Outsourcing Corporate Real Estate - Who Is The Right Partner For Your Company?
by Jeff Nickol

All corporate real estate should fulfill the basic role of providing ample work space at a low cost. In an effort to reduce corporate real estate costs the overall trend has been to outsource the planning and management of this corporate function. In fact, according to the Outsourcing Institute, over the last ten years outsourcing corporate real estate has quickly grown into a $340 billion industry in the U.S.

As a result of this growth there are now many different types of service providers to choose from: centralized providers, national brokerage companies and local boutiques. Increasingly, companies look to align themselves with corporate real estate service providers who can contribute to key strategic and organizational goals and not just deliver transaction-based services. Additionally, the corporate accountability rules now required under the Sarbanes-Oxley Act make choosing the appropriate service provider more important than ever.

So let's take a closer look at each type of outsourcing provider in order to help you determine the right partner for your company.

Corporate Real Estate Service Provider Options

1. Centralized Providers

Large, centralized providers typically have hundreds of offices around the world staffed with salaried transaction personnel. They are particularly strong at the executive level. Top management will generally be the cream of the crop in the corporate world with over 90% coming from top educational institutions. However, it is not uncommon for this type of provider to hire younger, inexperienced transaction personnel who don't command large salaries or commission structures. Additionally, many of these companies will create commission pools where the client's real estate team shares year-end distribution of the fees earned. Generally the people who will handle your account, the transaction personnel or account manager, will have been in the commercial real estate business for less than three years and will possess limited transaction experience and knowledge of the outsourcing process. The upside to large centralized providers is they are generally tenant representative brokers and do not run into listing or ownership conflicts.

2. National Brokerage Companies

The national brokerage companies have offices in most major U.S. cities and can put many team members on your account. The conflict that can arise with these companies is that they transact business on both sides of the fence. They have property for sale or lease in most every city in the country while also trying to represent tenants or purchasers in the same markets. This represents three problems:

A. They are going to have to present buildings and opportunities that are also represented by their own firms. In corporate real estate you cannot serve two masters!

B. They split sales and leasing commissions with the local brokers they hire which creates a disincentive for the local broker to fight for the client's best interest.

C. They do not guarantee the most qualified personnel will handle every transaction. Generally they give the local assignment to the person in the office who needs the money and may have a large draw balance. One upside to national brokerage companies is that they have access to a large number of properties in multiple markets which could make it easy to find appropriate space for many different business locations at the same time.

3. Local Boutiques

The local boutiques are typically fast growing service providers with offices in more than ten cities. They tend to hire knowledgeable, local brokers to assist with all client transactions. Local boutiques will use a hybrid pay structure that may include a commission or a low salary with a high bonus incentive based on client satisfaction. It is not uncommon for local boutiques to offer a contractual obligation that they hire local, experienced professionals to handle a tenant requirement. The downside with fast growing boutiques is that they have a limited footprint. Most boutiques can have a difficult time servicing a large corporation with multiple national and international locations.

So how do you pick a corporate real estate outsourcing provider?

The number one rule is to make sure there are no conflicts of interest. The best choice is an outsource provider that only represents tenants and purchasers. If you work with a service provider that represents both buyers and sellers there is no way to be sure that you are receiving the best deal.

If you represent a large company with over 250 locations you might consider using a large, centralized provider. This type of company will have the staff and infrastructure to handle multiple corporate locations around the globe. Be prepared to work with personnel who have low levels of real estate experience. You will also receive minimal cost savings on the transaction level. However, you should expect to benefit from the long term economies of scale that result from total outsourcing.

If you have less than 250 locations, you should consider using a local boutique. Boutiques are often better suited to deliver superior service and will provide you with real estate professionals who have local experience. By knowing the local market, these brokers typically know how to find a better deal. A local boutique will also allow you to dictate what services and qualifications you will mandate for the account.

The bottom line is that when it comes to corporate real estate more and more companies want to establish strategic relationships with outsourcing firms that provide value-added services and programs that will improve the company's bottom line. You can expect to receive creative solutions from local, niche companies who strive to deliver better technology, communication, analysis and integrated solutions. While many of the national corporate real estate providers are slow to change, their local counterparts are successfully signing up national accounts by differentiating themselves through value-added services.

Whichever provider you choose, always remember the number one rule - no conflicts of interest! When it comes to corporate real estate, an outsourcer cannot serve two masters.

About the Author: Jeff Nickol is a partner at iCore Commerical Real Estate (www.icorecommercial.com) in Atlanta, Georgia. He is an individual member of the Society of Industrial and Office REALTORSR, (SIOR), and served as the Georgia Chapter President in 2003. He can be reached at jnickol@icorecommercial.com.