The Benefits of CRE Asset Portfolio Optimization Services

PHOENIX—“Corporate real estate is the second or third most expensive line item for Fortune 500 companies.” So says Tammy Carr, one of the most influential women in Arizona commercial real estate who works in leadership at Mortenson, a national leader in building, development and real estate optimization services. In the exclusive Q&A below, Carr provides insight and expertise on how executives can accurately survey, analyze and configure their asset portfolios and facilities for maximization of yield and return, as well as understand the asset portfolios and facilities that are components of M&A transactions.

GlobeSt.com: Explain why corporate executives need to focus on commercial real estate optimization services from a financial perspective: return on investment, return on equity and return on assets?

Tammy Carr: Corporate real estate is the second or third most expensive line item for Fortune 500 companies. An organization's cash (ROA) ratio is utilized as an internal benchmark for operational and financial execution, as well as to compare business performance among industry peer members. The ROA is also one of the most examined financial ratios by analysts and potential and current investors.

As a business, there is a financial imperative in fully understanding the composition of corporate real estate assets including underperforming sites or facilities negatively impacting ROA. This is specifically pertinent relative to ensuring maintenance costs of facilities are not adversely affecting operating expenses (OPEX).

GlobeSt.com: What size company: Fortune 500, SMB should consider utilizing a CRE asset portfolio optimization service? Does the methodology change based on company size or asset footprint?

Carr: Benefits of CRE asset portfolio optimization services are as diverse as the size of the companies that utilize them.

In commercial real estate only 15-20 percent of the spend is discretionary, driving the majority of Fortune 500 companies to outsource their planning, property management and facilities management to industry experts for the purpose of maximizing returns.

SMB's benefit through understanding the condition and value of their commercial assets to mitigate unforeseen capital expenditures (CAPEX), manage OPEX, prepare for growth, manage cash flow, and maximize company valuation.

Multiple factors impact the methodology for optimization strategy efforts:  key performance indicators (KPI's), workforce attraction/retention goals, age of assets, growth plans and consolidation or merger considerations.  However, company size or asset footprint do not significantly impact the decision process, only the scale and scope of the examination.

GlobeSt.com: Can these services be tailored to companies contemplating a merger or acquisition (M&A)? Can you elaborate?

Carr: During acquisitions, rigorous due diligence for target firm's real estate and facility assets is rarely completed due to lack of bandwidth.  Mortenson's experience shows 20-30 percent of those facilities have hidden issues.  In a recent case, analyses revealed that an organization's property asset had $40M of expensive deferred maintenance and life safety issues. Other findings included assets not being utilized to their highest use. In one case a client unlocked hidden value, leading to a $129M land sale for the acquiring company.

A CRE asset portfolio optimization assessment performed by the acquired company can improve valuation and mitigate risk for the acquiring company, expediting the M&A process.

Integration plans on how to: utilize space; consolidate, dispose of lease A and grow lease B, renovate, build new, take to market underperforming or no longer necessary sites or buildings and geographic expansion plans will be accelerated by the assessment.

GlobeSt.com: Is there one major takeaway executives should understand about CRE optimization services?

Carr: Knowledge = Mitigated Risk + Informed Decisions

A CRE asset portfolio assessment will deliver visibility into annual spend (OPEX) relative to peers through operations and maintenance (O&M) benchmarking, provide insight into potential future expenditures (CAPEX) and cash flow schedules, identify geographic placement and space needs, provide information critical to growth or consolidation plans, and ensuring accurate market valuation of corporate assets and the enterprise value of the company.

PHOENIX—“Corporate real estate is the second or third most expensive line item for Fortune 500 companies.” So says Tammy Carr, one of the most influential women in Arizona commercial real estate who works in leadership at Mortenson, a national leader in building, development and real estate optimization services. In the exclusive Q&A below, Carr provides insight and expertise on how executives can accurately survey, analyze and configure their asset portfolios and facilities for maximization of yield and return, as well as understand the asset portfolios and facilities that are components of M&A transactions.

GlobeSt.com: Explain why corporate executives need to focus on commercial real estate optimization services from a financial perspective: return on investment, return on equity and return on assets?

Tammy Carr: Corporate real estate is the second or third most expensive line item for Fortune 500 companies. An organization's cash (ROA) ratio is utilized as an internal benchmark for operational and financial execution, as well as to compare business performance among industry peer members. The ROA is also one of the most examined financial ratios by analysts and potential and current investors.

As a business, there is a financial imperative in fully understanding the composition of corporate real estate assets including underperforming sites or facilities negatively impacting ROA. This is specifically pertinent relative to ensuring maintenance costs of facilities are not adversely affecting operating expenses (OPEX).

GlobeSt.com: What size company: Fortune 500, SMB should consider utilizing a CRE asset portfolio optimization service? Does the methodology change based on company size or asset footprint?

Carr: Benefits of CRE asset portfolio optimization services are as diverse as the size of the companies that utilize them.

In commercial real estate only 15-20 percent of the spend is discretionary, driving the majority of Fortune 500 companies to outsource their planning, property management and facilities management to industry experts for the purpose of maximizing returns.

SMB's benefit through understanding the condition and value of their commercial assets to mitigate unforeseen capital expenditures (CAPEX), manage OPEX, prepare for growth, manage cash flow, and maximize company valuation.

Multiple factors impact the methodology for optimization strategy efforts:  key performance indicators (KPI's), workforce attraction/retention goals, age of assets, growth plans and consolidation or merger considerations.  However, company size or asset footprint do not significantly impact the decision process, only the scale and scope of the examination.

GlobeSt.com: Can these services be tailored to companies contemplating a merger or acquisition (M&A)? Can you elaborate?

Carr: During acquisitions, rigorous due diligence for target firm's real estate and facility assets is rarely completed due to lack of bandwidth.  Mortenson's experience shows 20-30 percent of those facilities have hidden issues.  In a recent case, analyses revealed that an organization's property asset had $40M of expensive deferred maintenance and life safety issues. Other findings included assets not being utilized to their highest use. In one case a client unlocked hidden value, leading to a $129M land sale for the acquiring company.

A CRE asset portfolio optimization assessment performed by the acquired company can improve valuation and mitigate risk for the acquiring company, expediting the M&A process.

Integration plans on how to: utilize space; consolidate, dispose of lease A and grow lease B, renovate, build new, take to market underperforming or no longer necessary sites or buildings and geographic expansion plans will be accelerated by the assessment.

GlobeSt.com: Is there one major takeaway executives should understand about CRE optimization services?

Carr: Knowledge = Mitigated Risk + Informed Decisions

A CRE asset portfolio assessment will deliver visibility into annual spend (OPEX) relative to peers through operations and maintenance (O&M) benchmarking, provide insight into potential future expenditures (CAPEX) and cash flow schedules, identify geographic placement and space needs, provide information critical to growth or consolidation plans, and ensuring accurate market valuation of corporate assets and the enterprise value of the company.