Corporate real estate management

Bon, Ranko . Facilities ; Bradford  Vol. 10, Iss. 12,  (Dec 1992): 13.

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ABSTRACT
 
Concepts of corporate real estate management (CREM) are outlined, and examples of their application in corporate
practice in both the US and the UK are offered. CREM concerns the management of buildings and parcels of land
at the disposal of private and public organizations in the real estate business. The entire range of activities
concerning portfolios of buildings and land holdings are covered by CREM, including: 1. investment planning and
management, 2. financial planning and management, 3. construction planning and management, and 4. facilities
planning and management. All successful CREM research and consulting projects have involved collaborative
teamwork between a research team and corporate management. CREM work generally goes through 4 stages: 1.
recognition, 2. analysis, 3. implementation, and 4. monitoring and development. Each CREM decision support
system, which can close the feedback loop between managerial action and property performance, must be
developed with special concern for specific characteristics of each organization.

FULL TEXT
 
INTRODUCTION
My aim here is to outline the basic concepts of corporate real estate management (CREM), as well as to offer
examples of their application in corporate practice in both the UK and USA. Most of these concepts come from my
collaboration with the organizations listed at the end under acknowledgements. These concepts can be thought of
as examples of best practice, rare as they are in this field.
There are several alternative terms for CREM used in the UK and/or USA: property or estate management, fixed or
operational property asset management, real property or real estate asset management, and real property portfolio
management. These terms reflect multiple professional roots and paths of development of CREM.
CREM concerns all strategic issues regarding property, that is, those issues of direct interest to senior
management. This field is oriented towards major clients of building services--organizations with significant
property portfolios. In the last analysis, it is incumbent on the building client to ensure satisfactory planning,
procurement, management, and utilization of property at the client's disposal. Building clients need to develop
management tools for CREM. In particular, I will focus here on decision-support systems which can close the
feedback loop between managerial action and property performance. Such systems will need to be custom-made
for each building client with a significant property portfolio.
FOCUS AND SCOPE
CREM concerns the management of buildings and parcels of land at the disposal of private and public
organizations which are not primarily in the real estate business. An organization which occupies space is in the
real estate business and needs to manage it properly, as the majority of significant organizations is beginning to
recognize. CREM covers the entire range of activities concerning portfolios of buildings and land holdings:
investment planning and management, financial planning and management, construction planning and
management, and facilities planning and management.
Just as a fleet of ships requires overall strategy and coordination among individual vessels, so too does a "fleet" of
buildings. Although each vessel in a fleet may have a separate mission, the fleet as a whole is informed by a

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mission common to all. This mission stems from the strategic objectives of an organization. The primary concern
of CREM is to establish and maintain a close match between an organization's business and property strategies.
Each property is going through the property cycle, starting from and returning to "unimproved land". The stage in
the cycle in which a particular property may be found needs to be understood in the light of other cycles important
to an organization, such as product and/or process cycles. CREM is concerned with the entire property cycle of
each property in the portfolio, although it focuses on the utilization and operation stage. More precisely, it is
concerned with the relationship between the property cycle and other strategic cycles characterizing the
organization in question.
PORTFOLIO STRUCTURE
The entire portfolio can be thought of as a structured collection of buildings, together with the associated parcels
of land, as well as land available for future development. Some are stand-alone buildings distributed over a wide
geographic area. Other buildings are grouped into clusters dedicated to a particular shared purpose or mission.
These clusters may be concentrated in the same geographic area but on dispersed parcels of land, or they may be
well-defined campuses on a single parcel or several contiguous parcels of land. Such a property portfolio is
illustrated in Figure 1: (Figure 1 omitted) two manufacturing campuses which include several manufacturing
buildings (M), research laboratories (L), warehouses (W), and headquarters' offices (H), and a number of sales
offices and a research laboratory distributed over a wide geographic area. Each building is represented by a small
circle; manufacturing campuses are denoted by larger circles; and the largest circle denotes the portfolio as a
whole.
The possible course of action differ for buildings and parcels of land in different parts of an organization's
portfolio. Conversely, the very structure of the portfolio should reflect alternative courses of action which apply to
different classes of real property. One of the most important functions of CREM is to keep an account of the
options available for various components of the portfolio. This information can be used as the basis for
contingency planning for properties which are the best candidates for disposition or significant reconstruction.
PROPERTY PERFORMANCE
The opportunities to influence the costs and benefits of building ownership decline most rapidly in planning and
design phases of the building process. CREM tools need to be applied as early in the property cycle as possible.
The information available to an organization concerning its "good" and "bad" buildings is invaluable in guiding both
new construction projects and repair and reconstruction projects. As the property portfolio of a large organization
is considerably different to any other portfolio, each organization needs to develop and maintain a database with
information specific to that organization.
The primary operational task of CREM is to provide approaches and tools which facilitate the formation and
maintenance of a feedback loop between property performance across the portfolio and managerial action, shown
in Figure 2. (Figure 2 omitted) The feedback loop opens the road towards continual incremental improvement of
property performance, guided by the ever-changing objectives of an organization. Continual incremental
improvement which is always in line with changing organizational goals is the "theory" behind CREM. It focuses on
the provision of tools that would help change an organization's property portfolio in the right direction, while
relying on the business strategy for determining what direction is right for the organization. The information
concerning property performance available to an organization should be arrayed so as to ensure that its
management can learn about the consequences of their actions on property performance, as well as the effect of
real property on the overall performance of the organization.
PERFORMANCE INDICATORS AND STATISTICAL QUALITY CONTROL
CREM requires effective monitoring of property performance by means of a system of property performance
indicators. For a given budget, there is a tradeoff between many indicators measured a few times, and a few
indicators measured many times. The latter is generally preferable to the former, because management is
generally more interested in relative change than in absolute values of performance indicators.
As in manufacturing, the objective of statistical quality control (SQC) is to ensure that actual property performance

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is within the desired bounds--upper and/or lower. This is illustrated in Figure 3. (Figure 3 omitted) These bounds
can be tightened over time. In the case of properties, SQC should be applied with special care. First, cross-
sectional comparisons of buildings are difficult because of their heterogeneity; even identical buildings at different
locations will appear to be different. Second, longitudinal comparisons of the same building at different points in
time are difficult because many building processes are very slow; everything will appear to be the same even over
long periods of time.
An interesting example from corporate practice is the application of SQC to the data generated by complaint
systems regarding facilities. Although roughly 5,000 complaints per year can be expected on 1 million square feet
of corporate facilities, this information is used almost exclusively for dealing with individual complaints. Several
applications in large organizations have demonstrated that SQC can be helpful in identifying and monitoring
chronic conditions which require solutions concerning entire facilities or portfolio-wide systems.
STRATEGIC GOALS
Because one of the key concerns of CREM is the maintenance of a continual capability to adapt to changing
economic conditions facing an organization, the structure of property performance indicators should correspond
to the structure of the portfolio itself. The management of adaptability and flexibility should not be directed
narrowly towards individual buildings only. The problem arises on at least two additional levels that of cluster of
buildings, and that of the portfolio as a whole. Furthermore, on all three levels there are distinct aspects of the
problem: physical, financial, and organizational. Physical aspects predominate on the level of individual buildings;
financial aspects predominate at the portfolio level; and organizational aspects are particularly important at the
building-cluster level.
Property performance should be measured with the objective of gradually changing the entire portfolio via
continual managerial action bent on improving property performance. The key objective is to improve the overall
performance of the portfolio by shifting the average performance in the direction of improvement, as well as to
tighten the variation around that average performance. "Good" and "bad" performance are relative notions. The
best performance in one period may be considered the worst in another, as illustrated in Figure 4. (Figure 4
omitted) Also, at any one time there will necessarily exist both "good" and "bad" buildings.
Although statistical approaches to CREM will only gradually penetrate corporate practice, several property
performance indicator systems have been designed to identify and monitor outliers in the portfolio, that is,
properties which fall in the two "tails" of distributions such as those shown in Figure 4. "Dogs" can be either
disposed of, or improved through additional capital outlays, whereas "stars" can sometimes be replicated either in
terms of design and construction, on the one hand, or management, on the other. Focusing the attention of
managers to about 10 per cent of the portfolio is most useful in a world where the scarcest resource is
management attention.
DECISION-SUPPORT SYSTEMS
The main concern in the design of CREM decision-support systems (DSS) is to investigate ways in which the
information available to an organization can be arrayed so as to ensure that its top-level management can learn
about the consequences of its actions on property performance, as well as the effect of real property on the overall
performance of the organization. The CREM feedback loop can be closed via a CREM DSS. As is shown in Figure 5,
the main software components of a DSS include a knowledge base (KB), user interface (UI), a model base (MB),
and a database (DB). (Figure 5 omitted)
It is useful to distinguish between intermittent or discrete and ongoing or continual aspects of CREM. The former
can be associated with problem solving or decision making; the latter with problem finding or status assessment.
Most management tools available today focus on problem solving. Problem finding is relatively neglected. Here,
past decisions need to be monitored, and future problems need to be identified in time for remedial action.
Functional architecture of a DSS can therefore be presented as in Figure 6. (Figure 6 omitted)
Many important decisions regarding property are made discretely, particularly those involving acquisition and
disposition. As considerable resources may be required to acquire buildings and/or parcels of land or dispose of

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them, such decisions are carefully considered by top-level executives. There is a wide range of tools and
approaches for dealing with discrete decisions. Among these, capital budgeting or benefit-cost analysis tools
predominate. However, the management of utilization and operation of property is generally neglected. Here, the
focus shifts towards continual monitoring of property performance, which can inform discrete decisions needed to
improve that performance.
A useful example of problem finding from corporate practice involves buildings that have undergone significant
changes in the process of design and/or construction. Such a change is known as a "change in scope", typically
involving the building function, size, or location. Poor performance over the building life cycle is strongly
associated with change in scope. In other words, change in scope, which often cannot be avoided, is a good
predictor of future building performance. If the information about the building's early history is lost or is not
available to those who manage it, poor performance will not be properly understood. Therefore, it is important
carefully to monitor all buildings which have undergone such change and to anticipate certain problems that can
result from it.
Although CREM DSS development can be a lengthy and costly process, some software tools available in the
market can be used to introduce the basic DSS capability into the property management function. Off-the-shelf
spreadsheet and database management software can be used as the core of a simple DSS, whereas expert
systems and other knowledge-based systems can be used to guide the user through the operation of the DSS,
from basic instructions about how to proceed, to the interpretation of results.
Perhaps the most important lesson from corporate practice is that the information needed for CREM DSS
operation is already available in most organizations. Collection and processing of new information is seldom
efficient and effective and should be approached with great care. The information regularly used by several users
is generally of greatest value. Financial ratios used to test and/or report the organization's performance are of
special value in this context.
CONCLUSIONS
CREM research must not be understood as an activity that leads directly to decisions or products. The complexity
of CREM issues and tools requires organizational learning as an intermediate step. All successful CREM research
and consulting projects have involved collaborative teamwork between a research team and corporate
management. Moreover, successful work in this area has involved support by senior executives, without whose
involvement CREM cannot develop beyond several initial steps.
CREM work generally goes through four stages: recognition, analysis, implementation, and monitoring and
development. The initial phase is crucial to the success of this work. If recognition that the property management
function requires significant change does not come from senior executives, subsequent phases tend to be
curtailed in their scope and effectiveness.
Although there are some basic principles underlying the development of CREM DSS for different organizations,
each CREM DSS must be developed with special concern for specific characteristics of each organization. For this
reason, the research and development work in this field is considerably more challenging and interesting than is
the case with most other fields concerned with performance measurement and evaluation.
ACKNOWLEDGEMENTS
Many organizations have been instrumental in the development of the concept and tools of CREM. From 1983 to
1990, the following organizations have sponsored this research through MIT, where I had been teaching at the
time: Office of Facilities Management, Division of Capital Planning and Operations, Commonwealth of
Massachusetts; Real Estate and Construction Division of the International Business Machines Corporation;
Construction Engineering Research Laboratory, US Army Corps of Engineers; Institute of Technology, Shimizu
Corporation; and Property Management, Digital Equipment Corporation. The development of CREM has been a
collaborative effort with several colleagues from MIT and elsewhere: Michael Joroff, Robert Silverman, Kreon
Cyros, Peter Veale, and Patrice Derrington. Since 1990, when I joined the University of Reading, I have conducted
research and consulting projects through the Corporate Real Estate Research Unit (CREMRU) in association with

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the Center for Strategic Studies in Construction and the Center for European Property Research. From 1990 to
1992 several organizations have provided the framework for CREMRU activities: DEGW London, Stanhope
Properties, and the Property Branch of British Airways.
FURTHER READING
Avis, M., Gibson, V. and Watts, J., Managing Operational Property Assets, Department of Land Management and
Development, University of Reading, Reading, 1989.
Bon, R., Building as an Economic Process: An Introduction to Building Economics, Prentice-Hall, Englewood Cliffs,
NJ, 1989.
Bon, R., "Real Property Portfolio Management: Economy, Quality and Time", in Quality for Building Users
throughout the World, Proceedings of the Eleventh CIB Congress, Paris, 19-23 June, Theme 3, Vol. 2, 1989, pp. 211-
21.
Bon, R., "Real Property Portfolio Management or What the Client of Building Services Needs to Do to Ensure
Satisfactory Building Performance", in Bezelga, A. and Brandon, P. (Eds), Management, Quality and Economics in
Building, Transactions of the European Symposium on Management, Quality and Economics in Housing and Other
Building Sectors, Lisbon, 30 September-4 October 1991, E. &F.N. Spon, London, 1991, pp. 1001-10.
Veale, P.R., "Managing Corporate Real Estate Assets: Current Executive Attitudes and Prospects for an Emergent
Management Discipline", The Journal of Real Estate Research, Vol. 4 No. 3, Fall 1989, pp. 1-22.
Zeckhauser, S. and Silverman, R., "Rediscover Your Company's Real Estate", Harvard Business Review, January-
February 1983, pp. 111-17.
Ranko Bon is a Professor of Construction Management and Economics at the University of Reading, UK.

DETAILS

Subject: Studies; Property management; Decision support systems; Corporate planning;

Commercial real estate; Benefit cost analysis

Location: US UK

Classification: 9190: United States; 9175: Western Europe; 9130: Experimental/theoretical

treatment; 8360: Real estate industry; 5240: Software &systems; 2600: Management
science/operations research; 2310: Planning

Publication title: Facilities; Bradford

Volume: 10

Issue: 12

Pages: 13

Number of pages: 5

Publication year: 1992

Publication date: Dec 1992

Publisher: Emerald Group Publishing Limited

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 Place of publication: Bradford

Country of publication: United Kingdom, Bradford

Publication subject: Building And Construction

ISSN: 02632772

Source type: Scholarly Journals

Language of publication: English

Document type: PERIODICAL

Accession number: 00671254

ProQuest document ID: 219639435

Document URL: https://search.proquest.com/docview/219639435?accountid=190474

Copyright: Copyright MCB University Press Limited Dec 1992

Last updated: 2014-05-17

Database: ProQuest Central

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