Professional Report - 1st Quarter 2011

Can
Benchmarking
Metrics Uncover
Best Practices?

By Jeff Nikol, SIOR

Many corporate real estate (CRE) departments are understaffed and generally overworked relative to the size of the portfolios they oversee. It is not uncommon to have a corporate real estate department that is comprised of two people, a director of real estate and one real estate assistant. When the finance department, operations, or the executive officers elect to get control of the leasehold and owned assets, the task of gathering, understanding, and proactively managing the portfolios can be overwhelming. Without the assistance of a good software system in which to organize the leased and owned assets, the corporate real estate executive is almost powerless to begin to create a proactive strategy of cost reduction, benchmarking, and accounting interfacing. This problem is currently being compounded by the Federal Accounting Standards Board’s (FASB 13) review of operating versus capital leases. FASB 13 will affect the review and treatment of both real estate and equipment leases. (For more on the proposed rule changes, see the Legislative Update article in this issue.)

If a company can use a good web-based software system to
organize the mounds of data and choose a system that can inter-
face with any of their current general ledger accounting systems
in place, the task of managing and proactively creating strate-
gies for their CRE portfolios can be quite easy. There are many
off-the-shelf options on the market that both real estate service
providers and corporations can purchase. Generally, there will
be a one-time set-up fee, and then, depending on the needs of
the corporation, an annual fee for the web-based server storage
and possible attracting fee for gathering a data entry of the leased
and owned assets. Many third-party corporate real estate service
providers have these systems and are staffed to assist with the
collection of data required. There are also lease administration
software firms that will create a proprietary system for each
specific portfolio account. However, the off-the-shelf systems
we have previewed over the years have managed to reduce or
eliminate the many inherent bugs of proprietary custom-built
systems.

Benchmarking Fundamentals

A fundamental question to ask when benchmarking is, “What should we measure?” Many times, these measures need to be aligned with business plan objectives and strategies. Collecting this data is time-consuming, and a corporation needs to know beforehand how it plans to use the data.