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A new era in corporate property management.

A new era in corporate property management After years of relative indifference, many corporations are recognizing the value of operating their properties more professionally. Many factors have contributed to this growing awareness. Fear of takeover attempts had prompted some corporations to streamline their real estate holdings. Recent SEC requirements that the rental costs be carried on corporate balance sheets have forced companies to recognize the true cost of occupancy. In some cases, the presence of a new, more cost-conscious chief executive or board member marks an increased emphasis on more efficient operation of the premises.

Regardless of the reasons, this trend represents both a recognition of the value of professional management and an opportunity for the management firm to serve as a consultant for applying property management techniques in the corporate environment.

In the past, corporations have too often buried the cost of building operations in everhead and ignored actual costs. There may have been a building budget, but it was rarely monitored closely.

Many corporations further increased their occupancy costs by adding inappropriate charges, such as furniture repair or porters used in functions other than occupancy, into a facilities budget. In one company at which Cushman and Wakefield consulted, each department had a porter, who essentially functions as a "go-for" for the department. In New York City, a porter's salary may reach $30,000 a year, including benefits. When the costs were charged directly to the departments instead of to building overhead, most department heads found that they could do without these employees.

At the same time, it is often difficult for a corporate facilities manager to reduce the costs of building operation. Political pressures from executives who demand one service or another may add up to significant expenditures. Often the facilities manager sees his or her principal job as "keeping the bosses happy," rather than minimizing costs.

In such instances, hiring an outside consultant to assess the facilities management operation may be the answer to lowering costs. An independent property management consultant hired by top management is less likely to be restricted by company sacred cows.

Analyzing a corporate

facilities program

An awareness of costs is the first step for a corporation interested in lowering costs, leasing space to other tenants, or selling a building. Reviewing the staff of the facilities management department is a good place to begin assessing operating costs.

In the first phase of a facilities audit, a consultant may begin by interviewing every employee and determining exactly what each does and why he or she does it. In some cases, facilities staff size has grown to the point that productivity is not high. Often staff supervision can be consolidated in fewer hands to reduce management costs.

Staff painters, electricians, or carpenters may not have enough direct building work to keep them busy, so they are used to do more menial jobs or work that does not necessarily need to be done.

Often a more compact staff can perform the same services with the assistance of some outside contractors. For example, if an outside contractor's painter or electrician does not have enough work at one location to keep busy, he or she is sent somewhere else. This reduces cost at each location.

In addition to reviewing and revising employees' job descriptions, an outside facilities-cost consultant will review maintenance and operations procedures to determine ways to improve efficiency. Cleaning is one of the single largest recurring costs in most building operations and usually presents great opportunities for savings. Of course, most buildings could be cleaned less often, but that is usually not acceptable to corporate owners.

A more productive way to reduce costs is by eliminating work that is probably not done anyway. For example, many corporations, concerned about maintaining a high quality appearance, will ask outside cleaning contractors to bid on specifications that include a specific frequency for cleaning functions such as high dusting, window washing, and the like. Unless someone is constantly checking this work, few contractors will do this work at the specified frequency. Revising bid specifications to reflect this reality will result in lower bids for the same performance. Moreover, company executives are not likely to complain about such money-saving strategies provided there is no perceived reduction in quality.

Lowering heating and cooling costs is another way to reduce building expenses without any noticeable change in service. Facilities managers often do not have technical backgrounds and are dependent on their technical/mechanical staffs for the best way to operate and maintain equipment. In turn, the technical staff frequenly in intent upon doing a job the same way it has been done in the past, rather than looking for a more efficient method.

Engineers and HVAC specialists should be included on the facilities audit team to help pinpoint savings in mechanical areas. Once new procedures have been identified, they should by incorporated into an official operations manual for daily use and future training purposes.

Other areas that should be considered in auditing a facilities management program include purchasing procedures and budgeting. If tenants are present in the building, lease audits should be undertaken to ensure that costs for extra services and escalations are being properly charged.

Audit findings

The final goal of a facilities audit for a corporation is not always to make changes in building operations, but instead to acquaint the company with how it is spending its money. In some cases, corporations may decide to continue with expensive services in order to satisfy executive or worker needs. In other instances, such as reducing staff, companies may not be comfortable firing unneeded personnel and may decide to let attrition eliminate jobs.

On the other hand, some corporations are becoming serious about building operation savings. There is nothing mysterious about most strategies for lowering operating costs, nor are savings tremendous compared to overall corporate profits. Yet, many companies have recognized that by applying professional property management techniques to their corporate facilities, they can save significant amounts of money.

For even a large corporations, savings of $1 per square foot on 1 million square feet a year provides a strong incentive to manage building operations more efficiently. Capitalizing these savings over many years can become an even more significant amount. And for the property management organization, corporate recognition of the value of management presents many opportunities for consulting and management contracts.

Kenneth A. Shearer, CPM [R], RPA, is executive vice president of Cushman & Wakefield, Inc. He oversees the management of more than 84 million square feet of commercial property in the United States, and has been involved in the design or start-up of such major projects as the Champion Paper Headquarters Building in Stamford, Conn., the Sears Tower in Chicago, the Atlantic Richfield Plaza in Los Angeles, and the Citicorp Center in New York City. Mr. Shearer holds a bachelor's degree in mechanical engineering from New York University, and is a director of the New York Realty Advisory Board on Labor relations and of the Building Owners and Managers Association of New York City.

Cushman & Wakefield, Inc. is a national firm headquartered in New York City, which is engaged in the brokerage, management, appraisal, financing, and development of commercial property for domestic and international clients. Founded in 1917, Cushman & Wakefield is a subsidiary of the Rockefeller Group, Inc.
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Title Annotation:Viewpoint
Author:Shearer, Kenneth A.
Publication:Journal of Property Management
Date:Nov 1, 1989
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