Strategic planning minimizes real estate risks.

Today's corporations face competitive environments that produce continual opportunities as well as challenges. In addition to financial, business, and marketing planning, many corporate executives are seeking ways to plan their real estate requirements. These corporations have fully recognized the tremendous financial impact of real estate on their business profit.

In response to the demand for advanced real estate assistance, tenant representation services have become more sophisticated. Strategic real estate planning offers new types of analyses and professional skills that contribute significantly to increased operating leverage for many savvy corporations.

A firm planning an expansion or relocation through a comprehensively formulated strategic plan achieves economic and functional benefits. The development and implementation of this plan saves money and provides greater flexibility for corporate decision-making. A strict documentation process outlines qualitative and quantitative reasons for making specific decisions affecting the corporate balance sheet.

A strategic plan analyzes a tenant's real estate requirement from many perspectives. It includes a comprehensive needs analysis, the identification and evaluation of alternative solutions, and the formulation of a real estate strategy that complements the company's business plan.

Alternative methods for controlling real estate such as leasing, owning, or building is a major consideration in a strategic real estate plan. By providing clients with a well-defined plan, corporate real estate advisors are able to illustrate the advantages and disadvantages of different options. The major objective is to minimize costs, provide quality space, and allow for the greatest flexibility. It also creates an effective competitive bidding process to achieve maximum leverage and address future changes with alternative solutions.

Cellular One: A Case Study

The senior executives of Cellular One's Northern California operations were aware of the penalties associated with improper planning. Therefore, they decided on a strategic plan to solve some critical issues pertaining to their real estate needs.

In two Bay Area locations, the company faced the dilemma of renewing the existing leases or consolidating the two offices and negatively affecting their specialized workforce. As a service-oriented company, management needed to decide if the consolidation of functions outweighed the disadvantages of moving and potentially losing key personnel. The effort focused on evaluating Oakland, San Francisco and San Mateo County as the three alternatives for relocation.

Les Shinozawa, chief financial officer of Cellular One, wanted "Progress, intelligently planned, for our company. I knew our growth in the next few years would be significant, and I knew we had to plan for it. I also knew that it was important to work with a corporate services firm that could ask the right questions pertaining to our corporate culture, our goals and our future growth, and present us with our options."

During the development of the strategic plan, M&M performed numerous analyses, including a review of budgetary parameters as a percentage of total occupancy costs, growth projections, location criteria and transportation surveys. Interviews assessed the satisfaction of employees and management with various real estate and facility issues.

The planning efforts, most notably a demographic study of employees, exposed some unexpected results that facilitated the firm's decision-making. Contrary to the belief of several managers, a majority of the staff lived on the west side of San Francisco Bay, making this area more operationally advantageous. In addition, a review of the local traffic patterns indicated that a consolidation in San Mateo County would be most favorable for employees' commute time.

The strategic plan became the blueprint for the implementation. It provided Cellular One with several options, buildings that met their strategic objectives. The selected building had the most economical lease rates, quality image, signage rights on the building's exterior, and perhaps most importantly, had provisions for future growth.

The consolidation has dramatically enhanced the company's internal communications as well as the morale of the employees, who take pride in the building's appearance and enhanced work space. The building even augmented employee transportation with a local transit shuttle. Since signing the original lease, Cellular One has almost doubled their space at their new Northern California headquarters location. The lease document provided for this rapid growth through flexible rights of expansion.

Companies Missing Out

Although many companies use a strategic real estate plan to capture savings and increased flexibility, many companies have yet to take the responsibility for this area of financial impact. A study conducted by the University of California at Irvine's Graduate School of Management and Marcus & Millichap Corporate Real Estate Services Company in 1993 of 112 Orange County firms found that many companies are missing out on a significant cost controlling opportunity.

"It appears that corporate real estate space does not receive the managerial attention warranted by its budgetary impact," said Dr. Louis H. Masotti, Ph.D., director, Program in Real Estate Management at the Graduate School of Management. "In today's competitive environment, these costs need to be reviewed continuously relative to a company's income and expenses."

Only 39 percent of companies surveyed ,i the study have a Strategic Real Estate Plan in place that works in conjunction with their overall business plan. Even when analyzed by size, only 57 percent of the larger firms, those most likely to have a plan in place, actually have one. Service-related companies such as law, accounting and financial institutions and services, traditionally perceived as advisors to corporate America, report a remarkably low degree of facilities planning.

Role of the Corporate Real Estate

Advisor

Increasingly, companies are asking corporate real estate advisors to perform additional services such as building, financial and portfolio analyses, space studies, and legal review. In most cases, the corporate real estate advisor is a transparent extension of a real estate department. This relationship dramatically enhances the department's research, analysis, and documentation necessary for sound decision-making.

As a trusted business advisor, the corporate real estate advisor acts similar to accountants, lawyers, or other professional services consulting with their clients. The corporate real estate advisor has the ability to analyze meticulously, plan thoroughly and implement a practical course of action. in this manner they are representatives aligned with their clients' needs and dedicated to the company's bottom line.