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Outsourcing provides significant savings.

As a by-product of the slowed economy and the downsizing that has become common to Corporate America, companies throughout the Metropolitan region are looking to outsource an increasing number of traditionally internal functions. Their goal is to concentrate corporate manpower and resources on their own core business.

One result is that both corporate executives and portfolio managers are seeking out experienced property management firms that are broadly experienced in managing real estate and have capabilities in the operation of a wide range of both income producing and corporate facilities.

In some instances, the companies are outsourcing specific functions or operations that were typically handled by the corporate real estate departments. These functions might range from lease administration and distribution and warehouse management, to space planning and engineering and maintenance. Other increasingly outsourced operations include security, construction management financial planning, environmental assistance and employee relations.

Of course, there are numerous instances where the company demands full service property management of these facilities to include a wide range of support services. Such support services might include cafeteria and vending operations, as well as mailroom facilities, in addition to more commonly anticipated real estate management services.

This is occurring throughout the Metropolitan area and within New York City as well.

The reason is that with outsourcing, significant cost savings can be realized. In some instances, companies are finding that annual savings reach as much as 20 to 40 percent.

A prime example of the outsourcing movement and the re-commitment to a focus on core business is seen at the IBM Corporation. IBM has outsourced various internal functions from property management to lease administration. A little over a year ago, IBM formed a joint venture partnership with Grubb & Ellis to specifically address the outsourcing needs of IBM and other corporations.

The resulting joint venture, Axiom Real Estate Management, started out with a management portfolio that included 17 million square feet of IBM facilities. It now manages more than 90 million square feet of major corporate and institution owned properties, including 25 million square feet of IBM owned facilities. As a result of their commitment to outsourcing, IBM anticipates dramatic reductions in overall operating costs.

What we are now seeing in the New York metropolitan region is not a total elimination of the in-house real estate departments. On the contrary, although there has been a reduction in staff levels, corporate real estate holdings continue to require ownership attention. The makeup and functions of the real estate departments have changed. The in-house real estate departments now provide the oversight needed by corporate management and act as the corporate liaison on the outsourced projects involving capital improvements, code compliance and construction management, as well as property management.

The process of determining the benefits of outsourcing best begins with a complete survey of existing real estate operations. With the assistance of a facilities management firm--which can provide an objective, "arms-length" evaluation -- a study is made of the facility and operation including such items as: * Full and part time staffing levels * Job descriptions and skill levels * Contracted services * Financial reporting requirements * Insurance and other fixed expenses * Equipment and machinery * Office and plant layout

The analysis will enable the company to determine the impact of outsourcing their facility operation. The ultimate goal is to gain a more efficient operation at a lower cost.

In almost all instances, companies are finding that leaving the real estate and facilities operations to expert facility management firms makes sound business sense.

Experienced facilities management firms provide these companies with a full menu of services that can be selected as required.

For example, specialized outsourcing of lease administration has become more common among companies with multiple leaseholds. These leases require careful monitoring, particularly with respect to billing demands and critical dates. The management firm monitors lease and and sublease issues to ensure fair and timely escalation billings, rental and escalation adjustments, as well as monitoring all options found within the lease documents.
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Title Annotation:Building Management & Maintenance; corporate executives and portfolio mangers seek property management firms for duties formerly handled by corporate real estate departments
Author:Poblocki, John F.
Publication:Real Estate Weekly
Date:Oct 6, 1993
Previous Article:12-steps to finding the right property manager.
Next Article:In Westchester, case study in proactive management.

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