Corporate Real Estate A Strategic AssetJohn Reardon

Cornet Global - COO & Director Global Integrated Strategies The 90's See A Structual Change To Corporate Operations

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CORPORATE REAL ESTATE (CRE)

Corporations represent the largest owners of commercial real estate in the United States

The Global Corporate Real Estate (CRE) Platform: 40 Billion S.F. of Commercial Real Estate Worldwide

Real Estate constitutes from 25-40% of the value assets on the corporate balance sheet

What is corporate real estate (CRE/CIR) management ?

Simply stated, corporate asset managers strive to add to values of shares of stock in their companies by wise deployment of real estate needed for current business purposes.

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The International Development Research CouncilA Global CRE Learning Organization (www.IDRC.org)

3600 Corporate Real Estate Executives in 27 Countries Controlling 23 Billion sf of facilities worldwide

The Average Corporate member has a minimum of 1.6 Billion USD in Assets with annual sales exceeding 1 Billion USD per year

Corporate members employed from 5000 to 400,000 workers and undertook over 200 real estate transactions per year

IDRC – Operates full time offices in the United States, Europe, Asia, Australia and the Americas.

The World Wide Global Offices are headquartered in Atlanta Georgia.

– Manages active Corporate Real Estate Research on five continents and within 27 countries working with senior level corporate executives and key universities within each region.

– Provides professional training to senior executives of corporate real estate departments, service industry support firms and not for profit public facilitators of the industry groups.

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PRESENTATION FOCUS Corporate Real Estate’s Rise To Visibility

CRE A Fifth Resource In The Corporate Expansion/Recovery Strategies of the 80’s; The 80s & 90s Global Mergers, Acquisitions and Expansions driven in part by Real Estate as a Fifth Resource.

Changes In CRE That Brings A New Strategic Operating Focus For Corporate Real Estate, Business Managers and Shareholder Value;Moving From CRE Place Centric Focus, To A People Centric Focus, with Technology as an Enabler

Corporations and Service Providers Restructure To Meet The new CRE Just In Time Real Estate Models and Create a Liquid Asset ;The evolving service alliances, new mergers, expanded portfolios, access to just in time capital, global communication systems and global real estate delivery capabilities for an integrated global corporate cultures driving new accelerated business cycles and just in time Value Added CRE/CIR services…”

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Business Survival, Leading To Restructuring & GlobalizationIn the early 1980s business and general operating companies began to move out of the roaring seventies and into the depressed eighties faced with a major U.S. down turn, overbuilding in real estate and a glut of surplus properties in N. A..

To Survive, Firms Began to Address Three Strategies

1. Tighten Operational Costs and Wait out the Cycle

2. Consolidate national and regional centers and acquire other firms, new products and services to reposition the firm

3. Free Up capital in corporate real estate and acquire new capital to expand further into new markets.

HOW DID CRE GET TO WHERE IT IS TODAY

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Testing New Global Structures

Early 80’s

Key Global Technical

Advancements

Early 90s

Concepts of People Centric Work VS Place

Centric Work

Globalization Of Real Estate & Operating Companies

New

Glo

bal S

truc

ture

sR

estr

uctu

ring

U.S. Corporate Restructuring CycleGlobal

Repositioning

Recession

Reductions & Tightening of Operations Repositioning

Nat’l & Global Mergers &

Acquisitions

New Down Cycle Begins

Early 2000’s

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First Strategy Early 80’sTighten Operational Costs and Wait out the Cycle

The first strategy saw new concepts in TQM to refine operations and squeeze out excess costs and inefficiencies. The move in this direction would bring forward the European and Asian systematic approach to refined operations under such models as ISO management.

Indirectly these new operational refinement strategies would begin to build new tiers of B2B relationships with U.S., European and Asian operating firms, service providers and CRE executives laying a foundation for a new global community

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FrankfurtParisMunich

Dublin

Milan

Amsterdam

Helsinki

Copenhagen

Madrid

Stockholm

Zurich

London Berlin

RomeLisbon

Birmingham

Lyon Vienna

Dusseldorf

Barcelona

Glasgow

Hamburg

Brussels

Oslo

Athens

Prague

Budapest

Warsaw

Moscow

EUROPE

ISO

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Singapore

Sydney

Hong Kong

Tokyo

Brisbane

Melbourne

Beijing

Guangzhou

Bangalore

YokohamaOsaka

NagoyaSeoul

Taipei

Jakarta

Kuala Lumpur

Bangkok

Delhi

Mumbai

Shanghai

Manila

Tianjin

Global Growth LeadersDeveloping Business CentersDeveloping CitiesEmerging Markets

ASIA PACIFIC

TEAMS

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Second Strategy Late 80’s Early 90’sConsolidate national and regional centers acquire other firms, new products and service lines and reposition the corporation

• The second strategy would fuel the surplus property glut in N.A even further and assist in driving real estate values to record lows

• The loss in real estate values would be the foundation for major banks, investors, developers and a host of institutional collapses

• Litigation Related To Environmental Issues Would Surface During This Consolidation And Disposal Period Driving Critical CRE OperatingFacilities Decisions Into Off Shore Locations

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MontrealToronto

New YorkWashington D.C.

ChicagoLos Angeles Boston

North America Real Estate Market Collapse

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Third Strategy Mid 90’s Free Up Capital from Corporate Real Estate To Expand Further Into New Markets

The third strategy would use real estate in an expanded way

Many firms in N.A. throughout the sixties and the seventies had paid down their real estatemortgages and depreciated the assets on their books. This hidden equity became known as the “Fifth Resource” and as attention was focused on these assets for rebuilding, the $ billions of untapped equity would fuel a round of hostile take overs that would begin the reshaping of corporate America, Europe, and Asia.

Beginning in N.A. firms leveraged the acquisition of other firms in part through their real estate as a major hidden asset. European corporate raiders would build on this trend as would Asian partnerships. The eighties and nineties would become the decade of change and reorganization

The foundation pieces that would build a new global community of capital, business operations and managers was falling into place.

The late 90s would bring the “Big Boom” of technology and communication that would place globalization into hyper drive and real estate into a world platform with a fluidity that we see new models for tested daily.

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FrankfurtParisMunich

Dublin

Milan

Amsterdam

Helsinki

Copenhagen

Madrid

Stockholm

Zurich

London Berlin

RomeLisbon

Birmingham

Lyon Vienna

Dusseldorf

Barcelona

Glasgow

Hamburg

Brussels

Oslo

Athens

Prague

Budapest

Warsaw

Moscow

Global Growth LeadersDeveloping Business CentersDeveloping CitiesEmerging Markets

EUROPE

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Singapore

Sydney

Hong Kong

Tokyo

Brisbane

Melbourne

Beijing

Guangzhou

Bangalore

YokohamaOsaka

NagoyaSeoul

Taipei

Jakarta

Kuala Lumpur

Bangkok

Delhi

Mumbai

Shanghai

Manila

Tianjin

Global Growth LeadersDeveloping Business CentersDeveloping CitiesEmerging Markets

ASIA PACIFIC

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What Is Happening Now

PLACEFOCUSCENTRIC

PEOPLEFOCUSCENTRIC

As Business Moves Towards A Global Community

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Place Fixed Location Specific Costs related primarily to asset Costs relatively insensitive to

usage Cost decisions are fragmented

between different functions Costs are indirectly linked to the

work performed

People» Variable» Mobile (follows the user)» Costs related primarily to individual

needs» Costs directly related to usage» Cost decisions are integrated

» Costs directly linked to work performed

Place Centric Vs. People Centric

THE BEGINNING

Separation of People, Technology And Space Creating and Refining New Models Defining Real Estate As A Virtual and Flexible Platform Maximizing Individual

Usage, Value Added And Cost Benefits

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IBM Testing New Concepts

25,000 employees in program Primarily field sales personnel Hoteling Office , Density Ratios 8:1 Low, 12:1 High Primarily a “Mobility Program.” Telecommuting on an as needed basis. Annual Real Estate Savings: $1 Billion (30% off base) Key Issues:

– Laptop Memory– Access costs– Band Width

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Coopers & Lybrand Testing New Concepts

Office Hotel Model (Telecommuting on an individual basis) Targeted at all professional and managerial staff (including partners) $60 Million per year annual real estate savings off a $160 M Base. (38%) 2.5 years into program 4.5 M sq. ft. reduced to 2.0 M sq. ft. Targeting suburban locations...maintain customer meeting facilities in CBD.

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ABB Testing New Concepts

30% reduction in floor space Factories in Europe consolidating into small, multi functional, low cost facilities Aiming for 3-5 year lease terms for factories Over 50% of products are less than 5 years old Products assembled and distributed close to the customer. Expect occupancy costs to be 1% of revenues

Inversion of Real Estate Value

4/1 Cost ratio$400/Technology Unit Costs to $100/Real Estate Unit Costs

Productivity Driven By Technology & People Creating New Corporate Value

Physical Space Changes To Any Place, Any Where, Any Time

Note: Product/Service Life Cycles Changes Evolving

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TRADITIONAL PRODUCT/SERVICE LIFE CYCLE

New Product or Service Concept

Introduced

Idea Gains Support &

Acceptance

IDEA Joins Main Stream

Competitors Create Knockoffs

Competition Grows

Original Replaced By

Next generation

15-25 yrs60’s80’s 7-10 yrs

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PRODUCT/SERVICE LIFE CYCLEIn A Networked Global World

New Product or Service Concept

Introduced

Idea Gains Support &

Acceptance

IDEA Joins Main Stream

Competitors Create Knockoffs

Competition Grows

Original Replaced By

Next generation

90’s 3 months-3 yrs

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GLOBAL CRE TRENDS CRE:Corporate Real Estate Changes To CIR : Corporate Infrastructure

Resources Management…..Convening the Work Place…. [CIR Combines CRE, IT, HR, Productivity and Shareholder Value Over Time]

Owned CRE

Leased CRE

Alternatives

Entrepre-neurism

Just In TimeCRE/CIR

Maximum ControlNo Flexibility

ControlLimited Flexibility

ControlGreater FlexibilitySynthetic LeasesSale Lease Backs

High CostsCapital & Exit High Exit Costs

High Exit Costs

Lower CostsMaximum Flexibility & Speed

Conveningand

MaintainingThe WorkforceEnvironment

Time Sharing Models

Matching Market Options

Merged Service Providers&CRE Portfolios

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CRE/CIR TRENDS CRE/CIR Managers

– Becoming Business Strategists– Other Activities Being Outsourced

Taskmasters

Controllers

Dealmakers

Entrepreneurs

Business Strategists

EngineeringBuildings

MinimizingBuilding Costs

StandardizingBuilding Usage

Matching Market Options

Conveningthe

Workforce

Technical Analytic ProblemSolving

Business Planning

Strategic

CRE END GAMEFlexible Occupancy of Just In Time Real Estate

Maximum ControlMaximum Productivity

Maximum Bottom Line Shareholder ValueCost Cycles With Product/Service Life Cycle

Traditional Models of Cost, Productivity, and Limited Flexibility Move Towards Real Estate as a Liquid Asset