The days of rapid growth would appear to be behind the nation's property management companies. Today, executives say they are focusing on improving their products and services and striving for lower costs.
Property management professionals are also quick to assure that the baby steps they took toward technology and the Internet have now been transformed into an all out sprint. With the 33 billion sq. ft. commercial real estate industry as their finish line, real estate service providers are getting bigger - even though the churning (new business coming in, while properties are being sold off) portfolios have slowed growth. Companies are also taking advantage of their size to offer clients better benefits.
Nowhere is there a greater awareness of that than at Jones Lang LaSalle (JLL) - the biggest of the big boys. The-based real estate service and investment management company boasts more than 6,400 employees and 700 million sq. ft. under its care - nearly 200 million more than second place Trammell Crow Co.in Dallas
Property turnover JLL is also a classic example of how easy it is to win big while seemingly running in place. At the end of 1999, the company's total square footage was only20 million sq. ft. greater than at the end of 1998. Company officials attribute that modest rise - despite a long string of big victories - to churn. Buildings that were trading at substantial discounts were being sold to recover the value of the properties. In fact, they may have traded hands repeatedly in a relatively short period of time. That process, however, is beginning to slow as investors hold onto these structures for longer periods of time to gain higher yields.
"We work with a lot of the leading pension fund advisers and institutional investors, with REITs and individual investors," says Michael D. Nalley, vice president of national service for Trammell Crow Co., which manages a portfolio of 520 million sq. ft. "Property is always moving. I work with our top 21 customers, and they're constantly increasing, selling off or disposing of assets that don't fit into their investment plan, and purchasing other assets that do fit. Annually, we have a lot of customers disposing of properties and acquiring properties at the same time."
Greater expectations As a leader in property management in the country, JLL is facing many of the emerging trends that will eventually have to be dealt with by their competitors.
"One of the big trends relates to the well-capitalized institutional investor market that we serve," says Brian N. Ross, president of leasing and management at JLL. "That group of investors is going through a process of consolidation with vendors. The reason they're [consolidating] is to aid their own bottom lines."
He notes that large corporations realize they have a big staff managing their holdings, but find they can use a much smaller group to manage an equity portfolio several times greater in value. Many of them are now in the process of dramatically consolidating their vendors so that they can more efficiently manage their portfolios.
"They're doing it in different ways," he explains. "Some are going through a formal process and some, an informal [process]. Every opportunity that comes up to re-bid work they are going to this preferred list they've generated."
Nalley believes that clients want to select a property management firm that has a broad base of knowledge and expertise.
"They're pushing down a lot of their responsibilities from the asset management level to the property management level," he says. "You need to have a higher quality of well-trained, educated experts at a property management company. [Clients] want a single point of contact to make it more efficient. [Clients] want to be more cost-effective and have a greater consistency level by having fewer providers."
JLL is also finding that clients have higher expectations than in the past, and they are moving to provide service at an unprecedented level.
"Our clients are coming to us and saying, 'Brian, you manage a very large portfolio, but how can you help us achieve our business plans?'" says Nalley. "What pools of money do they have and what kind of return are they looking for? Are these funds hedged geographically, by product type, or by risk? Is it an opportunistic fund vs. core funds? We're now getting into a discussion with these folks to understand what they're trying to accomplish. We find ourselves increasingly talking about our clients' business goals and objectives and developing strategies to execute those plans."
Ross notes that one of JLL's big wins this year was a reflection of that philosophy. The company brought one of its biggest clients, Atlanta-based Lend Lease Real Estate Investments, together with New York-based J.P. Morgan in the sale of 17th Street Plaza, a 700,000 sq. ft. high-rise in downtown Denver.
Producing quality personnel The world of property management is also striving for greater savings by having a more concerted investment in human capital. The number of people working in the field has declined as technology has taken over many roles once performed on site.
"There's a desire to raise the quality level of the people left in the field," says JLL's president of corporate property services BruceFicke. "We're seeing a move on the corporate side toward people in leadership positions such as account executives who are capable of handling multi-functions, including property, project and transaction management."
While this person may not personally oversee all three areas, he or she must understand and be able to work with the transaction and project management specialists on the team.
"We must develop a much more sophisticated person to put in that position," he says. "They must not only be able to provide one of those key areas, but they've got to be enough of a business generalist to interact with the clients and business units and deliver all three services. We continue to see a focus on cost, but it's going toward aggregating purchasing power and leveraging the Internet and other sources to maximize purchasing power. So we're seeing clients expecting more of that."
Property management companies see a greater need for emphasis on employee issues such as recruiting, retention, education and development, and career advancement.
"It means an emphasis on our company culture so that we create an environment that attracts the best employees possible and keeps them with us for the long term," agrees Frederick Tuomi, western division president of Chicago-based Equity Residential Properties Trust. "We have to motivate them everyday to do the best job possible."
With more than 4,000 employees handling 230,000 apartments in 1,100 communities, Tuomi believes that Equity Residential will find the next opportunities for improvement and success by shifting the company's focus onto the workforce itself.
"The environment has changed, and we're not in a rapid growth mode," he says. "We're in a stable, balanced mode. What that means for the property management group within our company is that we are focusing on internal issues."
This emphasis on building a quality workforce is echoed at other companies as well. Clients want value creation and quality, says Rick Kirk, president of Houston-based PM Realty Group.
"Personnel is what we're really all about," he explains. "Companies are only as good as the people they have on staff. We make a significant investment in training, continuing education, technology and quality control. In fact, we're somewhat unique in the industry in that we have a senior officer in the company who's responsible for nothing other than training and quality control. He's probably on the road 45 weeks a year doing property visits and operation audits. We also do the same thing on the engineering and administrative level."
Technology offers value to clients Insiders agree that the real estate industry has been slow to embrace technology. To counter this, each company is rapidly developing ways to leverage the Internet and technology to serve clients, as well as reducing costs to bolster the bottom line.
"There's emphasis on the internal intranet for our employees," says Tuomi. "We're installing computerized maintenance systems on our properties that include handheld computers for maintenance techs. Technology is going to enhance that job. It'll give us much better productivity analysis. That will allow us to gain ground in an area that has been pretty stagnant for many years."
One of the most talked about technological advances has been Internet access through broadband. Property managers are busy negotiatingwith providers or exploring possibilities while trying to decide how the market is going to shake out.
"We're working diligently to be able to provide our tenant population - primarily office tenants, but industrial and retail to a lesser extent - with a choice of telecommunication service providers in their buildings," says Chuck Fendrich, vice president and director of office and industrial properties for The RREEF Funds of Chicago. "We've negotiated national access agreements with service providers such as Teligent, Winstar and Advance Radio Telecommunications for enhanced telecommunications and Internet access. We're also negotiating with a national DSL Internet service providers as well as some other telecommunications companies that offer a broader range of telecommunications and business-to-business services."
RREEF has been slower to move into providing broadband because it represents a smaller office portfolio made up of suburban office buildings. Many of the major service providers have gone for larger clients that allow them greater levels of penetration.
"They want a 30% penetration, and we don't have the kind of square footage that they're looking for," adds Bob Navratal, RREEF's principal for property management. "There are some new providers that are going for the smaller office buildings - the suburban office buildings. In addition, a lot of our tenants have not been demanding those services."
PM Realty's Kirk says that his company acts as a consultant to its clients to bring the best package together for any specific property. While they have forged alliances with a number of technology and telecommunications companies, they are not tied to any particular one.
Smaller companies, such as U.S. Equities Realty LLC in Chicago with its 36 million sq. ft. portfolio, have taken more of a wait-and-see posture. Senior vice president Tom Halford says, "In all these things we're a bit more conservative. We may not be the first one on the wagon, but we think we're being a bit more diligent."
Peter Pike, the San Francisco-based Internet expert, says, eventually, everyone will be offering these services in one form or another.
"If you have an office building, you will have to be able to provide some kind of broadband connectivity because they'll all need it," he says. "Today, it's something of a differentiation between properties."
Virtual property management Perhaps no one has taken the concept of property management services consolidation further than JLL.
"Years ago you began achieving savings in manpower through better accounting systems and better performance management systems," says Ficke. "Now you're seeing those savings escalate into reductions in manpower as you begin to consolidate smaller portfolios into virtual property management hubs."
Ficke's company operates the National Property Service Center (NPSC) in Atlanta as well as other smaller centers around the country.
"We take more than 2 million calls a year from our properties with trained property management specialists on the phone," he says. "All the information for these buildings is programmed into computers along with all pre-negotiated contracts. When the call comes in we dispatch it, follow it through to completion, handle the invoicing, collection and close it out."
The NPSC, equipped with sophisticated telephony systems and computer technology, acts as a centralized hub for clients, tenants, vendors and the JLL property management teams. The center has access to data on each building and is able to categorize each expense to the proper account.
Technology offers transparency Technology also offers companies the opportunity to share greater amounts of information with their clients and with other vendors who work for their clients. Sharing knowledge also presents an opportunity for building greater value.
"One of the things in this industry is the idea that markets should become much more transparent," says Ross. "The big companies and even the regional companies have been very competitive with each other in keeping things like market data and market comps as proprietary data. We've complicated the process of financing buildings. We've made our leases complicated. Investors look at real estate and say, 'Gee, it looks complicated and risky. I'm not going to put much more than 5% of my total funds in real estate.'"
By making this information more available through the Internet, greater understanding will be achieved, and that in turn will prompt a greater inflow of capital.
"People may look at a stock like Cisco Systems that is trading 200 to 250 times over their 12-month trailing earnings vs. [investing in] an office building in Manhattan," says Ross. "They say, 'I'm going to take some of these profits and hedge them because now I understand the building and the Manhattan market better.'"
Top property management firms agree that strong, but slower, growth lies ahead. They know they will be working harder, but thanks to the benefits of size and the applications of technology, the new century should be a good one.
Mall properties are hot these days. Competition for retail space is at an all-time high even though there are fewer malls. In addition, mall property managers are seeing the benefits of a consolidation trend that has influenced the industry over the past few years.
Organizations such as Chicago-based General Growth Properties (GGP), the nation's second largest owner, manager and developer of shopping malls, has unprecedented opportunities for outside clientmarketing with new technology. In property management, size matters,according to GGP's CEO John Bucksbaum.
"The retailer can sit down with one company and design multiple leases," he says. "When they make 20 deals with us, they don't have to negotiate 20 separate leases. This way stores get open more quickly, start conducting sales earlier and generate revenues faster."
Bucksbaum notes that GGP does multiple leases on a daily basis. Last year, in fact, the company put together more than 250 retailer portfolio reviews.
"Negotiating leases can be done electronically in real time," he explains. "You're going to save time, and you're not going to be sending documents back and forth through the mail because you're doing them over the Internet as if you were sitting across the table from one another. We're willing to do that for every lease, but you have to get the retailer to agree to do it on the other side."
When a retailer contracts with an architect to have a store designed for a particular mall, the drawings can now be viewed and changed on the Internet. Architects, engineers and retailers can retrieve the drawings by logging onto GGP's extranet. The economies of size are also being reflected in GGP's development of national and regional marketing agreements with companies such as Visa, Pepsi, Kodak and Sports Illustrated for Women.
Malls are an attractive venue for marketers because they attract the three core groups of consumers, says John Davidoff, president of center advertising for GGP. These are women ages 25 to 54, teens that make up 10% of mall traffic and emerging baby boomers.
"It used to be that to do interactive marketing, advertisers would pay $40 million just to sponsor the Olympics, or even at a local level, to sponsor a fair or festival," he says. "What we've been telling marketers is that you can get those benefits from marketing in shopping malls."
Today, more than ever, malls are the total shopping environment, and GGP is moving ahead on initiatives to offer high technology and e-tailing to tenants. Officials at GPP say that they are wiring their properties with broadband capability.
"Today if your mall is going to be competitive its retailers are going to expect to see high-speed Internet video access available to the malls," says Bucksbaum. "If a property doesn't have that, then they're going to be at a disadvantage."
Bucksbaum believes that retailers must be able to have the choice of shopping at the mall or from their personal computer. "The order will be filled locally," he says. "This is a way for the retailer to take advantage of existing stores and to keep business at a local level, reduce the cost of order fulfillment and shipping."
The company has already taken the first steps in that direction with the launch of Mallibu.com. This shopping center Website provides consumers with a wide range of shopping information, resources and direct links to GGP's malls.
Thanks to technology and the economies of scale, property managers like General Growth Properties are bringing a wide range of marketing options to retailers, at both the national and local level.