Equity Office Changing Way it Operates

The $14-million revamp of operations is expected to being paying off within a year, says chief operating officer Richard Kincaid. Expenses in Boston portfolio have resulted in a $2.6 million savings, and expenses are expected to be 33% lower next year than they were in 2000, says senior vice president Maryann Suydam, who oversees the REIT's operations there.

"If we have the scale that we have, we should be able to drive efficiency," says president and chief executive officer Samuel Zell. The savings will help Equity Office Properties keep its lease rates competitive in its markets, he explains.

Operations will shift from buildings to portfolios, with the company's objectives being carried out on a regional, rather than a building-by-building basis. Meanwhile, the REIT will focus on doing a better job of providing its tenants with the basics, rather than extras such as concierge services and health clubs that were not valued by decision-makers.

For instance, Equity Office Properties employees feared a backlash from removing property managers from buildings. "We were literally taken aback by the lack of concern that we were physically leaving the building," Suydam says. "It became very clear it was more our hang-up than theirs."

The focus also will shift to occupancy over getting the maximum rent, Kincaid says. And brokers will be better rewarded for helping do that.

Equity Office Properties will pay 100% commission on lease renewals, rather than 50%, Kincaid says, eliminating a tenant rep's temptation to take a prospect across the street. Those commission checks also will be cut within 48 hours of lease executions, Kincaid says, rather than half now, half on move-in.

"We need to embrace (brokers) more than we ever have," Kincaid says. "We've been broker-friendly, but we're going to take that to a different level."

In Boston, Equity Office Properties was managing its 55-building, 13-million-sf portfolio out of 18 offices in June 2000. The REIT had a 267-person payroll occupying 46,000 sf. Now, operations are consolidated in one 20,000-sf office, and payroll has been cut by 11% to 238, mostly by attrition, Suydam says.

Employees will focus on more specific tasks rather than being generalists, which Equity Office Properties officials say results in improved productivity. "We're going away from the jack-of-all-trades model to functional expertise," Kincaid says.