In this morning’s New York Times, it was reported that Goldman Sachs recently consolidated from three floors to two in its major Manhattan office tower. The Times reports that “the changes in real estate have helped Goldman reduce its cost by 17 percent since 2010.” This is yet another example of the value in corporate real estate strategic planning and why I wanted to spend a bit more time on the subject.
In the last blog entry I outlined the key components of the corporate real estate strategic plan. In this blog, I examine in greater detail specific areas of focus in the strategic plan
· As a first step, the strategic plan (the Plan) should include key objectives, including financial summaries, environmental goals, and workplace flexibility goals.
· The Plan should include a demand forecast of total square feet over five years as a function of headcount growth or other relevant growth factors.
· The Plan should include an executive summary, graphically presenting the financial results of the Plan by year, over a five year time frame.
· The Plan should include a summary of market benchmarks and then compare actual rental rates, and space ratios to benchmarks. This analysis should be particularly done for major locations.
· The Plan should include major projects by year, and highlight timing and budget (both expense and capital) for each major project.
· The Plan should contain a separate section which highlights the major city consolidation plan, including targeted locations, project details, and financial results.
· The Plan should tie with the two year annual operating budget by location, and then extend the financial summary for an additional three years; for a total five year financial forecast.
· An addendum to the Plan should include a complete inventory of both leased and owned locations, with action items highlighted that would require lease renewals, extensions, terminations, and relocations within the first two years of the strategic plan. Ideally this data could be a feed from the Lease Management System.
· The Plan should include a separate section that summarizes the asset and liability values as required by the new FASB and IASB lease standards.
· The Plan becomes the primary communication vehicle to convey plan objectives to real estate partners including tenant representatives, design consultants, and other third party service providers that would be contracted to implement key projects in the Plan.
· Similarly, the Plan should also be communicated to key stakeholders such as corporate finance, office of general counsel, IT, and human resources.
· Ideally, the Plan needs to be kept current through quarterly reviews and updates.
Some Final Thoughts: The Corporate real estate strategic plan is separate from the lease management system. Ideally the lease management system should feed data to the Plan, but the systems are two distinct tool sets with common data bases.
This outline of the corporate real estate plan is only one version of what will vary by company based on the company’s core business, size, culture, and asset types. Retail companies will focus more on location criteria and consumer market demographics. Manufacturing companies will emphasize labor markets and supply chain considerations in its strategic plan. Government entities will have yet another set of priority considerations in its real estate strategic plan. But the basic elements as discussed above will more or less be common across business entities.
Perhaps the most important responsibility of the head of corporate real estate is the development of a detailed and well conceived real estate strategic plan. Without it the corporate real estate function is failing to align its facilities and leases with corporate goals, and communicating these plans to its various constituents.(particularly senior management)