SAN DIEGO — Ironically, the relatively weak economy has strengthened theexecutive’s role in the boardroom as companies search for ways to generate cash and boost profits.
The end result is that corporations increasingly are aligning business and real estate strategies to meet their goals. They’re also centralizing real estate operations to achieve greater efficiencies, say industry experts.
"Profits and cash drive investor value, and real estate is a top contributor to both of those areas," says Richard Kriva, vice president and director of real estate and development for Schaumburg, Ill.-based Motorola, the world’s second largest mobile-phone producer. "We have an aggressive focus on the balance sheet."
Kriva’s comments came during a panel discussion Monday titled "Rationalizing Your Real Estate Portfolio During Troubled Times" at the CoreNet Global Summit at the San Diego Convention Center. The five-day conference, which ends Wednesday, boasts several hundred attendees, including corporate real estate executives,, economic development professionals as well as exhibitors.
Motorola is in the process of dramatically reducing the number of real estate facilities it occupies globally from 700 sites just a few years ago to 400 sites by the end of 2003. The move to shed millions of square feet from Motorola’s real estate portfolio will result in a cumulative operating cost savings of $700 million between 2001 and 2003, according to Kriva.
The dispositions are in response to declining revenues and layoffs. In 1999, Motorola posted sales of $33.1 billion, but this year sales are expected to total $26.2 billion. At its peak, the telecommunications giant employed 150,000 workers, which was whittled to 111,000 by the end of 2001. Its headcount this year now stands at 100,000, and that number is expected to fall to 93,000 over the next six months.
There’s also been a significant management shakeup within Motorola over the past few years, according to Kriva. Approximately 70 of the top 100 positions at the company were filled with new blood to turn around the troubled company.
At the close of trading Monday, the share price of Motorola (NYSE: MOT) stock registered $9.37, well below its 52-week high of $18.63.
Desperately seeking stability
The story of ADC Telecommunications of Minneapolis is much the same. In 2000 — at the height of the technology bubble — the company added 4.3 million sq. ft. through acquisitions, leases and new development
But when the bubble burst, the company cut its workforce by 60%. The number of real estate properties it occupies has dropped from 207 to 85. Meanwhile, ADC has divested of non-strategic products and business units. What’s more, the former 12-person corporate real estate department has dwindled to a staff of one.
Clint Baer, ADC’s director of global real estate development, says the amount of real estate per employee has dropped from 350 sq. ft. per person to 225 per sq. ft.
Baer acknowledges that many of the actions ADC has taken regarding its real estate portfolio have been bold and swift, but that he’s been given a vote of confidence. "My senior management says, ‘Go do it,’ and supports the decisions that we make."