Out-tasking: the outsourcing alternative for corporate real estate.

By Stan Krawitz | Spring, 2003

Outsourcing is recognized as one of the greatest organizational shifts of the last few decades. Harvard Business Review ranks it as one of the top business ideas of the century.

In recent years, the pressures on senior executives of corporations to cut costs and focus on the core business have been the key drivers of outsourcing. It provides the firm with a strategic solution to handle many non-core functions, under the designation of business process outsourcing. Information technology, human resources, marketing, sales, facilities management, and real estate are examples of corporate functions typically outsourced to third party providers.

Outsourcing is not an entirely new concept in commercial real estate. What is new is a shift in the focus of corporate real estate outsourcing. In the past, it was primarily the property owners that outsourced portions, or all parts of the real estate process, to property managers, asset managers, and leasing agents. Currently, the trend is for corporate space users to outsource portions or all of their real estate and facilities to specialists and outsourced service providers.

Traditionally, commercial real estate brokerage companies emerged as an outsourced marketing capability for property owners and developers. Brokerage companies were formed to satisfy the needs of property owners to lease their vacant space. As such, the organization and motivation of real estate brokers evolved to satisfy the needs and goals of property owners, that is, maximizing their returns by negotiating the highest rents possible.

In the past few decades, corporate space users have become a new focus for the commercial real estate industry. Moreover, some traditional brokers have evolved into exclusive tenant representative agencies. Typically, such evolutions have failed to align properly with the needs and objectives of corporate space users. This is because most brokers, even the tenant representation firms, continue to focus on the specific goal of the property owner--the signing of the lease or purchase agreement.

For the corporate space user, the execution of a lease, or an agreement of purchase and sale, with a property owner, does not represent the completion of the real estate process. More often than not, a signed lease or purchase agreement marks just the beginning of the next important stage of a process for the corporation toward its workspace objectives.

Canadian managers of most corporations do not have the experience, internal resources, or specialists on staff to achieve their corporate real estate objectives. Many managers are realizing the benefits of out-tasking successive elements of an integrated real estate process. Not only can companies save money and avoid costly errors performing unfamiliar real estate tasks, but also their senior executives remain focused on the core business and their customers. In the context of a board-level appreciation of business process outsourcing, it's natural for leading companies to think positively about out-tasking as a solution for real estate management.

Canadian banks were among the first in this country to pick up on the trend toward outsourcing corporate real estate, which began in the U.S. in earnest seven to 10 years ago, and is now the standard. With large real estate holdings, and clearly more profitable core business opportunities in banking, it was a strategic move for the banks to transfer real estate assets and liabilities to pension funds, and outsource the management of all their real estate operations to an emerging industry of outsourced real estate providers. Their outsourcing business model was originally geared, and worked very well, for the banks, utilities, telecoms, and the largest multi-national corporations. However, the results of outsourcing real estate and facilities' functions for most small- to medium-sized enterprises have proven to be excellent and no less important.

For many companies, the Canadian adaptation to this new phenomenon can more precisely be defined as "out-tasking", as opposed to "outsourcing". There is a close relationship between the company and its corporate workspace, so it is often preferable for senior executives to maintain direct control of the real estate process by out-tasking rather than outsourcing.

Out-tasking is assigning the work involved in discrete, specialized real estate tasks, rather than responsibility for the corporate real estate portfolio as an enterprise. In addition to real estate brokerage, out-tasks most often include market analysis, site selection, transaction management, lease administration, design, construction management and project management, as well as outfitting, furnishing, and equipping workspaces. Selecting out-tasking rather than outsourcing, executives make a conscious decision to retain control over their corporate real estate process. This recognizes that the company, particularly its real estate executive, is ultimately responsible for the company's assets.

Out-tasking is often a "strategic catalyst" that rationalizes the real estate processes of a corporation. Executives think carefully about overall real estate strategy when making the positive decisions to determine which parts of the real estate process are appropriate for out-tasking to a trusted advisor, and which parts of the real estate process are better handled inhouse.

This mixed mode approach -- retaining responsibility for strategy and selectively outsourcing components of an overall real estate process, following an analysis of needs and capabilities -- ensures a proper allocation of resources and talent. Very often, it's a tactical implementation of a strategy that is consistent with overall corporate outsourcing objectives.

To address the needs of corporate space users, real estate professionals must create added value, not just the cost reductions that have driven larger enterprises to outsource real estate. Some corporations form an alliance with a professional services firm that adds value, by providing the resources and specialists to do the work involved, with specific elements of the real estate process under an out-tasking contract. In such a relationship, the real estate professional is a trusted advisor and unbiased advocate for the client in all the out-tasked phases of the real estate process: Finding, Leasing and Outfitting the Workspace. It's a process we call FLOW[TM].

Aligned with the goals of the corporate space user, the multi-disciplinary professionals of Real Facilities form alliances with clients to deliver integrated real estate solutions. Brokerage services are provided by RF Real Estate Inc., the licensed real estate brokers of Real Facilities, working in multi-disciplinary teams that are expert in all aspects of real estate necessary to meet the clients' requirements for corporate workspace. The added value of out-tasking the real estate process is the realignment of the cost benefits of traditional real estate brokerage with the broader objectives of corporate space users and the effective integration of multi-disciplinary real estate professionals working as a team with company executives.

As a trusted real estate advisor, Real Facilities has established a reputation for adding value, as well as saving money, for a string of brand name retailers, industrial, and office space users. We've established long-term relationships of lasting value with people who have worked together with us to create an effective new model for out-tasking corporate real estate services.

In the end, corporate real estate is not about property. It's about people.