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Benchmarking: make sure you measure up.

As property values in and around New York City continue to rise, the drive to utilize new technologies and operational creativity to decrease or cap operating costs continues. Owners and their portfolio teams huddle at the time of an acquisition and comb through numbers to find every penny of value.

Many factors play into the ability to purchase and operate a property. Tenant roster, lease expirations and cap rate are key drivers of a deal's attractiveness. At the same time, net operating income will always be important to valuation. The owner needs to identify the costs that can be reduced, and detailed benchmarklng makes calculating operating costs simpler. In such an intense market as New York, often the best solution is to focus on the long term, regardless of the hold period. Reduced operating costs and processes that focus on efficiency will assist in achieving net operating targets, regardless of the rental market.

The manager or operating partner plays a key role in identifying the exact cost based on factors such as property location, property type, and tenancy requirements. Those costs can make or break the opportunity of the acquisitions team to achieve the pricing required.

At Grubb & Ellis, our management services division collects operational data, and the size and diversity of the firm's management portfolio allows for a large representative sample. On a regional basis, a grouping of properties greater than 500,000 s/f has been studied to determine operating costs in each market and leverages multimarket experience to better manage properties of any size. This building council provides managers with the opportunity to fact check pricing and operating costs.

It is a tool frequently utilized in due diligence exercises. Clients have, at their fingertips, the ability to obtain real time competitive market data to understand what affects property pricing and values.

On a more local basis, the firm takes advantage of tens of millions of square feet in the Tri-State area to understand current market pricing and beadcount. Institutional, commercial office and industrial pricing are tracked so that asset managers can reference the data collected by the property management team and implement current cost models.

Benchmarking helps managers better perform their duties and increase accuracy with budgets. At the same time, it supports other business lines such as project management and brokerage in specifying long term costs for clients, and helping them understand the operational and acquisition costs of different markets and submarkets From this data they can model operating efficiencies available in the purchase of a building. This multidiscipline approach allows for a more strategic, solidified approach to solving client concerns, while providing a comprehensive view of real estate solutions.

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Comment:Benchmarking: make sure you measure up.(INSIDERS OUTLOOK)
Author:McGinley, John
Publication:Real Estate Weekly
Date:Nov 7, 2007
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