Many real companies are securing their future by tying the knot with other firms. Strategic alliances allow greater growth for the partnering firms and a lot less work for the clients.

The Alter Group offers what it feels is an innovation in industrial development, a concept it calls ReadiDesign. The Lincolnwood, Ill. based real estate developer, which specializes in industrial and office build-to-suit, unveiled a fast-track technique that peels 60 to 90 days off build-to-suit development. To do that, the company established relationships with a national network of debt and equity sources so the financial approval process could be expeditiously handled and at a competitive rate.

The company also needed to get its ReadiDesign into the marketplace and, to accomplish that, it formed a number of strategic partnerships with local brokerage firms. Currently, The Alter Group holds alliances with brokers in Jacksonville, Fla.; Pittsburgh; Louisville, Ky.; Kansas City, Mo.; Miami; and Columbus, Ohio.

"We are positioning ourselves to deliver buildings, and the only way I can do that is to have the local representative out there pounding the pavement. That's why we formed these relationships," says Kurt Rosene, vice president of The Alter Group. As for local brokers, they tied up with The Alter Group because it gives them a product they didn't have in the market and another approach to seek out business with both local and international clients.

The Alter Group's program is not yet a year old, but the feedback so far has been good.

Partnering allows companies to become more full service, because all the parties bring something different to the table, says Rosene. "People have to be able to spread over a bigger geographic area and still be competitive. They have to find the right players to help them do all the things that are needed by clients."

Strategic alliances between real estate service providers increased bit by bit over the past decade but, in the last two years, the pace of alliance formation has picked up quite dramatically.

The biggest reason for the increased knot-tying is expansion. Companies are trying to expand services and add geographic reach, and a relatively inexpensive and sensible way to do that is to join with another company that has expertise or location knowledge where the first company doesn't. In past years, this sort of aggressiveness on the part of real estate service providers often meant expensive acquisitions, but those haven't necessarily proven to be the answer.

"Before, people were making acquisitions and frankly a lot of these mergers weren't very successful. There was a lot of money at stake," says Julien Studley, president of Julien J. Studley Inc., a New York-based national real estate company. "On the other hand, in a partnership, neither party has to make large financial commitments."

Studley formed partnerships with expertise and marketing where it was lacking and to help penetrate new markets. About four years ago, the company formed a partnership with New York-based Salomon Brothers for transactional business involving institutional buyers.

Studley recently formed an alliance with Davidson Conine, a Dallas-based real estate investment sales company, because of its expertise in the Southwest where Studley has little coverage. Studley might have considered buying the much smaller company or opening its own office in Dallas but found the alliance concept a better approach.

Creating new products

In the algebra of alliance building, the addition of one plus one equals X, which means when two companies unite in an alliance, the result is something completely new - a new service, program or product. This is in fact the reason why two companies get together. They create something new for the marketplace.

For example, Koll, a Newport Beach, Calif.-based real estate company, has worked partnerships to create a number of unique services. In April, Koll tied the knot with Alliance Capital Management of New York to form Alliance Capital/Koll Real Estate Securities, an investment management initiative providing investment strategies to institutional investors planning to expand or move real estate holdings into publicly traded real estate investment trusts. Here, a $157 billion global money manager and a property and investment manager that oversees a $13 billion portfolio of real estate united to provide research and investment services.

Also in April, Koll and ENSR, an Acton, Mass.-based environmental consulting firm, got together to create Koll ENSR Environmental Realty Advisors (KEERA) to assist the private sector in cleaning up and increasing the value of contaminated properties in all major U.S. markets.

"Basically, KEERA is an opportunistic real estate investment fund, and we go out and acquire environmentally impacted property, then remediate, reposition and sell for a profit," says William Trefethen, a senior vice president with Koll Investment Management.

This type of alliance is quickly becoming a trend, Trefethen says. "Companies are less likely to go and develop internally the expertise they don't have. It is just more economical to go out and find a company that is good at that skill and bring them into the venture."

Finding partner companies with skills to compliment its own expertise was also Johnson Controls' motivation in forming business alliances. With a core competency that is very much engineering focused, the Milwaukee-based company obviously doesn't handle such jobs as trying to find tenants for an office building, but sometimes clients want all real estate skills in one bundle. "In areas such as real estate leasing or property transactions in which we do not engage, we find one or two or three companies that have corporate cultures similar to ours and who we can work with to the best advantage of our Clients," says Edward DeSantis, executive director of corporate alliances for Johnson Controls.

The company formed its first true alliance almost five years ago when it joined with Chicago-based LaSalle Partners to handle some real estate management chores for Ameritech. "We weren't in property management, and LaSalle wasn't in engineering. And it became evident during the bid process that the best thing to do was to conceptually work as a team and create an alliance," DeSantis says.

Providing one-stop shopping

DeSantis maintains there is a big difference between using a subcontractor, or contract teaming, where the relationship is basically singular in nature, and alliance, where the needs for clients are repetitive. "When you put together a one-shot teaming arrangement, you really have no understanding or capability to determine what your partner can bring to the table. You don't understand your partner's business," DeSantis says. "There are no long-standing or historical lines of communication. When you work with someone on a repetitive basis, you develop a common culture and philosophy on such things as quality control, performance standards and cost standards."

F.C. Tucker, based in Indianapolis, decided to create a one-stop shop to handle most of the real estate needs of its residential and commercial clients. To accomplish that concept, the company formed a partnership with another Indiana firm to do build-outs on commercial leasing activities and, on the residential side, it has added a mortgage and title company to each of its Indianapolis metro offices.

"We felt consumers would appreciate the ability to one-stop shop where they could work with a mortgage rep. on the spot and know that a title search could be ordered right out of the office," says David Scott, corporate vice president for F.C. Tucker.

Partnering with software firms

Improving property services through better data and information technology has engendered a whole new group of real estate software companies. In the go-go years of the 1980s, these technology-specific companies might have ended up being acquired by the much larger accounting firms, brokerage companies or property managers who would then commingle the technology with their other services. However, technology company mergers with basic nontechnology companies are often difficult because the cultures of the two are not generally compatible.

A better approach might be the one taken by the New York-based national accounting firm KPMG Peat Marwick and Clearwater, Fla.-based Dyna Software & Consulting.

"To be effective in this business, you need to have people who can provide the right tools for clients to manage their portfolios," says Carl Kane, national director of real estate consulting in KPMG Peat Marwick's New York office. "The market is in desperate need of just this kind of software support."

For Dyna its alliance with the far larger KPMG opens marketing opportunities for its software both domestically and internationally. "Also, they have the resources to help us develop product at a much faster pace than we may have had otherwise been able to do," says Jeffrey Wells, vice president with DYNA Software.

Back in 1986, Dallas-based Fischer & Co. was asked to create a lease management database system for Sun Oil, and the company has been developing custom database software for large firms holding real estate ever since.

Fischer & Co. provides a number of services along with software development. Once it gets its "arms around the data," the company then helps create ways to reduce costs and improve efficiencies. Finally, the company consults on transaction services. However, Fischer & Co. doesn't form alliances with other service providers. As Scott Bumpus, executive vice president of the company, says, it forms alliances with its clients such as Federal Express, Northern Telecom and First Data Corp. "We become an integral part of the real estate group," says Bumpus, "or we sell software packages to corporate real estate departments without the alliance partnerships."

Growing preferred vendors

Another more self-interested strategic alliance in the real estate industry occurs when one company that either has a large number of franchises, as in the hotel and residential real estate business, or a large pool of end users or tenants, as in the multifamily industry, creates alliances to aid those franchisees and tenants. Sometimes strategic alliances grow out of a preferred vendor program as in the case of Parsippany, N.J.-based HFS Inc., which not only works the hotel industry but with the acquisition of Century 21, the residential real estate business as well. "In the real estate business, there are a lot of things our brokers, who are our customers, need to buy for their operations, and one of our roles is to help them increase their profitability," says Dan Tarantin, HFS' director of preferred vendor services. HFS struck several strategic alliances with such companies as computer manufacturers and home improvement companies so as to offer discount products and services to franchisees.

HFS created a separate department two years ago that not only works with existing vendors but also develops new business relationships.

While it might seem easy to establish alliances, Tarantin cautions that is not always the case and, unless each party can get an additional advantage from the partnership, it is better to step away.

Another company doing alliances for similar purposes as HFS is Insignia Financial Group, based in Greenville, S.C., which also has a partnership with HFS.

In March, Insignia created a new company called Compleat Resource Group (CRG), the purpose of which is to form alliances with product companies and market those products directly to apartment residences. One such alliance is with GE-Rescom for telephone services, but Insignia also formed an alliance with HFS to develop other products.

"Insignia realized it wanted to bring additional value to the people who rent their apartments. We struck an alliance to establish this kind of program," says Tarantin.

Insignia's plans for the Compleat Resource Group are aggressive. "We have a whole list of products under development for this year and the following years, depending on how these relationships work out," says Pat Patterson, vice president of marketing for CRG.

"In order to be a buying association, you have to have some volume and even Insignia with its large portfolio would not necessarily be attractive to a national supplier," says Patterson. "But if we started adding units from across the country, the entire apartment industry becomes an important buying power."

5 steps to doing it right

1. Alignment. The first thing that has to be done is to align expectations among the various partners who come from different industries and different cultures.

2. Control. It's important to establish quality control because reputations are on the line. If the partnership falters, then both companies are tainted, and if it goes bad, business is lost.

3. Goals and objectives. There need to be clear objectives for both organizations. If one organization doesn't really understand what it is supposed to achieve, the relationship is going to fall short, and the client will suffer.

4. Performance objectives. Both organizations have to be able to achieve a reasonable level of quality and profitability. A situation with one organization performing 90% of the work and the other achieving 80% of the profit will not stand for very long.

5. New business. Getting people to work together takes one set of skills, but getting people motivated to develop new business takes even more work.

Case Study:

Club Hotels by Doubletree

When Doubletree Hotels of Phoenix decided to unveil a new chain of business hotels, it carefully researched the market to understand customer needs. What Doubletree discovered was that business people basically wanted easy, 24-hour access to food because they usually arrive late to a hotel; a work environment where they could use their laptop, and if needed, get things printed and faxed; and even a place to hold casual meetings.

The result was the Club Hotel, which Doubletree unveiled in August as a new brand targeting the midmarket frequent business traveler. The difference between the Club Hotel and other midmarket hotels was the addition of a Business Club Room, which alternately serves as a well-equipped office on the road, a self-service business center, a meeting space for small groups and a cafe - all combined in one convenient location.

To create the Business Club Room, Doubletree called on companies that had expertise in creating different facets of the product: Kinko's, providing the latest technology in business equipment; Au Bon Pain Bakery Cafes, offering fresh food fast and long after most hotel restaurants are closed; and Steelcase Inc., a manufacturer of business furnishings and work space configurations.

This is the first time in the hotel industry that somebody has gone to outside companies with different areas of expertise and developed a unique relationship with each, says Thomas Storey, president of Club Hotels. "We feel we are experts at filling guest rooms and providing hotel services, but we wanted to work with experts in other areas who know how to provide other services and do so in a cost-effective manner."

Case Study:

Prudential

Real Estate Investors

A little over a year ago, Prudential Real Estate Investors of Short Hills, NJ., formed a program called Strategic Alliance Management to try and develop synergism among different companies so that in a team approach PREI could bring more skills into deals and into managing clients' investment assets. As PREI is the part of the Prudential Insurance Co. of America that invests on behalf of pension fund clients, it sought professional management of the properties that were now owned by its institutional investors.

"We needed to be more effective in marketplaces throughout the country without necessarily having a person in that market ourselves," says Frank Maxson, Prudential's vice president/portfolio management. As a result, PREI formed alliances with 18 property management firms across the country. The alliances apply to 183 properties totaling 33 million sq. ft. and 9,100 apartment units. While some of the companies in the alliances are small regional firms, others include Trammell Crow Residential, Axiom Real Estate Management Co., Cushman &Wakefield, Related Management Co. of Florida and Premisys Real Estate Services.

The goal of the program is to create greater efficiencies in operations; enable REIT asset managers to focus on strategic, value-added activities; leverage the expertise of property management and leasing firms; and ensure consistent quality on a cost-efficient basis.

Although there were some bumps in the road, Maxson says, "the more successful strategic managers have geared up and followed the programs as they were laid out and are able to understand the needs and demands of the clients they are trying to serve. It has enabled PREI to be able to back away from worrying about the minutia and day-to-day issues that we had to focus on in the past," Maxson says.

Case Study:

ASC Services Co. LLC

In 1993, when Ameritech decided to outsource its real estate functions, it first looked for one company to provide three key property services: transactions, property management, and facility design and construction. Such a company didn't exist. But Chicago, based Stein & Co. teamed up with Pasadena, Calif-based Jacobs Engineering and then hired the Ameritech people who were doing design and construction. The resulting company, ASC Services Co. LLC, was formed in September 1994 and has a five-year contract with Ameritech.

The idea of the joint company was to add outside management resources from a market competitive environment and create an organization that could then provide services back to Ameritech with various goals built around savings, improving real estate management and creating investment-class projects.

"In the two years we have been working with Ameritech, ASC has been able to save the company $10 million plus $50 million in share value," says Patricia Stoller, president and CEO. "We have increased productivity and brought a lot of market-driven concepts and practices to the organization."

In real estate today, a company may be No. 1 in two of the three services it provides but, because of the competitiveness of the market, there is now opportunity to go to another company for that third service the company is deficient in so that there is no longer a weak link, says Stoller. The concept of virtual organization or joint organization is taking off because a company can't be everything to everybody anymore, even though it needs to be.