Corporate Then and Now

I recently hosted a panel at DePaul University in Chicago on the history of corporate real estate, which highlighted the sector’s emergence from an embedded functionary to a stand-alone department with direct reporting to the CFO.  Unlike today’s more integrated version, the blueprint for corporations throughout the 60s, 70s and 80s was the holding company corporate model, featuring a small central command with a portfolio of autonomous, self-contained businesses, each of which owned the people, processes and technology needed to support it.  Examples included Boeing, GE, Honeywell, and AT&T.  They created value on the basis of the fact they could reorganize easily by selling off business units or through acquisitions.  Here, real estate was really a business-unit decision, which usually meant a complete separation of facilities.  Redundancy was intrinsic to the holding company model, representing a premium of as much as 20%-40% of operating cost.  In the 1990s, this changed when Corporate America, motivated in part by a recession, looked for ways to extract hard saves in their real estate and began outsourcing — first projects and later portfolio-wide functions.  This meant that internal real estate departments shrank and outside teams won global contracts to provide lease administration, property management, transaction management, etc.  The internal teams, meanwhile bcame consolidated across business units and oversaw the mission critical functions — namely strategy and customer relationship management, among other things.  We are still making this shift today.  The challenge for global service providers is to provide the depth of expertise that a dedicated internal team brings and to swim upstream to the strategic level so they make decisions that make sense on an enterprise level.