responsibility for and performance of corporate real estate functions a comparison of european and...

Responsibility for and performance of corporate real estate functionsA comparison of European and North American companies

16th Annual European Real Estate Society Conference, in Stockholm, Sweden, June 24-27, 2009

Steffen Hartmann/Andreas Pfnür

26.06.2009 | Hartmann/Pfnür | TU Darmstadt | ERES 2009 | 1

Background situation and motivation

An increasing number of non-property companies has recognized that their real estate holdings possess enormous value, but also requires immense expenditures.

In this context, one important issue facing non-property-companies is how to effectively manage real estate assets.

Besides many coordination instruments (e.g. intra-organizational market mechanisms, standardization, etc.) used to organize CREM, two further essential organizational questions arise in this regard:

(1) Who should be responsible for particular real estate functions within the company?

(2) How should the respective services be performed?

Although many companies seek similar goals with regard to their real estate assets and CRE managers are faced with similar challenges, different models concerning the responsibility for real estate functions and their performance seem to exist in practice.

To date, little research has been carried out to determine these different types of responsibility for real estate functions and their performance as well as the causes for their occurrence.


Steffen Hartmann

Some companies bundle decision-making authority for nearly all real estate issues into a unified CREM department. In others, where CREM is more decentralized, business units (i.e., the “tenants” of that space) themselves are responsible for specific real estate decisions and performance of real estate tasks.

Steffen Hartmann

A number of articles have been published where it was analyzed whether real estate tasks were performed by the CREM department or by external service providers. But there is no research that includes the performance by the business units

Aims of the study

Analyzing the allocation of responsibility for particular real estate functions within the companies.

Identifying different characteristics of the current performance of real estate tasks. Analyzing the future performance of real estate tasks. Determining factors which influence the occurrence of different models in practice.


Research design – concept and basic conditions

A questionnaire survey was chosen as the method of data collection in North America (conducted by a partner in the U.S.)

In Europe, data was collected by Computer Assisted Telephone Interviews (CATI) by a professional marketing firm

Target companies were major enterprises from the Banking, Energy, Telecommunication, and Transport & Logistics industries

The senior executive in charge (Head of CREM, Director of CREM, SVP CREM) responded to the questionnaire and was interviewed respectively

Interviews ranged from 13 minutes to 56 minutes with an average duration of 24 minutes

187 European and 225 U.S. companies were invited to participate in the study 74 European and 38 U.S. CREM executives took part in the survey, which equates to

a response rate of 40% and 17%, respectively


Steffen Hartmann

This paper is an extract of a larger research project, which compares and highlights notable differences in CREM in European and North American companies from the banking, energy, telecommunication, and transportation & logistics industries.

Research design – participant companies


4%

24%

11%

22%

15%

24%

Under 1.000 1.000 - 5.000 5.000 - 10.000 10.000 - 25.000 25.000 - 50.000 > 50.000

10%

24%

16%16%

13%

21%

Europen = 74

North American = 38

Size of total personnel

8%4%

27%

16%

45%

< 500 Mio. € 500 Mio. - 1 Bio. € 1 - 5 Bio. € 5 - 10 Bio. € > 10 Bio. €

13%

10%

21%

32%

24%

Europen = 74

North American = 38

Total revenues of participant companies

43%

17%2%

17%

9%

2%10%

Office Warehouse/Distr. R&DIndustrial/Manufacturing Retail ResidentialOther No response

47%

13%1%

12%

14%

10% 3%

Europen = 74

North American = 38

Portfolio composition

0%

10%

20%

30%

40%

50%

60%

70%

80%

10 years ago 5 years ago today in 5 years

Europe (n = 74) US (n = 38)

Ownership rates

Real estate functions along the real estate life cycle


• Space Planning• Acquisition• Leasing & Lease

Administration• Development

Provision of Space

• Disposition• Leasing & Lease

Administration• Development

Disposition

Portfolio management

• Technical FacilitiesManagement

• InfrastructuralFacilities Management

• Commercial FacilitiesManagement

Operation

For survey questions pertaining to the provision of each function, respondents chose from five options:

Degree of concentrating real estate responsibility in a separate CREM department is slightly higher in North American companies


What are the typical models that exist in practice concerning the responsibility for CREM functions?

Aim: identification of different types by using cluster analysis

Degree of responsibility-concentration of the more sophisticated functions (PM, Leasing, Space Planning, Acquisition & Disposition) is higher than for operational functions.

Operational functions were under responsibility of business units using the property in about 40% - 50% of the interviewed companies.

79%

84%

68%

82%63%

66%

50%

66%

0%

20%

40%

60%

80%

100%Portfoliomanagement

Leasing and Lease Administration

Space Planning and Site Selection

Acquisition and Disposition

Technical Facilities Management

Infrastructural Facilities Management

Commercial Facilities Management

Development

Europe (n = 74) North America (n = 38)

Five different types of CREM responsibility could be identified

Highly concentrated CREM responsibility Full-service CREM


Responsibility is focused on operational functions (FM services), Portfolio management, and space planning & site selection


Similar to Cluster 1 except of responsibility for development and CFM


Low concentrated CREM responsibility CREM seems to have only an advisory

function without responsibility


CREM responsibility is focused on the more sophisticated functions

No responsibility for operational functions


Full-service CREM is the most frequent type of CREM responsibility in North America

Current performance of real estate functions


Outsourcing intensity is higher in European companies than at North American CREM groups


Mainly operational functions were outsourced, especially TFM and IFM

The higher the degree of responsibility for CREM functions the higher the outsourcing intensity


0%

20%

40%

60%

80%

100%

Portfolio Management

Leasing & Lease Administration

Space Planning & Site Selection

Acquisition & Disposition

TFM

IFM

CFM

Development

Extent of CREM ResponsibilityCluster 1

n = 29

1 Highest outsourcing intensity

compared to all other types of responsibility

0%

20%

40%

60%

80%

100%





TFM

IFM

CFM

Development


n = 17

2 High outsourcing intensity Less outsourcing of development

functions compared to type 1

0%

20%

40%

60%

80%

100%





TFM

IFM

CFM

Development


n = 20

3

High outsourcing intensity for TFM and IFM

No outsourcing of development and CFM functions

0%

20%

40%

60%

80%

100%





TFM

IFM

CFM

Development


n = 21

4 Lowest outsourcing intensity

compared to all other types

0%

20%

40%

60%

80%

100%





TFM

IFM

CFM

Development


n = 25

5 Low to medium outsourcing intensity Types 4, 5 and 3 (for CFM): In case that there was no

responsibility by CREM department for certain operational functions, these functions were less outsourced

Sourcing trends: The future performance of functions will be provided in the same manner as today


Achievements of CREM in the last ten years


CRE managers perception concerning the realized achievements seemed to be almost identical across all types of responsibility with low advantages for the types 1 and 5

0%

20%

40%

60%

80%

100%





TFM

IFM

CFM

Development


n = 29

1

0%

20%

40%

60%

80%

100%





TFM

IFM

CFM

Development


n = 17

2

0%

20%

40%

60%

80%

100%





TFM

IFM

CFM

Development


n = 20

3

0%

20%

40%

60%

80%

100%





TFM

IFM

CFM

Development


n = 21

4

0%

20%

40%

60%

80%

100%





TFM

IFM

CFM

Development


n = 25

5

Conclusion

It was shown that the degree of bundling CREM functions is generally higher in North American companies compared to their European counterparts.

Five typical models which describe the extent of CREM responsibility for certain real estate functions and their performance have been identified:

a) At U.S. CREM groups the two models with a relatively high level of responsibility were most common (types1 and 3).

b) In European companies all five models could be found with an almost similar frequency.

External performance was mainly common for operational functions (CFM, IFM, TFM)

a) Outsourcing intensity was higher in European companies compared to North American CREM groups.

b) The higher the degree of responsibility for CREM functions the higher the outsourcing intensity

All five types of CREM responsibility led to cost reduction, increased user satisfaction and increased portfolio flexibility in almost the same extent over last ten years.


Conclusion

Strong and significant associations between the responsibility for corporate real estate functions as well as their performance and other variables like industry segment, number of employees, ownership rate, and portfolio composition could not be identified.

The absence of those associations along with the fact that all five identified types resulted in cost reduction, increase in user satisfaction and portfolio flexibility leads to the assumption, that there is not a best practice model for the responsibility for and performance of CREM functions.

Further research: Analysis of a broader CREM model with more organizational factors based on

considerations of gestalt-theory / configuration-theory In contrast to the contingency approach which postulates that there must be a fit between the

situational factors of a company and each organizational variable to be effective and efficient, the gestalt-theory acts on the assumption, that a close fit must exist between all organizational variables.

“[…] the gestalt or configuration of an organization is likely to be a more potent determinant of its effectiveness than any of the individual components of this configuration.” (Khandwalla 1973)

Aim for future research: Identification of gestalts / configurations



Thanks for your attention!

Steffen Hartmann Institute of Business AdministrationDepartment of Real Estate ManagementHochschulstraße 1, 64289 DarmstadtTel. + 49 (0) 61 51 / 16 - 37 17Fax. + 49 (0) 61 51 / 16 - 44 17E-mail: [email protected]: www.immobilien-forschung.de

Darmstadt

University of

Technology

Excursion: Gestalt-theory | Backup


Efficency

Cost reduction Increase in user

satisfaction Increase in portfolio

flexibility Increase in real estate

values …

Configuration 1

Configuration 2/3

Corporate dynamic: (1=low; 2=medium; 3=high)

Portfolio structure: (1=mainly office; 2=mainly logistics; 3=mainly production)

Company size: (1=low; 2=medium; 3=high)

Responsibility: (1=low; 2=medium; 3=high)

Organizational Variables

Portfolio composition | Backup


Portfolio-type

1 2 3 4

n = 13 n = 50 n = 15 n = 21

14%

77%

1%4% 1% 3%

67%5%

1%

3%

18%

2% 4%

26%

3%

2%66%

2%

20%

6%

6%

1%9%

3%

50%

Office Warehouse/Distribution R&D Industrial/ Manufacturing Retail Residential Other

responsibility for and performance of corporate real estate functions a comparison of european and...

Documents

real estate assets

real estate issues

real estate holdings

specific real estate

hartmannpfnr tu darmstadt

director of crem

svp crem

unified crem department