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Organizational Structures In CRE

In the last Blog post, I addressed the subject of process management in the context of CRE management. Process management is directly tied to organizational structures. In fact, the structure and staffing of the CRE organization should directly correspond to key processes such as leasing, construction, design, facilities management, etc. Organizational structure varies by the size of the real estate portfolio, the type of industry (retail, financial services, manufacturing, etc.) the level of outsourcing, and the geographic dispersion of the real estate portfolio.

The latest trends in CRE organizational structures provide insights to the topic.  In a report by the research firm CEB (now part of Gartner), five key trends in CRE organizational structure were identified:

1.    Most Corporate Real Estate (CRE) functions with a portfolio size greater than 10 million square feet are centralized. CRE functions with portfolios less than 10 million square feet are split between centralized and hybrid (i.e., managed centrally and executed locally). Very few CRE functions are primarily decentralized.

2.    Few organizations manage activities wholistically at the local level; the most common locally managed activities are facilities and office services.

3.    Most CRE functions have a threshold project size, above which projects must be managed centrally. For portfolios greater than 10 million square feet, the median threshold is $50,000–$60,000. For portfolios less than 10 million square feet, the median threshold is $100,000.

4.    CRE functions with portfolios greater than 10 million square feet have had more structural changes in the past five years, with over 90% having at least two changes. CRE functions with portfolios less than 10 million square feet have had fewer changes, with 63% having two or less changes in the past five years.

5.    Leaders of CRE frequently change organizations. Median tenures for portfolios greater than 10 million square feet is three years, while for portfolios less than 10 million square feet, the median is 1.5 years.

Most CRE organizations maintain the following organizational disciplines:

  • Real estate negotiation
  • Construction management
  • Design management
  • Facilities management
  • Lease administration
  • Strategic planning
  • Financial analysis

In many cases, the functional managers oversee and supervise the work of outsourced contractors such as tenant representatives, interior design consultants, construction contractors, etc. And, as mentioned earlier, most of these activities are either insourced or outsourced (or both) and are governed by explicit processes and supported by software.

Some CRE organizations also have responsibilities for environmental management and physical security. Others have the added responsibility for employee wellness, since most corporate wellness programs focus on health clubs or internal physical fitness facilities. Both of these areas closely align with CRE’s contracting or facilities management responsibilities.

Professional development and training are key functions that are essential to organizational performance. I would recommend ensuring that staff members include professional development goals in their annual objectives, with a balance between technical and management skills. I would stress communication skills while striving to give staff members opportunities to prepare and deliver presentations. In this regard, I would encourage staff members to present at professional forums such as CoreNet and IFMA. I would also encourage staff members to enroll in professional development courses at these forums.

Organizational structure and development are key responsibilities of the CRE manager. CRE executives must review their organizational structure periodically and ensure that the organization continues to align with business strategy and customer requirements. Questions to ask include: Do I have the right skill mix? Do we have the necessary reporting relationships and span of control? Have we built good team behaviors? Is there a high level of trust in the organization?  Are the staff members adequately provisioned and supported? These are some of the main questions that the CRE managers need to ask periodically to ensure a high performing organization.

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