Lee Ann Moore, CMO, EquaTerra

We have seen increasing interest in Real Estate and Facilities Management (RE/FM) outsourcing, strengthening capabilities in the provider community and strong value drivers for outsourcing RE/FM. At the recent Sourcing Interests Group conference it was clear that many buy-side attendees were actively using third parties to manage these services, and many were evaluating options, looking to understand capabilities and trends. Given the buzz around this emerging area, I was happy to have the opportunity to interview a senior executive-level RE/FM buyer at a high-tech firm (who, for confidentiality reasons, cannot be named), Bryan Jacobs, principal and international director at outsourcing provider Jones Lang LaSalle, and Ron Walker, managing director of EquaTerra’s RE/FM practice. Following are excerpts from our interview.

Lee Ann Moore (LAM): Buyer, you outsourced RE/FM globally to Jones Lang LaSalle (JLL) in three key areas – real estate management, facilities management and lease administration. Please tell us about the approach you’re leveraging in the outsourcing of these functions.

End-User Executive (EUE): A couple of key factors have contributed to our success to date. First, outsourcing has not been perfect, but it has created value for us in large part due to our willingness to approach our provider as a partner versus a vendor. We firmly believe this partner mindset opens up value opportunities for us. Second, it has freed up our people to focus more on strategic real estate issues around the world, while JLL focuses on the operational issues. It is a healthy, thriving partnership.

LAM: You mentioned several value drivers for the outsourcing decision. Can you provide some addition detail on where you saw the value in outsourcing RE/FM?

EUE: Our primary objective was to transform our worldwide real estate organization. We needed a firm which could scale and adapt to our changing and globally expanding business. Additionally, our facilities vary across the globe, and even in our largest facilities we could not afford to keep a full range of subject matter expertise in house. In our smaller facilities we had fewer options, which presented us challenges in many regions. And, although JLL is taking more tactical work, we expect the relationship to provide savings while improving our service delivery model and pushing us to a best-in-class solution. A recent example that helps validate our decision to outsource RE/FM is when we had two critical uninterrupted power supply (UPS) failures. JLL engineers immediately responded to the situation. Additionally, their response time to provide specialized equipment was much faster than we could have delivered in a crisis or non-crisis situation, made even more important because of the failure. We have numerous examples like this that continue to validate the decision.

LAM: Bryan, what pricing models are most common in these arrangements, and which models seem to work best?

Bryan Jacobs: There are three primary models we observe in the marketplace, with no one model being right for every company. First, we see cost plus models that work well with clients that want transparency and flexibility in pricing. This model can also have built-in incentives that may be appealing to a certain set of buyers. Second, we observe fixed price models ideally suited for clients looking for predictability and balanced fees across time. Finally, we see a guaranteed maximum model which is a blend of the first two approaches. It provides a ceiling yet gives room for pricing to fluctuate with the market. This inherent ambiguity seems to work better in situations where there is strong trust between the buyer and the provider.

LAM: Ron, you have a broad view of the providers, the market and client demand. What is your perspective on the RE/FM marketplace – provider activity, pricing models and buying trends?

Ron Walker: This is an exciting market because of the strong provider capabilities around the world. That is the primary driver for the activity and success in the marketplace. I have heard many stories in which buyer companies have struggled to adequately support their multi-geography facilities, and have found real value in using the third-party real estate and facilities firms. The provider firms have responded well by offering the pricing flexibility like Bryan describes above. We expect this market to continue to expand as the global footprint of multi-national corporations continues to shift into new, developing countries.

To learn more about integrated sourcing of real estate and facilities management, read EquaTerra’s position paper Bigger Better and Broader Linked.

Filed under: Market Trends and News, Outsourcing, Real Estate and Facilities Management by EquaTerra