LEARNING THE CULTURE

Part of the result of outsourcing is that real estate companies use the vernacular of corporate culture. As the level of service and sophistication has increased, the cultures have merged to an impressive degree. The Edward S. Gordon Co., a commercial real estate firm in New York, has been involved in outsourcing "for nearly a decade, before the terminology was institutionalized," says S. Howard Fiddle, managing director for the company. "In that time we have learned to better understand their needs and what they expect." Gordon has enjoyed a relationship with Hewlett-Packard "that typifies successful outsourcing."

With approximately 40 million sq. ft. of real estate in its domain, Hewlett-Packard keeps Gordon, as one of its outsourcing partners, quite busy. "It's much like the relationship a large corporation may have with several law firms," Fiddle explains. "They have come to rely on outsourcing for real estate to help them solve problems that even a well-organized and sophisticated department such as their own just does not have the time or resources to complete." Hewlett-Packard formerly owned many of its buildings, but recently has switched to sell and lease in order to unleash cash for investment in other areas of the company.

Understandably, competition for outsourcing business has grown considerably and has many people wondering if the competition would squeeze profit margins.

A typical case was two years ago, when Chicago-based Ameritech, an $11-billion Baby Bell company, announced it would place facilities management of more than 45 million sq. ft. of real estate in five states up for bid, at the time the largest corporate outsourcing. An Ameritech general manager said that his company "did not want to be in the real estate business" anymore. Ameritech was spending approximately $250 million annually on 3,500 buddings, and had a goal of reducing costs by 20 percent, or $50 million, to pare down the company as it prepared to enter the supercharged information highway fray.

Chicago-based LaSalle Partners was the big winner on the property management side, and John Wallerius, a managing director for the firm, feels comfortable not only with the work but also the profit.

"The management of 48 million sq. ft. keeps us busy, to be sure, but it's also important to realize that we are a strategic partner in how that real estate will be managed to bring the company the highest yields."

Ameritech had only recently consolidated five different real estate departments (one in each state) which, Wallerius says, "had developed different ways of managing the properties in their control."

LaSalle's first assignment, then, was to bring standardization to the process, "and develop systems hat could be followed thro company, particularly with regard to cash management and capital expenditures," he says. "Their real estate was generally evaluated together, so we developed a certain budget discipline that evaluated each building on its own terms and within its own market, sort of a bottom-up approach. That way, individual properties could be tracked thoroughly and accurately, evaluated on their own merits and their own needs. Of course it took a highly sophisticated system to bring this kind of discipline together, but we have made tremendous investments on our own in software development and applications to meet the challenge, and we think we're doing quite well."