CCIMs offer insider viewpoints on the big business side of the industry.
It's time for American corporations to take a closer look at their portfolios, says Michael Condon, senior vice president of corporate services for Colliers Seeley International in Los Angeles. Ensuring that their business plans are aligned with their real estate plans is a good start, he adds.
This re-evaluation of the way corporations handle their real estate is especially important today. While growth in the corporate real estate sector was modest last year, both corporate developers and real estate users expect to buy and sell property in greater quantities this year, according to a 2006 Coldwell Banker Commercial/National Real Estate Investor corporate real estate survey.
With this increased activity come new opportunities for commercial real estate professionals in the corporate real estate sector. Whether it is working as an in-house real estate manager or an outsourced broker, commercial real estate experts are being called on to help corporations get their real estate holdings in line with their business strategies.
Commercial Investment Real Estate talked to four CCIMs who are active in the corporate sector to gain their perspectives and predictions on this constantly changing commercial real estate niche.
Sticking With the Deal
G. WILLIAM KNIGHT, CCIM
Director, Advantis Real Estate Services
CIRE: What type of companies do you work with and what type of work do you do?
Knight: I focus on second-tier accounts more than Fortune 500 accounts. My work is transaction-driven, that's where the money and commission are. I do work with one large company that has multiple relationships with different brokers.
CIRE: What kind of transactions have you been doing recently?
Knight: My largest client is a major telecommunications company based in the South. I handle disposition of corporate real estate for them. I mostly work with their older properties that are redevelopment sites. I sold a 15-acre former call center to Wal-Mart for them. The property wasn't Wal-Mart's standard model since it was in an urban setting, but the site demographics were great for Wal-Mart.
This client has disposed of more than 2 million square feet in the past three years, but as Internet and cellular services expand they will need to add more space again.
Another one of my clients, Acosta Sales and Marketing Co., based in Jacksonville, Fla., is experiencing growth. I handle 30 to 35 transactions for them per year. They follow supermarket buying trends, which move very quickly, so they have to have flexibility in their leases.
CIRE: What strategies do you use when working on corporate deals?
Knight: You have to stick with a difficult property. For the Wal-Mart deal we knew it would probably be a retail plate and most likely a big box. We went directly to our target buyers - developers and brokers - and through that it came down to three or four potential buyers.
I am close to selling another property for the same client. It's an abandoned hotel/conference center being sold as a redevelopment property. I have had the listing for three years. We knew it couldn't be a hotel again because it was so dated, but we think it can be turned into condominiums or a seniors-housing property.
CIRE: How do you build and maintain relationships with corporate clients?
Knight: I became involved with [the telecommunications company] through a personal connection and we now have an assigned contract. Other accounts are from networking. The whole idea is to connect with companies that have multiple transactions over time.
To keep corporate business, you need to work just as hard on the small deals as you do on the big deals.
Working From the Inside
CHERIE GANESH, CCIM
Real estate development manager,
CIRE: What is your role as an internal real estate manager for a major corporation?
Ganesh: I locate suitable sites for AutoZone stores and negotiate and monitor the transaction until the store is open for business. My responsibilities include developing an understanding of potential trade areas that have been delineated by our research department, suggesting new potential trade areas, and analyzing each potential site to ensure it meets our investment criteria.
CIRE: What criteria do you look for when selecting sites for new AutoZone stores?
Ganesh: AutoZone has a distinct preference for buying sites and constructing its own buildings. Our ideal trade area is one that has population growth, middle-income demographics, and a lot of vehicles over five years old. We especially want markets where we can build our typical prototype buildings with customer-friendly parking and good signage.
CIRE: What big-picture trends have you seen in corporate real estate in the past year?
Ganesh: Increases in land prices and construction materials. Increases in land prices have been driven somewhat by prices that drugstores and banks have been willing to pay for properties along with an overall shortage of suitably sized sites in more densely populated markets.
CIRE: Will this trend continue? What do you see happening in the future?
Ganesh: With the demands from other countries for steel and construction materials added to the demand that is anticipated with rebuilding after [Hurricane] Katrina, shortages only can lead to increased costs. It also appears that we are seeing [construction] labor shortages in some areas of the country in part due to high residential construction starts, continued commercial construction, and government contracting that has been on the rise.
CIRE: What tips and/or strategies do you have for commercial real estate professionals working with corporate clients?
Ganesh: Listen to corporate clients when they tell you what their criteria are. Most of us have very specific requirements and don't have time to look at sites or existing buildings that will not fit those needs.
Also, recognize that corporate real estate managers most likely have very large territories to cover. The commercial agents I work with must send me a full package of information on any prospective site, including an aerial, a map, a plat or site plan, pricing, and dimensions. [A local broker's] job is to give us enough information so we can make a reasonably quick decision about a potential location.
Keeping Costs Low
STEVEN J. MEDWIN, CCIM, SIOR
Senior vice president, Lincoln Property Co.
CIRE: What type of corporate clients do you work with and how did you establish relationships with them?
Medwin: I work mostly with large retailers to locate new facilities - call centers and distribution sites - no stores. I do site analysis and selection, lease negotiations, and disposition of surplus properties including subleases, sales, and lease terminations.
In most cases I make contacts with people in the company through trade organizations or attorneys by networking. It's typically a personal relationship with someone in the real estate department - we don't cold call corporate clients.
CIRE: What are your corporate clients doing right now?
Medwin: [My clients are] consolidating multiple facilities into fewer, larger regional properties, monetizing real estate holdings, and re-negotiating terms of lease renewal options. [They have been] selling off surplus properties due to changes in demographics and distribution. Some companies are closing small facilities and consolidating into larger facilities for cost savings. They might have 10 properties and reduce to two to operate more efficiently.
CIRE: Where are corporations locating these consolidated facilities?
Medwin: Not major hub cities but places that are close to big cities. Industrial properties are being located in peripheral markets such as Buford, Ga., near Atlanta; Portage, Ind., near Chicago; Hazelton, Pa., near Philadelphia; and Davenport, Fla., near Orlando. Fla. Costs are lower in terms of real estate and labor in these areas, and there is better labor availability.
CIRE: What big-picture trends do you see in corporate real estate?
Medwin: The main thing is that in retail, real estate is more of a nuisance than an investment. It is looked at as a cost. Big retailers will pay what they need to for stores, but for distribution facilities, call centers, and offices, real estate is just a drain on revenue. They want to keep costs down as much as possible. Most corporations are trying to get the best profit possible.
Meeting Client Expectations
TERRY L. CONLEY, CCIM
President, The Location Connection
CIRE: What type of clients do you usually work with?
Conley: I work with retail, mostly restaurant. I provide broker services as well as market review and site-selection support for corporate-owned properties and franchisees.
CIRE: What are your clients looking for in prospective sites?
Conley: They expect [me] to select markets that correspond to their concept and to provide [guidance on big and small issues]. I also am expected to know how the local market is performing and what local rates are being negotiated. They are looking for markets and sites that provide good immediate opportunities as well as stable growth. Most of my customers do not want to be pioneers but want to be early enough to get a good value on the lease.
CIRE: What do commercial real estate professionals need to be aware of when working with corporate clients?
Conley: We should be constantly aware of how the brand is operating in the market. This relates to operations, advertising, distribution plans, and other issues. Also, we have to be aware of how each site changes the strategy of market development for the client. We have to be knowledgeable about how the client's strategy will play out as sites are selected and developed. This is different than working with smaller, independent clients because most [of them] are not as concerned with long-range plans.
CIRE: What big-picture trends have you seen in corporate real estate in the past year and what do you expect to see in the future?
: I continue to see corporations outsourcing various real estate
and development functions. These services range from input on markets to select
and site selection through the entire development process. Most corporations
have continued to maintain corporate control over the entire process but
outsource the more elementary functions. They expect that service providers
give input into how specific sites will affect growth plans and also how
advertising and distribution will work. I have to provide background
information on the site and market as well as what the competitors are doing.
The more information I am able to supply, the more often I am given other