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Manhattan Software for Retail Real Estate Management

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					Manhattan Software for
Retail Real Estate Management

Process Brief




                Software for Financial Institutions
                                                                                                      INTRODUCTION


Manhattan – Software for Retail Real Estate Management
The retail economy is changing all over the world. In North America alone, we have seen the consumer market stalled
with a fearful and aging buyer demographic facing falling residential sales prices, limited availability of credit, and high food
and energy prices. With analysts predicting that the retail segment of the economy will shrink from a high of 50% of GDP
in 1982 to a predicted low of 36% by 2018, retailers are examining new survival strategies that will hopefully let them
thrive in this shifting market landscape.

One question to consider is how real estate decisions help contribute to the success of any new retail marketing, sales
and operations plan. Physical sales are not going away even though you may be shopping in one store while you surf on
your PDA. You are searching to find the product you are thinking of buying at a lower price from a rival retailer with only a
virtual presence. Meanwhile, malls are being turned into life-style centers with a smaller footprint and mixed use develop-
ment. Airports are becoming the new malls as we pass our time shopping for goods as we wait for our usually delayed
overbooked airline flights.



   For these volatile times, planning and managing real estate for retail becomes critical as you need to:

  •    Conserve cash by reducing             •    Be on the lookout for new op-         •    Ensure that whatever you are
       operating costs and capital costs;         portunities as failing competitors         doing is going to have a positive
  •    Increase revenue while getting             are forced to dispose of under-            effect in your community by
       stores on line under budget and            valued assets, whether they are            following sustainable practices.
       ahead of schedule;                         buildings or leases;
  •    Build agility and responsiveness      •    Develop more lean processes
       into every real estate operation           for more efficient and effective
       and process;                               operations to achieve these
                                                  desired goals supported by
                                                  new technologies;



Many retail organizations have real asset portfolios which are quite complex and often include headquarter office buildings,
stores, warehouses, data centers and regional offices. Many studies have determined that these real estate assets are not
being managed anywhere near as tightly as other financially significant resources. The main problems appear to be:


      •    Lack of a unified and centralized approach         •   No consistency among real estate business processes;
           to managing the entire real estate portfolio;      •   Lack of understanding of how to significantly reduce
      •    Unclear lines of authority and communica-              operating and occupancy costs;
           tion between the C-suite and the real estate       •   Lack of sophisticated financial tools to professionally
           management;                                            manage the real estate portfolio.

 This overlooked area of financial control for retail companies is worth studying to learn how these problems can be solved.
 Dramatic results await the executive who understands how the cost of real estate can significantly impact financial perfor-
 mance. Insightful chief executive officers are assisting real estate professionals in applying the same level of fiduciary analysis
 to real estate as to other cost centers in the organization and thus increasing their financial IQ. There are now enterprise
 technologies available to provide CFOs and their real estate and facility management groups with the information needed
 to make informed decisions on this expensive asset base as they determine where their capital should best be deployed. By
 calculating the total cost of occupying real estate assets, and then monitoring, controlling and reducing these expenses, it has
 been estimated that a potential gain of over 35% in shareholder value can be achieved based on only a 15% reduction in
 these costs. One can only imagine what the ability to get a retail facility up and running ahead of schedule could mean for
 potential revenue.
                                                                                 pROCess bRIef: gadgetsRus



The Manhattan Integrated Workplace Management system

The Manhattan Integrated Workplace Management System (IWMS) is the #1 leader in Gartner’s IWMS Magic Quadrant.
It was designed for the organization that requires an enterprise system to provide accurate and complete information
about the entire real estate infrastructure. Manhattan has full financial management capabilities and was designed for the
global real estate market with multi-language capabilities. It also includes the best-in-class spatial management capabilities
of the CenterStone product line.

With Manhattan, retail companies all over the world are enhancing their business decisions, providing required transpar-
ency, reducing the total cost of occupancy and releasing precious capital back to the business. Applications in this rich suite
of products include software for planning and managing real estate, facilities, operations and maintenance and projects.
Manhattan is built using Web 2.0 technology and thus allows for a new way of working with real estate and facility man-
agement data; it can also link to other financial information systems efficiently and effectively. The Manhattan IWMS mod-
ules include:

         •   Manhattan Real Estate
         •   Manhattan Facility Management (includes Asset Management)
         •   Manhattan Operations and Maintenance
         •   Manhattan Project Management

Manhattan Analytics underpins all the above applications. Manhattan manages financial data including integrated account-
ing (i.e. tenant and purchase ledgers) and fixed asset budgeting, as well as payable and receivable turnover rents with a
single point of entry. Manhattan can provide sales analyses by product category, as well as comparative sales figures and
net and gross sales trends. It can also report of the impact of future expected sale turnover on rents.

This process brief focuses on how a fictitious retail company uses Manhattan after undergoing a total redesign of their
existing real estate business processes and focuses on how they automated these new ways of working.



GadgetsRus Chooses Manhattan for Real estate Life-cycle Management

GadgetsRus is one of the largest electronics companies             The customer’s buying habits were changing and every-
in the United States with stores in 140 locations around           one in the company was charged with introducing inno-
the country. GadgetsRus recognized that they had to                vation and agility into every operation, from marketing to
conserve capital in these uncertain economic times and             sales to utilization of both the real and virtual mediums
make sure they were making the right decisions on how              of selling products. At the same time, due to regulatory
to invest in their real estate portfolio while decreasing          restrictions, everything had to be more transparent.
their operating expenses. They had a large holding of              A consulting firm, The Lean Mean Management Team
leased properties (566 stores, 60 distribution centers,            (TLMMT), had come in to help each division executive
1 call center and 2 headquarters properties) and 12                change the way they were currently doing business.
owned stores averaging between 20-30,000 square feet               This is the story of how lean management principles,
each. 10 new stores were planned to be added this year.            coupled with the implementation of the Manhattan
Their total portfolio was just over 17 million square feet         Software suite of products, helped Greg achieve his
of space.                                                          objectives. These included reducing costs, increasing
                                                                   revenues, and achieving sustainable recommendations
Greg Morris, the VP of Real Estate and Facilities, had             while determining Kaizen opportunities to ensure lean
been told by the new CEO, Millicent McBean, that lean              operations. We will begin with a review of the real es-
and sustainable principles of management had to be                 tate environment that existed when TLMMT entered the
followed by every department in the company and real               world of GadgetsRus.
estate was no exception.                                           .
                                                                             pROCess bRIef: gadgetsRus

 Real Estate and Facility Management before Manhattan: The Problem Defined

 The management consultancy firm was hired to analyze the way the real estate and facility management group did
 business currently and to re-engineer or outsource those processes which were not productive or cost effective.
 The three areas TLMMT focused on were lease administration, project management, operations and maintenance/
 sustainability, as these were the most broken processes.


1. Project Management: There were 20 project mana-             •   No one had paid any attention to a kick out clause in
   ers all working on renovation and remodeling of                 one rented location where a large anchor tenant
   stores with paper based documentation. Each                     pulled out at the last minute. In reality, the lease with
   process had a separate form with many separate sets             this clause would have allowed GadgetsRus to pay a
   of forms per project. Information was exchanged                 lower rent when no new anchor had appeared a year
   by faxing or emailing to the internal departments               later. This mistake resulted in hundreds of thousands
   involved with the project and to the real estate man            of dollars in overpayment of rent.
   agers, architects, interior designers, construction firms
   and legal advisors. It was difficult to know if a project   3. Operations and Maintenance/Sustainability:
   was on time or on budget without calling around to             TLMMT found the following problems in reviewing
   the various participants. Each PM kept track of their          the records of O&M:
   own documents as there was no central repository.
   If systems were used at all, they varied from MS                •   There was too much outsourced work resulting
   Office, Access or MS Project. The data was obviously                in higher costs than other retail operations. The
   inadequate; it lacked integrity and there was no de                 percentage was 56% in-house to 43% outsourced
   fined system of record. The right permits were often                when it should be closer to 75%/25%. In head-
   not obtained for construction causing schedule slip                 quarters alone, this could account for a $350,000
   page. The process for PM was totally broken down                    savings.
   and was costing the company millions of wasted                  •   The technical skills of the O&M personnel were
   dollars and lost revenue as there was excess down                   below par; additionally they were using a paper-
   time in the remodeling of existing stores and late                  based process to interface with a stand-alone
   openings for new ones unless they paid additional                   CMMS creating problems with data accuracy,
   monies to ensure openings were met.                                 timeliness and accessibility. There was no use of
                                                                       mobile devices.
2. Lease Administration: There was a large portfolio of            •   Service levels for O&M, janitorial and grounds had
   lease documents in file cabinets managed by one                     never been defined by location and analyzed as
   administrator who was barely able to keep up with                   to cost and necessary level according to a specific
   the new leases coming on line. TLMMT reviewed all                   building or store.
   these leases and found:                                         •   There was insufficient data and no analysis of that
                                                                       data to try to optimize the performance of major
    •    No one realized that the majority of leases were              assets. This lack of data meant that informed
         coming due in the next 5-10 years                             capital decisions could not be made for each
    •    Lease renewals had been missed in the past.                   location, resulting in many systems breaking down
         The worst incident happened right before the                  and having to be replaced earlier than they should
         Christmas holiday in a major shopping mall. The               have. With better asset maintenance manage-
         manager of the store missed the lease renewal                 ment, an average of 2.5 years could be added to
         and the developer leased to another retailer.                 most major building systems.
         Space had to be found in the same mall as this            •   There was overpayment for maintenance in many
         was the busiest time of the year; customers                   of the leased locations. In one store an air condi-
         would be flocking to that store; failure to satisfy           tion system was replaced by the facility group
         these customers would mean missing their num-                 right before the lease expired resulting in an
         bers. However, the only available space was                   unnecessary capital expense. In another location,
         in the back of the facility far away from the main            a new HVAC system was mistakenly purchased
         stream traffic. And they had to pay a higher rent             to replace one that was under warranty because
         and escalated costs to build out the space in time            there was no available documentation.
         for the holiday shopping.                                 •   There were no sustainable practices in the real
                                                                       estate organization.
                                                                                pROCess bRIef: gadgetsRus

Manhattan: The Real estate Life-Cycle solution

TLMMT took the information they had gathered on the real estate group’s current situation, determined what they
needed to do to turn these problems into Kaizen opportunities and defined a target set of goals and the steps needed to
achieve them. One of the biggest issues was the need for a centralized database that had more accurate and reliable data
that could be used to manage real estate through its entire life-cycle and make key real estate decisions. They needed easy
access to financial and management reports to manage their investment portfolio better. In addition, they had to reduce
costs and maximize revenue in every real estate transaction.

After doing a detailed requirements analysis and interviewing all the key stakeholders, they determined that they needed
an integrated workplace management system (IWMS) to replace the many siloed products used to track and man-
age their portfolio. The consultancy issued a Request For Proposal to select the best IWMS for retail firms; they chose
Manhattan Software. The management firm then worked with both the vendor and GadgetsRus’s staff to implement the
solution. The project was completed a year ago.

The following scenario describes how the real estate unit uses this software on a Software as a Service platform, in combi-
nation with other enabling technologies, to make both tactical and strategic capital and operating decisions. The results are
that now they are the one of the best lean and green real estate groups in the retail electronics sector and have recently
won the CoreNet Innovators Award for their efforts. All of their ten buildings have been certified LEED Platinum for
Retail (they were one of the first beta groups to use this standard).


The project: Acquiring New Retail Outlets


                                                                  The first thing the implementation team did was set up
                                                                  an existing inventory of all the leased and owned land,
                                                                  buildings and assets in a centralized IWMS. Information
                                                                  included data on parcels (land), complex (i.e. mall, strip
                                                                  center) leased buildings (location, type of property-store
                                                                  or no longer being used as store and sub-leased to new
                                                                  tenant, type of lease: capital or operating; income or
                                                                  payable, tax rate, rent and all data in a lease abstract),
                                                                  owned buildings (location, year built, size, capacity, struc-
                                                                  ture, building system assets, taxes, zoning) and assets
                                                                  (any relevant information on equipment including ID
                                                                  and associated leases).

                                                                  The team worked with the sales and marketing groups’
                                                                  retail trade area analyses to identify requirements pre-
                                                                  dicted for the next 5-10 years and brought some of this
                                                                  data into Manhattan to do location analysis. GadgetsRus
                                                                  strategic plan determined 25 new stores should be
                                                                  opened next year. Analyzing the plan, they began with
                                                                  the 5 that had to be opened in the San Diego area.
                                                                            pROCess bRIef: gadgetsRus

    project Management                                         This project data could be accessed be all the building
                                                               team members and both inside and outside consultants
Tilda Swinburne, the West Coast Transaction                    (architects, civil engineers, interior designers, etc.). The
Manager, created a new project in the Manhattan                Manhattan Project module holds all the information on
Project Management Module for this selection                   the project budget.
process so she could capture all the data in one place
and ensure that the project was completed on time.             The first step for the architectural firm was to access
She began the hunt for the best locations by talking to        the planning requirement data and use that information
commercial real estate brokers, using property websites        as the base data for the architectural program. They
(i.e. CoStar) and talking to her colleagues at the local       worked with a merchandizing consultant to lay out the
CoreNet chapter. This resulted in twelve possibilities; 6 in   most flexible floor plan that met the client’s current
existing buildings and 6 sites in new strip mall centers. By   requirements today while being adaptable when the
having all the data on these sites in Manhattan, anyone        whims of the customer changed. The new stores were
involved with the project had access to the documents          going into new ‘lifestyle centers’ that presented a new
relevant to each property (i.e. site diagrams, maps,           opportunity to try some unique store planning concepts.
location analytical reports, seismic and demographic           These buildings would serve as a research lab to deter-
data, land use requirements, city comprehensive plans,         mine what worked best for the changing demographics
transportation studies, building codes, zoning ordinances,     of the marketplace. With Manhattan, zones were cre-
design review guidelines, floor plans etc.).                   ated on the CAD floor plans and these were mapped
                                                               to revenue to daily monitor the financial performance of
With Manhattan, Tilda could analyze all of the loca-           that particular zone. Lucy Loo was chosen as the Project
tions and determine which were the best suited for             Architect by GadgetsRus because of her background
GadgetsRus business plans. She chose 3 existing build-         with BIM. This made such things as ensuring the maxi-
ings that had been recently vacated by competitors             mum energy efficiency of the building and determining
and 2 new sites under construction. She then used the          that there was no interferences amongst the building
workflow capability of the Project Management Module           components easy. She was careful to use particular nam-
to send her choices and findings to relevant manag-            ing standards when describing the building components
ers and executives back to headquarters. The system            and spaces as this data would be used in Manhattan’s
routed the standard review and approval process with           Space Management Module.
anticipated completion dates. The approved project was
then routed to the real estate broker who worked as an
intermediary between GadgetsRus and the developer
for the new sites and completed negotiations with the
broker on the existing buildings.

The executive management team was particularly excit-
ed by the new development projects. It was an excellent
way to create an image aligned with their commitment
to sustainability. A ‘green’ architecture firm experienced
in using Building Information Modelling (BIM), Corbu Ar-
chitects, was hired. They used a 3-D model for the de-
sign of the new stores; this was a factor in ensuring that
the buildings/interior spaces were designed in the most
energy efficient way possible so the building could get
a Platinum LEED Retail rating (as many of GadgetsRus’s
competitors were winning with their new and existing
building designs). Seth Hardgrove was assigned as the
GadgetsRus Project Manager for the new buildings. He
began the new project with the data collected by Tilda
for her selection project.
                                                               The efficient use of the Manhattan Project Management
                                                               module helped GadgetsRus open all five buildings ahead
                                                               of schedule and under budget.
                                                                          pROCess bRIef: gadgetsRus


   Lease Administration                                       Any problem with the facility (i.e the store is too hot
                                                              or too cold) is logged into the self-service portal and
Mary Maning is in charge of all the leased properties.        routed to the maintenance department. All maintenance
She used OSCRE ’s abstract format defined as a best           workers are equipped with mobile devices and can
practice template in the Manhattan Lease Administra-          receive any urgent request while they are in the field.
tion Module (GadgetsRus has a long term 10 year leases
with two 5 year options) to format the lease data so          All warranty and maintenance work scheduling is done
it is integrated into the corporate financial system and      with Manhattan. These maintenance schedules trigger
automatically becomes payable data. The invoices from         work orders for the maintenance department. Regular
the landlord can be reconciled electronically by compar-      scheduled maintenance ensures maximum useful life for
ing them against the lease terms in the abstracts and         fixed assets. For existing buildings, a condition assess-
generate payments. This is a substantially easier and         ment (both building and image) is done electronically
quicker process than it was before the implementation         including building systems and becomes part of the
of Manhattan and prevents late payment fees and inter-        Manhattan database. This base line data is used for
est charges from occurring.                                   capital planning and budgeting. It is also integrated to
                                                              the Operations and Maintenance Module and added to
The new buildings include space for training (i.e. photog-    other information that allows Manhattan to calculate the
raphy classes), repair (The Nerd Patrol provides services     carbon footprint of the building on a daily basis.
in the building and are mobile to make office or house
calls) and financing which are all sub-leased to outside
vendors. Sublease agreements were established and the
tenants are automatically invoiced for rent each month.
These invoices becomes Accounts Receivable informa-
tion and are tracked through the abstracting process.
The obligations of the new tenant are tracked, invoices
are matched with rent payments and collections are en-
sured. This transaction process is managed by the user-
designed workflow set up by the implementation team
and any exceptions are flagged for problem resolution.


    Operations and Maintenance

The way O&M operates has changed for the entire
GadgetsRus portfolio. The Facility Management depart-
ment outsources janitorial services (using Manhattan to
calculate the floor area for carpet cleaning cost esti-
mates) and minor equipment repairs as well as reactive
and preventive maintenance . TLMMT had suggested
that more work be handled in-house (75%) to 25%
outsourced work. In addition, new service levels were
defined for all of the GadgetsRus locations for janitorial,
O&M and grounds based on best practices in the indus-
try. These levels of service per building are monitored
through Manhattan.
                                                                                  pROCess bRIef: gadgetsRus

Manhattan: The Only Global CRe and fM Gps system

Manhattan was designed from its inception not only for real estate and facility management operations, but for strategic
planning and financial management of an organization’s occupancy spend wherever they are located in the world. As
more and more Real Estate Executives report to the Chief Financial Officer, Manhattan has become their critical GPS
system to navigate the sea of financial data that needs to be reported up the corporate ladder.

Manhattan is one of the only IWMS which has been designed from a financial point of view for real estate developers,
investors and tenants. Since the first users of the system were institutional investors, their real estate asset class had to be
planned for and managed as accurately and specifically as any other asset class in their investment portfolios with a clear
view of financial value. They required a software solution which could give them detailed information to make critical
decisions regarding adding to, leveraging and disposing of assets depending upon their value to their business.

Now retail real estate owners and tenants have the same set of tools to plan for any changes to their portfolios, manage
these assets to avoid disruptions, reduce costs, and support the business of their organizations. The Manhattan application
suite can assist in achieving the following financial goals for an organization:

•        Reduce operating costs and capital expenses
•        Produce the highest revenues in the shortest time periods
•        Maximize return and profit
•        Manage and avoid risks
•        Achieve shorter time to market
•        Minimize turnover

The functionally throughout Manhattan focuses on two main areas: operating budgets and capital project management,
financial analysis and reporting. It is the communication tool for liason between real estate accounting and corporate
accounting’s ERP system, as well as between external auditors, landlords and tenants. Real estate requires a much finer
breakdown in costs than ERP systems track; these costs can then be rolled up to the higher level categorization required
for corporate enterprise reporting.

Manhattan is also the tool to ensure compliance with GAAP, FAS 13 and Sarbannes Oxley. It includes a Real Estate
General Ledger with full accounts payable/accounts receivable that has a chart of accounts modeled on the Occupiers
Property Databank for financial performance benchmarking on Total Cost of Occupancy. Since Manhattan was created
for the global marketplace, currencies, measurement and tax accounting are provided for each location wherever they are
in the world.
                                                                   Author




                                                                            Nancy Johnson Sanquist is an IFMA Fellow
                                                                            and vice president of communications for
                                                                            Manhattan Software, Inc. the #1 global real
                                                                            estate software company specializing in Inte-
                                                                            grated Workplace Management Software. She
                                                                            has worked in FM and CRE technology for the
                                                                            last two decades, consulting, writing, lectur-
                                                                            ing and marketing in North America, Europe,
                                                                            Asia and Australia. She is listed in a number of
                                                                            ‘Who’s Who’ publications both nationally and
                                                                            internationally.
Manhattan Software, Inc. 425 Fortune Boulevard, Milford MA 01757 | 508-381-5853 | www.manhattansoftware.com

				
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