the state of the economy and why real estate technologies are critical to the recovery plan

The State of the Economy and Why Real EstateThe State of the Economy and Why Real Estate Technologies Are Critical to the Overall Recovery Plan

Presentation by George Bouri, National Managing Principal, Capital & Real Estate Transformation, Deloitte Consulting LLPManhattan Software Executive SummitJune 5, 2009

Agenda

Background• Global EconomyGlobal Economy• Impact on Corporate Real Estate

Real Estate Technology Enablement• Visibility into Total Cost of Ownership

How Does IWMS Fit Into the Enterprise• Advantages and BarriersAdvantages and Barriers• IWMS Trends

Critical Success Factors for a Smooth Implementation

Summary

Copyright © 2009 Deloitte Development LLC. All rights reserved.1

Global Economy

The Credit Storm continues to have a negative impact on the global economy…

Then NowPerfect Calm Perfect StormPerfect CalmIrrational ExuberanceA Wall of CapitalSubprime/Alt-A CreditEquity Priced as Debt

Perfect StormIrrational FearThe Capital CrunchJunk Debt/Toxic WasteDebt Priced as Equity

Cap Rate CompressionHighly Leveraged ReturnsConduits/CMBS/Shadow BankingCovenant “Lite”/No-Doc LoansFinancial Engineers

Credit Spread ExpansionReturn of Negative LeverageBalance Sheet LendingComplete and Prudent UnderwritingProfessional Investors/OperatorsFinancial Engineers

Laissez-Faire GovernmentProfessional Investors/OperatorsGovernment as Lender of Last Resort

Source: CoreNet Global Summit, Orlando, November 2008


Source: CoreNet Global Summit, Orlando, November 2008“The Economic Outlook for Corporate Real Estate: Crisis or Opportunity?”Kenneth Rudy, Jones Lang LaSalle

… leading to an unprecedented economic response to the global crises

International• UK to invest £37 billion in 3 of its largest banks• ECB makes weekly injections of unlimited euro funds at 3.75% interest• Germany approves plan to inject €500 billion into credit markets• UAE ministry of finance added $19 billion liquidity injection to domestic banks• Japan announces a plan to support the financial system• Australian government unveils a $10.4 billion stimulus package• ECB, UKCB lowers discount rates by 75 to 150 bps• China announces $586 billion economic stimulus plan

Domestic• U.S. Senate and U.S. House of Representatives passes $700 billion TARP plan• Worst October in the stock market in 75 years• Fed provides $900 billion in short-term cash loans to banks• Fed makes emergency move to lend $1.3 trillion directly to companies• United States injects $250 billion of public money into the U.S. banking system• Federal Reserve lowers discount rate by 50 bps• Treasury revises AIG bailout to $150 billion


Treasury revises AIG bailout to $150 billion

Source: CoreNet Global Summit, Orlando, November 2008, “The Economic Outlook for Corporate Real Estate: Crisis or Opportunity?”Kenneth Rudy, Jones Lang LaSalle

The complexity of the challenges and the duration of the downturn is increasing as economic conditions continue to spread globally

Global weather mapApril 2008 April 2009

Sunny Sunny with clouds Sunny, but rain Cloudy Rainy Thunderstorms

Accelerating growth, falling unemployment

Clouds over growth, some sunny prospects

Clouds over growth, outlook could be worrying

Sudden change in outlook, now uncertain

Deteriorating outlook, long term issues

Serious disruption, likely to last

Legend:

Source: Deloitte Research, EIU, Financial Times

• Maintaining competitive position • Demand uncertainty

• Fluctuating energy, currency, and commodity pricesS li b di ti

Key Challenges


• Tight credit conditions • Supplier base disruption• Fiscal stimulus programs

However, leading companies are using the downturn to make strategic and structural changes, even in industries facing severe market pressure

Global industry weather map

Providers

Health Care EnergyConsumer BusinessFinancial Services Technology, Media & Telecom Public Sector

Power & Banking Consumer Technology National GovtAerospace &

Manufacturing

Providers

Health Plans

Life Sciences

Delivery

Oil & Gas

Banking

Insurance

Investment Mgmt.

Real Estate

Products

Retail

Consumer Services

Tourism & Hospitality

Technology

Media

Telecom

National Govt.

International

Sub-National

Education

pDefense

Industrial Products

Automotive

Process Industries

Sunny Sunny with clouds Sunny, but rain Cloudy Rainy Thunderstorms

Accelerating growth, falling unemployment

Clouds over growth, some sunny prospects

Clouds over growth, outlook could be

worrying

Sudden change in outlook, now

uncertain

Deteriorating outlook, long-term issues

Serious disruption, likely to last

Legend:

Financial Services Consumer Business

• Adopting new governance and risk models • Making targeted investments

Illustrative actions by leading companies:

• Adopting new governance and risk models• Institutionalizing customer retention programs• Standardizing front-office models• Absorbing the financial impact of moving to IFRS• Preparing to make strategic acquisitions

• Making targeted investments• Rationalizing suppliers based on risk assessments• Applying rigor to pricing execution/inventory

management• Realigning product mix to focus more on value


Preparing to make strategic acquisitions• Adopting business model changes

Some economists are predicting signs of recovery in 2010, but a sustained recovery is not likely to occur until Q4 2011 or Q1 2012

Source: Moody’s and Deloitte Consulting


Source: Moody s and Deloitte ConsultingCoreNet Global Summit, Orlando, November 2008“The Economic Outlook for Corporate Real Estate: Crisis or Opportunity?”Kenneth Rudy, Jones Lang LaSalle

I R l EImpact on Corporate Real Estate

The ‘perfect storm’ effects of economic, financial, employment, and political events melded to create unprecedented uncertainty for the markets in general

External factors impacting corporate real estate include: • Sub-prime residential mortgage crash • Demise of commercial mortgage-backed securities (CMBS) • Drop in housing prices and values • Oil’s upward, then downward, cost spiral • Stock market volatility • Credit market turmoil • Resulting near absence of credit • Investment and spending freezes • Failure of investment banks

Source: Stone & McCarthy Research, the Conference Board

Failure of investment banks • Government bailouts of banks globally • Massive layoffs in and beyond banks • U.S. national elections

U S t i d t b il t• U.S. auto industry bailout • Decrease in consumer confidence


Source: CoreNet Global 2009 State of the Corporate Real Estate Industry Report , March 31, 2009

Source: Wall Street Journal, NAR, Stone & McCarthy Research

The turbulence has had a significant impact on the corporate real estate industry so the CRE focus has shifted to risk management, resource optimization and cost cutting

Effect on CRE CRE Response

• Banking and credit crises freeze transactions, deals, • Trade term for valueBanking and credit crises freeze transactions, deals, investments, and corporate spending

• Tight credit is limiting access to capital • Growing emphasis on better capital planning • Renegotiate leasing and service contracts to find hidden

t

Trade term for value• Aggressively explore moves to low cost centers• Continue to lease facilities versus build to suit• Defer capital spending and large expense projects• Hold expenses where possible to off set increased costs

costs• Increased pressure on cost cutting yet again• Access to capital is viewed as the problem and solution

in tax and utilities• Offer alternative workplace as an option• More aggressive hoteling to downsize lease

requirements• Increase the value and manage expense through• Increase the value and manage expense through

aggressive partnering• Invest in technologies such as Cisco telepresence and

HP Halo• Understand and eliminate the obstacles that diminish

l d ti it

Source: CoreNet Global Source: CoreNet Global Summit, Orlando, November 2008 and Deloitte Consulting

employee productivity


Source: CoreNet Global 2009 State of the Corporate Real Estate Industry Report 31 March 2009

Source: CoreNet Global Summit, Orlando, November 2008 and Deloitte Consulting“The Economic Outlook for Corporate Real Estate: Crisis or Opportunity?”Kenneth Rudy, Jones Lang LaSalle

Real Estate Technology EnablementVisibility Into Total Cost of Ownership s b ty to ota Cost o O e s p

The selection of IWMS as a strategy positions clients to function more strategically, enabling them to better execute their mission


IWMS cuts through the fog and provides visibility into the Total Cost of Ownership

• Cycle Time• %Leased• %Owned• Cost per SFp• SF per Employee• Number of

Transactions• Office to Cubicle

RatioIntegrated Workplace Management SystemIntegrated Workplace Management System

(IWMS)(IWMS) Ratio • Carbon

Emissions• Number of

Projects

(IWMS)(IWMS)

• Completion Rate• Satisfaction


Implementing technology helps identify these 10 symptoms indicating that there may be opportunities for real estate and facilities cost reduction

1. Knowledge and information about the CRE portfolio is lacking2. The portfolio is not aligned with current and future business direction — from physical,

location, or financial perspectives3. Supply chain and distribution channels have not been optimized4. Space utilization and location of facilities have not been challenged5 Excess properties have not been identified and sold5. Excess properties have not been identified and sold 6. Current market value of properties is not known or is significantly greater than book

value or utility value7. Creative financing structures have not been considered8. Operating costs have not been effectively measured and controlled9. Opportunities to leverage volume buying or outsource low-value-added services have

not been explored10 Capital projects are not aggressively bid value engineered or change orders challenged10. Capital projects are not aggressively bid, value engineered, or change orders challenged

and controlled


“You can’t manage what you don’t measure” – Jack Welch


The data governance framework offers the organizational and business view on managing the data for accuracy and consistency

To ensure future systems’ success, organizations should establish a framework for driving data governance.• Establish a data governance organization to proactively monitor data integrity and quality • Identify, document, and incorporate appropriate data quality standards to eliminate data

redundancy and inconsistency • Prescribe a consistent approach to consolidate and manage shared dataPrescribe a consistent approach to consolidate and manage shared data

Metadata

Availability Security AuditabilityAccuracy Consistency

Data Supporting Businesses

Document steps to ensure data is

available to users and

applications when needed

Define how data is stored,

archived, backed up, and protected

from mishaps, theft, or attack

Define the set of controls and audit

procedures to ensure ongoing

compliance

Standards Policies & Processes Organization

Define steps taken to ensure

data is complete, valid, and

appropriate

Set of controls to ensure the

meaning of data is consistent across

systems/applications

Data Definitions, Classifications, and Organization

Master DataTechnology and Tool Standards

Creation, Development, and Management of Data

Business RulesAccess Control

Ongoing Monitoring and Measurement

Planning and PrioritizationManage Changes to Data

Organizational StructureData Owners and Stewards Roles and Responsibilities

Training and EducationData Security

Change Management


a age C a ges o a a(Including Communication)

How Does IWMS Fit Into the EnterpriseAdvantages and BarriersAdvantages and Barriers

IWMS Trends

Consideration # 5: Find 10 Technology Enablers to Increase EfficienciesTaking a broader enterprise and portfolio approach to deploying CRE

technical enablers to support functional capabilities and provide efficiencies


There are many advantages to implementing IWMS across a global workplace …


… but some technology challenges must still be overcome


IWMS Trends in 2009

1. CRE has become the most important vertical within the IWMS arenaBoth driven by the Credit Crunch and the disproportional real estate prices, organizations started to focus on the corporate real estate domain as the primary cost reduction source. p p y

2. IWMS’s are undergoing a transformation from a local to global orientationTriggered by the rapid evolution of the Internet, FM and RE have evolved to become a C-level strategic management domain.

3. Cost reduction is the key driver for investing in IWMS’sThe customer demand for ROI, Metrics, Benchmarks, and Management Reports is increasingly having an impact on the IWMS domain.

4 S t i bilit i i t t4. Sustainability is importantThere is a clear distinction between those IWMS vendors who have embraced sustainability as an organizational obligation and those who have not.

5 Decision making support is driving executives5. Decision making support is driving executivesCRE Managers, Project Managers, and other senior executives need to decide on specific investments, disposals, relocations, or other programs based on data, so reports, dashboards, and Business Intelligence are driving decision support.


Source: IWMSnews.com, Steven Hanks4 May 2009

Critical Success Factors for a Smooth Implementation

Follow these tips for avoiding project failure

The Standish Group has reported high failure rates among IT projects for years and a recent study by KPMG found that about half of the respondents reported at least one failed project in the past year.

CRE must be able to speak the language of IT and understand their concerns• A single system requires less database platforms and applications to support, resulting in less staff• Ensure the solution complies with corporate IT Standards• Configure your IWMS, so the FM and RE professionals can do modifications to the systemsg y , p y• Consider having the software hosted and maintained by an Application Service Provider (ASP)

Some of the common reasons projects fail include:• Lack of clear scope of workLack of clear scope of work• Not defining the project success criteria and expectations• Lack of communication• Inadequate planning

L k f kill d• Lack of skilled resources• Unrealistic time, budget, and/ or scope• Lack of risk management• Lack of Senior Management and business ownership support and involvement


IWMSnews.com, March 20, 2009, Don Wood; April 2, 2008, Steven Hanks

SSummary

Real estate technologies will influence how effectively CRE is able to have an impact on the recovery

• As a result of the global economic crises, CRE has raised its visibility in the C-suite, becoming a more strategic player in identifying solutions to the problems faced in the current operating environment

• CRE must take an enterprise view of the organization and gain visibility into managing the Total Cost of Ownership for the entire portfolio of assets

• Implementing IWMS into the broader enterprise technology stack enables efficiencies and increases productivity, allowing the CRE department to do more with less

• Like many business cycles before, technology will be a key enabler to help corporations recover from the current crisis


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Copyright © 2009 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu

the state of the economy and why real estate technologies are critical to the recovery plan

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