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SEP 2017

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3 2 1 ThE lEadER SEPTEMBER 2017 13 1. Optimizing partnership with the C-suite Savills Studley: With CRE teams under increasing demands to deliver superior results, it's important that they understand how to partner most effectively with the C-suite, especially the CFO. What advice would you offer? Brian Steiner: The expectations of the CRE function have changed signifi cantly in recent years. The discussion isn't simply around negotiations and the bottom line anymore. A higher-level strategic discussion of the alignment of CRE with business goals is imperative. This strategy must refl ect a multitude of factors. These include our evolving workforce, work spaces and work styles, collaborative spaces, adaptable station design and amenities. There's also the impact of technology, which affects commute patterns and remote workers. On the global level, aligning corporate culture with the local culture is imperative, and interconnection of workspaces is mandatory. You must allow for differences in negotiation style and logistics. Our primary objective is to maximize profi t per square foot. But the way we do this varies by geography. What works in one setting may not in another. You have to fi nd a balance between labor and real estate cost. Importantly, it's crucial to anticipate fl exibility for change. Events occur so quickly that facilities built three years ago are already outdated. So creativity and the ability to "push the envelope" are increasingly important. It's wise to leverage third-party providers. In my experience, "buying the expertise" may be faster and more effective than handling internally. These are all important strategic objectives where the CRE leader can initiate and steer progress. Lee Adrean: In one sentence: Be a better strategic partner. First, address big issues over the long range by taking into account the impact on the corporation overall, not just particular business wants and needs. This means you have to avoid falling into the traps of tactics and execution. Too often, the temptation is to focus on immediate capital requirements and project needs. Get involved early, and make sure to understand the true criteria. To do this, the CRE team needs to consult all the key decision makers and infl uencers, not just the specifi c client. You'll fi nd criteria can vary greatly from different viewpoints. For example, is cost most important? Proximity to clients? Productivity improvements? Image? Identifying valid criteria early on and gaining agreement can prevent costly surprises farther down the line. Drive the dialogue, but be collaborative. Start by asking questions, and make sure to listen to the answers. Then come to the C-suite armed with a well-supported point of view. Phrase your recommendations in terms of "what and why," not how. Will Sprague: My perspective refl ects experience with small- to medium-sized businesses, from startups to 500 employees. At this scale, the impact of CRE gets to the core since it's one of the most important factors affecting cash fl ow. For smaller companies, the right decision to lease or buy is vital to protecting the business. In a fast-growing business, leasing is generally the best choice. That's because the buying process is too lengthy, stretching from strategy development, property selection, and negotiations to decision. Also, the fl exibility for expanding or downsizing to adjust to changing priorities or markets is essential. Think out the provisions, and know your options for termination, renewal or alternative locations. If purchasing, consider whether real estate will become an asset or a cost. Financing conditions, cash-fl ow effect and balance-sheet impact will play a role in the fi nal recommendations. To make effective CRE decisions, consider the type of business. The needs of service businesses vs. product companies are quite different. A service business may well focus on location, talent attraction, and the brand or market presence of the property. On the other hand, with a product company, manufacturing locations, supply chains and logistics are often the determinants. Culture of the organization is increasingly important. For example, location may outweigh all other factors, even cost. 2. Leveraging use of analytical methods to manage real estate Savills Studley: Do you use data, metrics, modeling or predictive analyses to manage and align real estate with business goals? Brian Steiner: We absolutely rely on access to robust data and an advanced, proprietary set of tools that enable us to build a business case around analyses of client base, profi tability, head count and the like. With this information, we can scale up or down in a market very effectively. It's basic to our approach. Lee Adrean: I believe rigorous quantifi cation is key. Begin with benchmarking the amount of space needed, overall and per person. This will obviously vary by property type: offi ce, warehouse, data center, retail, etc. Look at cost of construction, equipment and furnishings, and infrastructure requirements. With a new tenant, consider the cost of improvements. Then compare your benchmarks to trends. Next, move to modeling. Examples of factors to model include: commitment, assumptions, assumptions vis-à-vis benchmarks, discount rate, and so on. It's also important to model contingencies, such as capacity, expansion, and accurate construction costs. With this information, the CRE team can add perspective that aids management decisions. Will Sprague: As a startup, our process is necessarily fl uid rather than established. However, CRE still has to fi nd ways to quantify the differences among properties so that decision makers can understand recommendations. This includes "quantifying the qualitative," which is where the real challenge lies. Although you can't assign a numerical value per se, there needs to be a method for addressing it. 3. Factoring CRE into M&A strategies Savills Studley: What role does CRE play in M&A activities? Brian Steiner: You must conduct due diligence on the opportunity. One of my fi rst questions is, "What does the real estate portfolio look like?" Knowing that can help determine whether the new entity stays in place, folds into existing facilities, or is completely re-engineered to achieve the best synergies. But making a blanket statement is diffi cult because each situation is different, and you always need to take into account intangibles such as cultures, personalities, and emotional components.

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