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Some Thoughts about the Corporate Real Estate Organization

By January 25, 2016Lease Accounting

A major question I am asked on occasion is what is the best way to organize the corporate real estate function.  There are several fundamental principles that should be considered to answer this question.

  • First is what is the scope of the real estate function?
  • Does the scope include only transactions?
  • Or is the function broadly responsible for planning,  budgeting, and managing the acquisition, disposition and on-goingmanagement of the facilities portfolio? 

The over-all mission of the business will greatly affect the real estate organization structure. For example, a retail business will require a distinct set of competences in store location, design and build-out. A high tech company will need different skills and functions that will emphasize collaboration, access to skilled labor, and proximity to universities and other knowledge based services and resources. A professional services firm will require yet another set of skills and competencies, so the focus of the business will highly determine how the real estate function is staffed and organized.

Another key variable in the organization topic is the focus on sourcing. To what degree is outsourcing of various functions such as leasing, design, construction management, and facilities managementa preferred method of achieving the necessary skills to manage the company’s real estate portfolio? For many companies, outsourcing non-core functions to service firms is the preferred approach. In some cases companies will engage a single service firm to manage all aspects of the real estate function and limit the role of internal real estate organization to strategy and service oversight.

A discussion of organization structure is incomplete without a consideration of business processes. I learned from my days as a consultant that many clients suffered dysfunctional organizations because how they were organized was inconsistent with their work flows and processes.  Once the client went through a rigorous review of processes, the problems with organizational structure became much clearer. The review would typically uncover redundancies, communication problems, and confused roles and responsibilities. I always encouraged the client to undertake a rigorous review of key processes before considering organizational changes.

Another key consideration in the organization discussion is an honest and frank discussion of company culture. The real estate organization must embrace cultural norms of the corporation to insure a level of trust and compatibility with management, operating unit clients, and other staff groups like finance, human resources, and information technology. Perhaps one of the major sources of conflict is between the real estate organization and the IT group. Here the issue is one of control and responsibility. The real estate group insists on controlling facilities projects while the IT group insists on certain controls governing security, power and air conditioning, and cabling. This organizational conflict is heightened around data center projects, where competing roles and responsibilities are the source oforganizational rivalry. Some companies use matrix management structures to insure collaboration and cross functional communication. The matrix has increased in popularity with the advent of collaborative technologies and mobile communication. But the matrix structure can be complex, and management must insure clear processes and accountabilities to avoid organizational chaos.

Finally, the organizational topic must lead to a focus on technology. How is the real estate organizationusing the tools such as lease management systems, design and project management applications, and process support tools in the planning and management of the company’s real estate portfolio? Here again processes lead to the appropriate selection of technology tools, whether in the planning, transacting, or on- going management of the portfolio. With the advent of cloud computing, it is now possible to selectbest-in-breed solutions and integrate in the cloud using various APIs. (application program interfaces) This trend will reduce the cost of real estate technologies as well as reduce the time to acquire and configure various solutions.

The corporate real estate function continues to evolve as companies go through disruptive change such as globalization, outsourcing, and technology innovations.  It’s probably inevitable that how a company is organized today to manage its real estate portfolio will change tomorrow. Staying on top of these changes and adjusting accordingly will be a major challenge for the successful corporate real estate leader.


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