Getting to Corporate Real Estate’s Future State
My son, a history teacher, gave me the book Super Freakonomics.
Apart from the reminder that the co-authors were keynote speakers at our Atlanta Global Summit a few years back, reading the best-seller reinforced Stephen Dubner and Steven Levitt’s focus on how major economic drivers and societal forces become obsolete.
It also reminded me about a point made by Rex Miller, a futurist who was part of the team that won our 2009 Global Innovator’s award.
Industries can become obsolete, too, including the corporate real estate (CRE) sector.
Miller’s work with the Mindshift Consortium reflects how one important piece of CRE – the design and build segment – can bring more transparency, efficiency, speed to market and value to the way we plan, develop and deliver the workplace.
It’s great to see that type of transformation coming to one part of our industry. But as Miller also illustrated when I sat down with him at the Las Vegas Global Summit, our evolutionary state is declining in a more general sense, a threat laid bare by the economy of 2008-09.
The crux of the ‘paradigm lost’ issue is our industry’s compensation model, as I wrote in our 2009 State of the Industry Report.
The recession wracked the transactions markets, bleeding a once-robust stream of commission payments and other modes of short-term reward away from the CRE capitalization model. This harsh, new economy of scale is becoming known as ‘the new normal.’ We’re also calling it business unusual. (It’s the focus of the CoreNet Global Summit in New Orleans starting April 18.)
There was some recognition of this shift from the industry’s supply side even before the downturn. But is it happening quickly enough?
The Brokerage Challenge
So it’s now rapidly becoming a matter of redefining ourselves, really innovating, around a new business model that needs to reward long-term return on strategic value over the kind of short-term returns that we used to link to the quarterly financial report and other, more immediate forms of gratification.
For traditionally brokerage-based businesses, this challenge is especially significant.
Symmedian Technologies, a newly-formed CRE-technology provider, offers one example of how service providers can adapt to the new landscape.
Innovating away from the brokerage model, yet still incorporating brokerage expertise, is essentially how Symmedian is differentiating itself against the fast-changing backdrop of corporate client – service partner relations. That’s because the start-up is leveraging its previously-acquired broker-client knowledge into higher areas of value around portfolio optimization, and integrating them in non-traditional ways with technology and other strategic resources.
Some have described brokerage as one of the few
‘maverick’ businesses remaining in our industry
“Technology is changing the way we do business,” says Thomas A. Beebe, Senior Managing Director for Symmedian Technologies. “Our company has developed a web-based transaction management system designed to streamline the CRE site selection and facility procurement process while attempting to minimize the numerous inefficiencies many feel exist in the current system.”
They’re helping to link better transactions directly to the client’s location strategy. Beebe points out the importance of ingraining this type of dimension and depth to value creation.
Scenario Planning
“Our consultative approach enables our clients to leverage technology to make very well-informed business decisions, not just as it relates to their real estate. We validate and model (cash flows, P&L impact, etc.) all of the cost factors that go into the decision matrix so that the client doesn’t focus solely on ‘Where can we get the lowest lease rate?’”
Scenario planning is fast becoming a big part of this more strategic mix, because clients “can analyze an infinite number of ‘if/then scenarios’ in real time,” as Beebe relates.
Enhancing drivers like speed to market improves CRE supply-chain dynamics, or what Beebe calls the “value chain” of clients and providers.
Beebe crystallizes the change mandate this way: In the CRE sector, some have described brokerage as one of the few “maverick” businesses remaining—each broker in essence owns a franchise (whether with one person, or a small team) so short-term financial gain has been the focus and very few have concentrated on the big picture (i.e. process improvement).
“Because there have been relatively few technological advances made in the industry in the past, the current paradigm is very inefficient, time-consuming, and paper intensive,” Beebe asserts. “We’re at a crossroads in our business.”
New School – Old School
He sees how the “new school” brokers are entering the CRE industry expecting technology to be a part of the process. In the meantime, the “old school” brokers will take “business as usual” with them, leaving the industry ripe for change. “Look at the technological advances in the past few years in healthcare, entertainment (music, film), electronics, the list goes on. Those who embrace technology now and embrace change are the ones who will lead the next generation of commercial real estate executives.”
On the other end of the spectrum, how are large-scale global providers like JLL addressing the need for the CRE industry to change at a time when business re-modeling and the ability to re-adapt are more critical than ever?
It’s a direct reflection of the changing tide, one that’s been shifting for a while but has gained more momentum and urgency with unexpected combinations like frozen credit and capital, declining prices and value, and increased cost cutting and consolidation.
As the historian and the futurist would say, Freakonomics lessons included, the past teaches we must learn to adapt to the future. Hopefully, foresight and innovation will drive us there.
Richard Kadzis is Senior Contributing Editor for LEADER Magazine, and is the author/creator of the Industry Tracker column. This commentary was excerpted from the March-April 2010 edition of LEADER.