by Scott D. Steuber, LEED AP, MCR and Ted Simpson, MCR — Corporate real estate (CRE) outsourcing strategies and trends are an important consideration for businesses regardless of their size, industry and business model. But in our observation, perhaps the two most basic — yet significant — decisions corporates must make are first determining which real estate functions to insource and which to outsource. Then — once a company outlines its specific outsourcing requirements — the next step would be to move forward with a single-source provider, or utilize multiple service providers.
Insource or Outsource?
When it comes to the insourcing/outsourcing question, the ideal mix really varies from company to company. The answer can be driven by both quantitative variables (total square footage, headcount, number of facilities and geographic spread) and qualitative variables (corporate culture, speed to market, real estate sector, and the functional needs of the space, e.g., recruitment or retention tool, brand communicator, back office, etc.). The above variables dictate how the most common CRE functions alternate between being insourced and outsourced. These functions include, but are not limited to, Lease Administration (Lease Admin), Facilities Management (FM), Brokerage, Architecture and Project Management (PjM).
Single-Source or Multiple Service Providers?
Once the insource/outsource strategy is determined, the next decision is whether to use a single outsource provider or multiple service providers. While socially unacceptable in marriage, polygamy of outsourced service providers is the latest choice for many companies big and small. The once common practice of using a singleservice provider for all of a company’s CRE needs is becoming increasingly less common. Corporates are valuing the expert relationships they have built in their various geographies and business lines, as opposed to a turn-key practice of using a single source. These relationships allow them to tap into best practices and a local knowledge base without being married to just one provider.
Citing some current client examples from CH2M Hill (largecap/ Fortune 500), East West Bank (mid-cap), and OpenX (small-cap/private), we will illustrate that no matter where a large-, mid-, or small-cap company sits on the outsourcing spectrum, there isn’t just one magic formula that works for all businesses. These examples will also provide some of the reasons why these companies have chosen polygamy when it comes to outsourcing service providers.
Starting at the insourcing end of the spectrum, Coloradobased engineering firm CH2M Hill (CH) — a Fortune 500 company with $7 billion in 2012 revenue — is a good example.
Cristy Handsaker, Senior Manager, Corporate Real Estate for CH, explains, “CH regularly evaluates the balance of its insourced and outsourced CRE functions and takes into consideration many different variables. CH has determined that its current balance is the best solution for its needs and will maintain that balance until sagging performance requires change.”
The majority of CH’s CRE functions are in-house, including all lease administration, FM, certain brokerage functions, architecture and PjM. Its facilities team handles the FM and PjM for all locations. CH also staffs two space planners internally that can take the design process very close to the construction document phase. Handsaker and her regional counterparts tackle the brokerage function, partnering with specific local brokers that CH has grown to trust and rely on for their guidance and expertise in each market. “By not committing to a multi-market, single-source provider exclusively, CH is guaranteed a best-in-class partner for each assignment and avoids having to reinvent the wheel on each transaction,” she says.
The company is able to offset the cost of this insourced team of experts by receiving test-fit and architectural fee compensation for its space planners, and broker commission fee sharing for its CRE management team, of which Handsaker is a part.
Sliding toward the middle of the outsourcing spectrum is Pasadena, Calif.-based East West Bank (EWB), which holds $24.5 billion in assets. EWB is a public company that displays more of an even allocation of its insourced/outsourced CRE functions. First Vice President of Facilities and General Services Manager Andy Shiozaki oversees a team that maintains the bank’s real estate. Shiozaki deftly guides a project/construction manager, property manager and lease administration team in its handling of the bank’s FM, PjM and general portfolio management. The bank relies on the multiple service provider approach by engaging brokers and architects based on their market capabilities and prior transactional relationship.
EWB’s brokerage and architectural needs are very diverse, as its portfolio consists of leased and owned assets in urban and suburban markets with retail bank branch and office uses. Therefore, EWB must have the flexibility to work with multiple trusted advisors depending on the needs of each unique assignment.
Arriving at the outsourcing end of the spectrum, we come to OpenX, a private Pasadena-based advertising technology company. With approximately 350 fulltime employees, OpenX is an example of a small-cap company that has outsourced the majority of its CRE functions, yet stays true to the outsourcing trend of working with multiple service providers observed by CH and EWB. Managed by Director of Corporate Facilities Trina Escartin, OpenX has an internal operations team tasked with managing their office facilities and handling the lease administration; however, all other real estate functions are outsourced.
“We have our trusted advisors that we rely on for our real estate functions; they understand our brand and allow us to utilize our real estate as a tool to foster our growth and recruit and retain talent,” Escartin says. “As a rapidly growing technology company, we need to execute in a timely and financially responsible manner. The outsourced team I have in place allows me to leverage best-in-class talent in each market to achieve our hiring targets and budget guidelines in each of our markets.”
By observing the approaches of three separate companies in distinct industries and varying sizes, it’s apparent that the appetite for flexibility of being able to hire best-in-class experts on an as-needed basis, and the appreciation of historically successful relationships, drive the selection of multiple outsourcing partners uniquely qualified for each assignment. No matter where an enduser sits on today’s outsourcing spectrum, polygamy of service providers is certainly a strategic and preferred practice.
About the Authors
Scott Steuber, LEED AP, MCR, is Principal with
Avison Young’s downtown Los Angeles, Calif.
office. A corporate-occupier specialist and LEED®-
Accredited Professional, Steuber assists clients with
their local, national and international lease, sales,
financing and construction projects.
Ted Simpson, MCR is Principal and Managing
Director with Avison Young’s Los Angeles office.
Simpson specializes in tenant representation and has
enjoyed considerable success while acting for banks,
law firms, technology companies and healthcare
organizations. In addition, he has completed transactions
on properties in more than 20 U.S. states.