Koll's John Davis is the first NACORE chair from the service provider ranks. Here's our exclusive interview.
John Davis, MCR, assumes the role of NACORE chairman at the upcoming annual meeting Sept. 13-16 in San Francisco, so I thought I'd catch up with him to pick his brain about what NACORE members and the rest of the corporate real estate world might learn from his future leadership role. Already, Davis has used his experience for 22 years at Bank of America, and for the last three years he has been president of Koll's corporate and facilities division in San Francisco.
At Koll he oversees an 85 million sq. ft. portfolio of corporate real estate on a facilities management basis.
NREI: Is it unusual for a service provider to be the head of NACORE?
Davis: This is the first time. NACORE is really becoming a more professional organization and moving away from a trade organization moniker. When you're a professional organization you focus more on individuals as opposed to individuals' companies, and obviously we have some strategic issues as we move forward and where we want to take NACORE. We are dealing with that kind of an issue right now, because our membership is categorized by who you work for, as with most of the trade organizations. The trend's in corporate real estate where a number of the functional and tactical services are being outsourced to service providers.
My election as chairman shows that we really are looking at the individual, what they've done, who they are and what they might provide to the organization for leadership roles.
The categorization of your membership really has two impacts. One is an economic impact on how much you're going to pay in dues, and the other impact is your ability to be in leadership roles. We're initiating a strategic planning process that will begin to move forward in September with our hopes of coming to some conclusion in January as to where we take the organization, and certainly how you categorize your members is one of the very important questions which we need to settle on.
NREI: Will you be doing any surveys of the NACORE membership?
Davis: Absolutely. In San Francisco we're designing with an outside consultant the actual surveys that will go out to not only the membership but outside the membership to give us a basis for working on our plans.
We've demonstrated that we're an inclusive organization, but I want to make sure all of our members, despite what their categories might be, are felt included in the activities.
NREI: What will be your specific agenda at the annual meeting?
Davis: Certainly our designation program has begun to take off. We expect to designate somewhere between 80 and 100 new designees in the MCR group at this upcoming meeting. The whole educational piece that NACORE has been a leader in is something we want to continue to move forward. And we want to move forward internationally. We just had a NACORE Institute class in Germany, and we're working on expanding that over in Europe.
NREI: One of the key issues today is compensation. Is the industry moving away from a commission-based system to more of a fee-based system?
Davis: If we're just talking about the transaction piece of the business, there is still I think a general trend because the service provider industry is designed around a commission structure to continue with the commission structure. I haven't seen any dramatic towards corporations because it's so much easier for the service provider to come in and say, 'You don't have to pay me a fee and we'll just live off the commissions and oh by the way you're not paying the commission, the landlord's paying the commission and we can provide these additional services free.'
What I'm actually seeing from responding to a few of those kinds of RFPs, they start off with corporations wanting to do it on a fee basis. Personally I believe the fee-based side is important if you want your provider to begin to start taking over a management role and start making management decisions, because oftentimes the best deal is no deal. It's to figure out how to consolidate into some other places you already own so there would be no commission. The way to ensure that you're getting that kind of advice is to make sure that you're not incenting them to do something different like to find a transaction.
So, a lot of companies are talking about it, but I haven't seen any major implementation of that out there.
NREI: Our recent survey indicated a potential shift toward a fee-based or a more hybrid fee+commission structure.
Davis: I would agree with that. It's moving toward fee, but it hasn't gotten there yet.
NREI: How important is benchmarking performance?
Davis: We participate in the NACORE benchmarking program. Each industry has different things that are more important to it than other industries. So we separate it by industry group. Definitely the banking group sat down and came up with a very good benchmarking program that was coordinated by KPMG specifically benchmarking whether it was occupancy expense or efficiency ratios, or things that were important to them on delivering real estate.
We have a data warehouse and we benchmark everything we're doing with regard to costs. A lot of our clients have agreed to do some cross-sharing, so we've agreed to provide that.
NREI: What are the key trends we should be looking for? Technology seems to be a big part of the upcoming conference.
Davis: A lot of that has to do with the fact that we're here in San Francisco near silicon valley. But definitely technology is just now beginning to affect real estate in my opinion. Probably one of the main drivers for outsourcing is the fact that the major outsource providers spend a lot of money in developing technology that can be applied to clients whose technology budget is devoted to their product.
So the outsource providers have been investing in the technology that is needed to try to integrate everything and it can provide that to corporate real estate professionals so that they can begin to work strategically. That's a big part of what's driving outsourcing. If you're dealing with a lot of clients then it doesn't cost your client that much to take advantage of that.
You talked about compensation earlier on the commission side. I think on the corporate side, most of the corporate real estate heads if they want get into the higher compensation ranges are going to have to be more strategically connected to their companies, and to do that they need information.
NREI: That follows as more corporates try to become more involved in the strategic decision-making process before it starts rather than having a plan foisted upon them.
Davis: Information drives the process. So if they don't have the information about their corporations that they need to have and tailor the real estate information into a way that makes sense to the CFO, they're not going to be invited to the strategy game. And that's where they need to be.
When you think about it, there really are three units that are driving the delivery of services. One of them is the personnel, the human resources obviously, and people. The other is that you need the technology for the people to be able to communicate and deliver. And then you have the real estate piece of it. If you're going to introduce a new product or service, you're going to need all three of those. The corporate real estate group has been a little bit more reactive and project oriented, but their costs are now starting to become lower than the technology piece, so the techies are starting to drive some of the process. I think between those three groups we want to be able to arm our membership with the kind of information at NACORE that they need to understand and know between HR and technology and real estate and the ongoing management so that they can be the ones taking the lead in talking to the groups about where they're taking the company and what it's going to cost them.
NREI: What about consolidation in the industry? Your banking experience and now your involvement in the CB Commercial/Koll merger are probably helpful in giving you insight into the changing world of service providers.
Davis: We're competing nationally with probably three other groups on the corporate side of the business. And there are some regionals. But the regional competitors really can't make the kinds of investments that we can in the two major areas you need to invest in. One is training and the other is technology. You have to be big to be able to do that, and that's why I think technology is having such a major affect on real estate at this point in time. It's really been late to the game, and eventually it will have an impact on the whole way transactions are done. It hasn't quite yet, but it's getting there.
The smaller groups are going to be gobbled up by the bigger ones. We feel there are going to be four or five major real estate providers, like in banking.
NREI: Any sense that companies in general are growing or shrinking their overall space requirements?
Davis: It appears to me that way for certain kinds of things. Obviously office space has caught up with availability in certain markets, certainly here in San Francisco. Here it's pretty tough to find office space.
When you do outsource, you don't necessarily eliminate the job. The job just changes to another company. In most cases, when work is outsourced to us, we continue to reside in the same buildings with our clients, so the space doesn't necessarily go away based on outsourcing. And certainly there have been some technological and productivity gains that have allowed companies to expand without increasing a lot of space, but at this point it would be my opinion that yes, companies are hiring and that space is needed to house people.
Most of our clients have already gone through the consolidation piece and are now starting to grow back.
NREI: Do synthetic leases, credit leases and other new financial vehicles have a legitimate place at the corporate table?
Davis: They're young and they are legitimate for certain kinds of companies. We really do think it's a business that's going to expand.