Industrial Asset Management Council (IAMC)

IAMC's "Get Some Help" session in St. Louis extended the emphasis on free-flowing knowledge sharing that's fueled the organization's rapid growth in its first five years.

Held at Anheuser-Busch's corporate complex after a tour of the historic, immaculately preserved campus, the workshop centered on a discussion of questions that corporate real estate management (CREM) executives had raised in the previous 30 days. BASF Director of Real Estate Bill Pearson moderated the session, framing the issues and then guiding the ensuing dialogue.

"My company has sustainability scorecards for each facility," one CREM executive said. "The scorecards are measured annually.

"If a business unit wants to get into a new building, we look at what the sustainability scorecard was for that unit's existing building, as well as what the scorecard would be for the new building. We balance those two figures for sustainability."

Some CREM members said that their companies have realized major savings in making their operations greener.

"We've changed all our warehouses over to compact fluorescents," one participant reported. "We anticipate that we'll save $27 million from that change this year. It's a very high return."

The payoff in going green is also getting a boost in some states' incentives for sustainable development, particularly for retrofits. But subsidies vary widely from state to state, participants agreed.

Other CREM participants said that their firms' green emphasis now extends well beyond bottom-line concerns.

"We're doing a lot through things like capturing wastewater and returning it to the system on a gallon-for-gallon basis," he said. "But at our company it's now not a question of return on investment. There's a lot going on that's way beyond energy savings."

Said another CREM member, "It costs our company more money to build a building with higher sustainability. but it pays off in good will."

"Going green is also a good employee tool for our company in recruiting 20-somethings," one executive added.

But the green initiative may now be largely a U.S. phenomenon — at least judging from the companies that were represented at the St. Louis "Get Some Help" session. Pearson posed the question of whether anyone at the workshop was implementing a sustainability initiative in developing nations. No one at the session indicated that their company had such a program under way at company operations in the developing world.

Some participants said that rising construction costs are prompting some reshuffling of corporate resources. "At my company we're reallocating capital to projects that are having trouble," one reported.

Others at the St. Louis workshop said that they're responding to rising costs by focusing on the purchasing process.

"Competitive bidding is all that you can do," one participant offered. "We enhance competitive bidding by soliciting bids from national and local contractors."

"We pre-purchase items that we know we're going to eventually use, including steel and concrete."

Other participants said that they were putting more emphasis on managing construction to control costs.

"You have to be careful how you manage construction engineers," said one CREM member. "The best way to manage them is to bring them on early in the process. We've found that if we do that, we do better at getting projects done on time and within budget."

"Our space standards are determined by top management," one participant reported. "We recently reduced the per-person square footage for a large number of employees from 350 sq. feet (31.5 sq. m.) to 250 sq. feet (22.5 sq. m.). People complained so much that you would've thought that we were making them stand up and work all day."

Another CREM executive reported a comical — and expensive — error in trying to rapidly implement a reduction. "This company had an office in the Asia-Pacific, and it decided to cut the per-person square footage in half," he reported. "So they came in during the weekend and just slapped up walls that cut the existing offices into two smaller offices.

"But when employees arrived on Monday," he continued, "they found that the walls had been built so close to the file cabinets that a lot of the drawers couldn't be fully opened. So they had to redo a lot of the work."

"We allocate between 2 and 4 percent of operating expenses," said one CREM executive. There was general agreement that the budget for infrastructure and upgrades was in that range.

Another executive, though, reported that his company determines infrastructure and upgrade funding based on each facility's replacement value.

"We assemble that information on spread sheets and then budget from that," he explained. That funding goes to the individual plants. It's up to those operations to decide how they want to spend the money."

Are corporate real estate operations involved in your companies' due diligence for mergers and acquisitions?

One executive said that his shop was "part of the due diligence for a merger or acquisition, but we're a very small part."

However, another CREM manager reported, "We are very involved in mergers and acquisitions. We can either nix the deal or sign off on our approval."

Said on CREM executive, "We do check a lot of references. But networking is how we really know who we want to actually use."

And it happens with some frequency at the industrial firms that drive the focus of the Industrial Asset Management Council (IAMC). It's no surprise, then, that one workshop at IAMC's St. Louis Professional Forum centered on auctions, an increasingly popular strategy for disposing of surplus properties.

Session moderator Rick Little, director of real estate for Weyerhaeuser, opened the workshop by describing how his company successfully used auctions to remove some surplus sites from the portfolio.

"Sometimes, you truly don't know the value of a surplus property," Little explained. One Weyerhaeuser property, he continued, had an estimated market value of $2 million to $2.5 million, according to local brokers. However, when the company auctioned the site, it sold for $5.2 million.

Speed is sometimes the most important concern in deciding to auction off a surplus property. That was the case with a closed Weyerhaeuser manufacturing facility in the U.S. Southeast that Little described.

"There were security issues with that property," he explained. "We had two guards on duty 24 hours a day, and there were still break-ins."

Brokers estimated that the property's market value was $2.5 million, said Little. But brokers were also projecting that it would take 24 months to dispose of it. With the site's costs steadily increasing because of its security requirements, Weyerhaeuser decided that an auction was the best avenue for disposal. The winning bid was $1.3 million.

"But it only took us 90 days to dispose of the property, and that was the most important concern," Little said. "We wanted out of that property."

"Our charge was to sell that property and close by year-end 2005," Holcim USA Real Estate Manager Kathy Shanteau explained. "Brokers and developers were giving us much more lengthy timetables."

So the company decided to use an auction to dispose of the property, hiring JP King Auction Co. to handle the transaction. JP King President and CEO J. Craig King explained how the Colorado deal unfolded and discussed the auction business as a whole. Auctions are a growth sector right now, he said.

"The U.S. real estate auction business is now a $48-billion-a-year industry, according to a National Auctioneers Association survey," King noted.

JP King ended up with 183 registered bidders from eight different sites for the Holcim property, King said.

In September of 2005, the Laporte site was sold for $16.8 million at an open auction that drew a crowd of 350 people.

King said that the Colorado sale's positive outcome was the result of the multiple avenues that JP King pursues in publicizing and selling properties. The company, he explained:

Encouraging participation from buyers' brokers can add significant value in auctions, he added. "That raises auction prices through high opening bids," King added.

Another strategy that JP King uses to boost auction prices is multi-parcel bidding, he explained.

"That method of bidding allows bidders to re-bid parcels, combine any parcels or bid on an entity in the second round," King said. "It provides the highest-use value as determined by the bidders." In the Laporte sale's multi-parcel bidding, he explained, 32 different buyers made successful bids.

"An auction demonstrates visible market value," he said. "It also gives buyers known time frames for sale and closing. And sellers in an auction are mentally prepared to sell."

King was asked during the workshop's question-and-answer period how his company qualifies buyers.

"The winning bidders must deposit a non-refundable 10-percent down payment on the day of the auction," he replied. "That's the qualifier. Buyers sign a contingency-free purchase agreement, and they're required to close within 30 days after the auction."

Ideas were buzzing about like so many fireflies at a packed-house Peer-to-Peer session at the Industrial Asset Management Council's [http://iamc.org/] (IAMC) Professional Forum in St. Louis.

The Peer-to-Peer workshops consistently rank as one of IAMC's most popular Forum programs. The St. Louis session helped demonstrate why.

The Peer-to-Peer gatherings' holistic approach to the problem-solving is the workshop's calling card. The sessions, in which attendees break out into small groups of a dozen or so, bring together the organization's three primary membership groups: corporate real estate (CRE) executives, service providers and economic developers, all working face-to-face in free-flowing communication. The inputs from all of the core parts of the CRE equation provide well-rounded insights into most of the industry's important current issues.

Here are one reporter's observations from sitting in at one Peer-to-Peer break-out table in St. Louis. No names and no organizations are mentioned in this reportage. And in that, our intent is the same as the same as the Peer-to-Peer workshops: The payoff is all about the open exchange of information and ideas.

What factors are the most influential in location decisions as we enter the second half of this decade? Labor — the linchpin issue in IAMC's programmatic content in St Louis — was clearly the paramount concern during the small-group session that we monitored.

"Finding workers is a problem everywhere," said one participant. "Every state has a worker shortage," offered another.

"We have a gap in our company," one corporate real estate management (CREM) member explained. "We've got a big group of people working for us who are at least 50 years old. But then, after that, we don't have the next wave."

The escalating labor crunch has changed the way in which economic developers present work-force issues to prospects, one St. Louis participant observed.

"You can't use the same old answers anymore — things like labor availability and wage rates," he said. "Now you need to get far more specific about the educational background of your local labor force and the quality of your educational system. Another thing now is that you need to break down your labor pool into far more detailed age demographics."

"We're in the Gulf States region that got hit hard by Hurricane Katrina," he reported. "And we're really thankful that we've had immigrant guest workers there to work on our recovery. Without the guest workers, we wouldn't be anywhere near as far along as we are today."

The St. Louis group also discussed immigration of an entirely different sort: jobs previously off-shored from the U.S. that are returning to American soil.

"Costs in Mexico are increasing rapidly," said one economic developer. "We're seeing business operations that went into Mexico earlier that are now coming back to the U.S. What's drawing them back is the fact that U.S. workers are qualified, productive and create fewer product defects than in Mexico."

What's in a Subsidy? Are incentives the driver or final consideration in the site selection process? Definitely not, the group agreed.

"Incentives don't make a bad site better," said one corporate member.

"Incentives are part of the financial side of the site selection decision," said another. "They only really come into play in any substantial way when things are basically equal at two sites."

One economic developer talked about how his state recently provided a hefty incentive package for an expansion by one of the state's largest employers. Significantly, though, the project that the state's subsidies are supporting will only create a handful of new jobs. Several participants said that they expect that such incentive packages may become more frequent as U.S. sites try to avert losing existing jobs to off-shore locations.

Incentives, another economic developer offered, are often coming to the fore in logistical site-selection considerations.

"Economic developers in some communities are doing logistics studies so that they can better answer companies' questions about logistical issues," he said. "Some areas are using those studies to figure out how much extra costs their local logistics might add for a particular company that's considering their area. And then they're offering those companies enough incentives that the contending sites are equal from a cost standpoint."

One CRE executive commented about how the entire location process has evolved over the years.

"[Site selection] is now 75 percent science and 25 percent art," he said. "It used to be the other way around.

"The science comes into play most in the first part of the search, when you're narrowing down sites. The second part of the search — final site selection — is where the art of the decision comes into play. At that point, you're looking at harder-to-quantify factors like quality of life."

In all parts of today's site searches, though, labor is dominating the process, participants agreed.

— Jack Lyne

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