortunately, industrial real estate doesn’t require the day to day management kids do, but there are genuine consequences of poorly a managed real estate portfolio that can have dramatic impacts.

For example, one company I have worked with is in the energy business in Newport Beach, CA. They had 50 locations across the country and had one person in charge of managing all the real estate. This real estate manager had no prior commercial real estate experience, came to the company by way of general management, and was learning as he went. I’m not against being self-made, but I do recognize that it helps to have the right skill sets to get the job done. As time went by and the company grew, he started receiving notices from landlords that they had missed key contract dates to renew leases and missed termination dates. In one instance, they had to pay a 200% rent as a penalty for having missed a renewal date. The symptom of disorganization in their real estate matter was part of a more significant sign of company-wide turmoil. They would go on to bring in some new executives to help them turnaround the company.

Most often times, the shift to a centrally managed lease management database happens with the hiring of a new person that has already experienced working with a lease management system. It is tough for most executives to recognize they have a need and implement a system on their own. Other times it is at 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 resources available for their clients.

When it comes to lease administration, there are six steps to collecting real estate portfolio information: Discovery, Gather Data, Populate Data, Verify Data, Reporting, Delivery & Technology Training.

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 are 10-20 different companies at any given point in time. Just like the property selection process is tailored to the client, so is the technology solution.

Portfolio Optimization

Once we have effectively built a database of your companies’ commercial real estate, we can provide a full portfolio analysis. We listen to leaderships vision for the future, whereby we understand the overarching goals of the executives. It is in the analysis and synthesis that we chart a course forward towards portfolio optimization.

Most companies have inflection points in their growth trajectory that requires looking at making adjustments to real estate on a portfolio level. Mergers & acquisitions are common scenarios whereby multiple facilities can be redundant or in need of consolidation. This is prevalent with private equity firms and larger parent companies. Offshoring, nearshoring, reshoring are industrial specific portfolio changes that can frequently be related to legislation, economic incentives and outside events.

A change in management can often time lead to broad initiatives, new product launches, and expansion on the one hand, On the other hand, new management can lead to cost-cutting, implementing standards and consolidation.

The beginning of portfolio optimization is a review of all of 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.

Transaction Management

We work with every firm to build out a unique transaction management process. It is the commitment to this process that provides us with the courage to go out into the marketplace and execute daily and deliver consistent results. This courage ultimately leads to building a company-wide capability that pays dividends to all stakeholders. Some obvious benefits are financial and result in the minimization of real estate costs. In contrast, others are intangible such as improved workplace culture, the ability to forecast further into the future, or the confidence to press on with growth initiatives.

While each unique process will have different variations depending on the company’s needs, the backbone of the process model builds off of these eight steps:

  1. Audit Existing Lease – Each agreement has its own set of terms, rights, clauses and dates that much be understood
  2. Analyze Existing Floor Plan – Each industrial building has its unique characteristics, as does each operation. In analyzing the relationship between the two, we can understand what is within our control to improve.
  3. Interview the Local Business Unit Team – We interview each local management team to understand their local culture, workflow, and how it aligns with corporate objectives.
  4. Analyze Market Conditions & Landlord Relationships – We will analyze how the current lease agreement or owned property fits within the submarket context and provide market forecasts.
  5. Local Broker Selection – We create a list of the region’s best talent within our network, existing relationships, and industry associations like SIOR to uncover who is best for each assignment.
  6. Determine the Best Option – We vet all potential property options and outcomes to formulate a specific strategy.
  7. Engage Local Broker – We work with our local broker to customize our market strategy with local market tactics to ensure an optimal outcome.
  8. Execute – We drive the process with all parties until successfully reducing costs, maintaining culture, and enhancing business.