The State of the Economy and Why Real Estate Technologies are Critical to the Recovery Plan

The State of the Economy and Why Real EstateThe State of the Economy and Why Real Estate
Technologies Are Critical to the Overall Recovery Plan
Presentation by George Bouri, National Managing Principal,
Capital & Real Estate Transformation, Deloitte Consulting LLP
Manhattan Software Executive Summit
June 5, 2009

Agenda
Background
• Global EconomyGlobal Economy
• Impact on Corporate Real Estate
Real Estate Technology Enablement
• Visibility into Total Cost of Ownership
How Does IWMS Fit Into the Enterprise
• Advantages and BarriersAdvantages and Barriers
• IWMS Trends
Critical Success Factors for a Smooth Implementation
Summary
Copyright © 2009 Deloitte Development LLC. All rights reserved.1

The Credit Storm continues to have a negative impact on the global economy…
Then Now
Perfect Calm Perfect StormPerfect Calm
Irrational Exuberance
A Wall of Capital
Subprime/Alt-A Credit
Equity Priced as Debt
Perfect Storm
Irrational Fear
The Capital Crunch
Junk Debt/Toxic Waste
Debt Priced as Equity
Cap Rate Compression
Highly Leveraged Returns
Conduits/CMBS/Shadow Banking
Covenant “Lite”/No-Doc Loans
Financial Engineers
Credit Spread Expansion
Return of Negative Leverage
Balance Sheet Lending
Complete and Prudent Underwriting
Professional Investors/OperatorsFinancial Engineers
Laissez-Faire Government
Professional Investors/Operators
Government as Lender of Last Resort
Source: CoreNet Global Summit, Orlando, November 2008
Source: CoreNet Global Summit, Orlando, November 2008
“The Economic Outlook for Corporate Real Estate: Crisis or Opportunity?”
Kenneth Rudy, Jones Lang LaSalle

… leading to an unprecedented economic response to the global crises
International
• UK to invest £37 billion in 3 of its largest banks
• ECB makes weekly injections of unlimited euro funds at 3.75% interest
• Germany approves plan to inject €500 billion into credit markets
• UAE ministry of finance added $19 billion liquidity injection to domestic banks
• Japan announces a plan to support the financial system
• Australian government unveils a $10.4 billion stimulus package
• ECB, UKCB lowers discount rates by 75 to 150 bps
• China announces $586 billion economic stimulus plan
Domestic
• U.S. Senate and U.S. House of Representatives passes $700 billion TARP plan
• Worst October in the stock market in 75 years
• Fed provides $900 billion in short-term cash loans to banks
• Fed makes emergency move to lend $1.3 trillion directly to companies
• United States injects $250 billion of public money into the U.S. banking system
• Federal Reserve lowers discount rate by 50 bps
• Treasury revises AIG bailout to $150 billion
Treasury revises AIG bailout to $150 billion
Source: CoreNet Global Summit, Orlando, November 2008, “The Economic Outlook for Corporate Real Estate: Crisis or Opportunity?”

The complexity of the challenges and the duration of the downturn is
increasing as economic conditions continue to spread globally
Global weather map
April 2008 April 2009
Sunny Sunny with clouds Sunny, but rain Cloudy Rainy Thunderstorms
Accelerating growth,
falling unemployment
Clouds over growth,
some sunny prospects
Clouds over growth,
outlook could be worrying
Sudden change in
outlook, now uncertain
Deteriorating outlook,
long term issues
Serious disruption,
likely to last
Legend:
Source: Deloitte Research, EIU, Financial Times
• Maintaining competitive position
• Demand uncertainty
• Fluctuating energy, currency, and commodity
prices
S li b di ti
Key Challenges
• Tight credit conditions • Supplier base disruption
• Fiscal stimulus programs

However, leading companies are using the downturn to make strategic and
structural changes, even in industries facing severe market pressure
Global industry weather map
Providers
Health Care EnergyConsumer BusinessFinancial Services
Technology, Media
& Telecom
Public Sector
Power &Banking Consumer Technology National Govt
Aerospace &
Manufacturing
Providers
Health Plans
Life Sciences
Delivery
Oil & Gas
Banking
Insurance
Investment Mgmt.
Real Estate
Products
Retail
Consumer Services
Tourism &
Hospitality
Technology
Media
Telecom
National Govt.
International
Sub-National
Education
p
Defense
Industrial Products
Automotive
Process Industries
Sunny Sunny with clouds Sunny, but rain Cloudy Rainy Thunderstorms
Accelerating growth,
falling unemployment
Clouds over growth,
some sunny
prospects
Clouds over growth,
outlook could be
worrying
Sudden change in
outlook, now
uncertain
Deteriorating outlook,
long-term issues
Serious disruption,
likely to last
Legend:
Financial Services Consumer Business
• Adopting new governance and risk models • Making targeted investments
Illustrative actions by leading companies:
• Adopting new governance and risk models
• Institutionalizing customer retention programs
• Standardizing front-office models
• Absorbing the financial impact of moving to IFRS
• Preparing to make strategic acquisitions
• Making targeted investments
• Rationalizing suppliers based on risk assessments
• Applying rigor to pricing execution/inventory
management
• Realigning product mix to focus more on value
Preparing to make strategic acquisitions
• Adopting business model changes

Some economists are predicting signs of recovery in 2010, but a sustained
recovery is not likely to occur until Q4 2011 or Q1 2012
Source: Moody’s and Deloitte Consulting
Source: Moody s and Deloitte Consulting
CoreNet Global Summit, Orlando, November 2008

I R l EImpact on Corporate Real Estate

The ‘perfect storm’ effects of economic, financial, employment, and political events
melded to create unprecedented uncertainty for the markets in general
External factors impacting corporate real estate include:
• Sub-prime residential mortgage crash
• Demise of commercial mortgage-backed securities (CMBS)
• Drop in housing prices and values
• Oil’s upward, then downward, cost spiral
• Stock market volatility
• Credit market turmoil
• Resulting near absence of credit
• Investment and spending freezes
• Failure of investment banks
Source: Stone & McCarthy Research, the Conference Board
Failure of investment banks
• Government bailouts of banks globally
• Massive layoffs in and beyond banks
• U.S. national elections
U S t i d t b il t• U.S. auto industry bailout
• Decrease in consumer confidence
Source: CoreNet Global 2009 State of the Corporate
Real Estate Industry Report , March 31, 2009
Source: Wall Street Journal, NAR, Stone & McCarthy Research

The turbulence has had a significant impact on the corporate real estate industry so
the CRE focus has shifted to risk management, resource optimization and cost cutting
Effect on CRE CRE Response
• Banking and credit crises freeze transactions, deals, • Trade term for valueBanking and credit crises freeze transactions, deals,
investments, and corporate spending
• Tight credit is limiting access to capital
• Growing emphasis on better capital planning
• Renegotiate leasing and service contracts to find hidden
t
Trade term for value
• Aggressively explore moves to low cost centers
• Continue to lease facilities versus build to suit
• Defer capital spending and large expense projects
• Hold expenses where possible to off set increased costs
costs
• Increased pressure on cost cutting yet again
• Access to capital is viewed as the problem and solution
in tax and utilities
• Offer alternative workplace as an option
• More aggressive hoteling to downsize lease
requirements
• Increase the value and manage expense through• Increase the value and manage expense through
aggressive partnering
• Invest in technologies such as Cisco telepresence and
HP Halo
• Understand and eliminate the obstacles that diminish
l d ti it
Source: CoreNet Global Source: CoreNet Global Summit, Orlando, November 2008 and Deloitte Consulting
employee productivity
Source: CoreNet Global
2009 State of the Corporate Real Estate Industry Report
31 March 2009
Source: CoreNet Global Summit, Orlando, November 2008 and Deloitte Consulting

Real Estate Technology Enablement
Visibility Into Total Cost of Ownerships b ty to ota Cost o O e s p

The selection of IWMS as a strategy positions clients to function
more strategically, enabling them to better execute their mission

IWMS cuts through the fog and provides visibility into the Total Cost
of Ownership
• Cycle Time
• %Leased
• %Owned
• Cost per SFp
• SF per Employee
• Number of
Transactions
• Office to Cubicle
Ratio
Integrated Workplace Management SystemIntegrated Workplace Management System
(IWMS)(IWMS) Ratio
• Carbon
Emissions
• Number of
Projects
(IWMS)(IWMS)
• Completion Rate
• Satisfaction

Implementing technology helps identify these 10 symptoms indicating that there
may be opportunities for real estate and facilities cost reduction
1. Knowledge and information about the CRE portfolio is lacking
2. The portfolio is not aligned with current and future business direction — from physical,
location, or financial perspectives
3. Supply chain and distribution channels have not been optimized
4. Space utilization and location of facilities have not been challenged
5 Excess properties have not been identified and sold5. Excess properties have not been identified and sold
6. Current market value of properties is not known or is significantly greater than book
value or utility value
7. Creative financing structures have not been considered
8. Operating costs have not been effectively measured and controlled
9. Opportunities to leverage volume buying or outsource low-value-added services have
not been explored
10 Capital projects are not aggressively bid value engineered or change orders challenged10. Capital projects are not aggressively bid, value engineered, or change orders challenged
and controlled

“You can’t manage what you don’t measure” – Jack Welch

The data governance framework offers the organizational and
business view on managing the data for accuracy and consistency
To ensure future systems’ success, organizations should establish a framework for driving
data governance.
• Establish a data governance organization to proactively monitor data integrity and quality
• Identify, document, and incorporate appropriate data quality standards to eliminate data
redundancy and inconsistency
• Prescribe a consistent approach to consolidate and manage shared dataPrescribe a consistent approach to consolidate and manage shared data
Metadata
Availability Security AuditabilityAccuracy Consistency
Data Supporting Businesses
Document steps
to ensure data is
available to
users and
applications
when needed
Define how data
is stored,
archived, backed
up, and protected
from mishaps,
theft, or attack
Define the set of
controls and audit
procedures to
ensure ongoing
compliance
Standards Policies & Processes Organization
Define steps
taken to ensure
data is complete,
valid, and
appropriate
Set of controls to
ensure the
meaning of data is
consistent across
systems/
applications
Data Definitions, Classifications,
and Organization
Master Data
Technology and Tool Standards
Creation, Development, and
Management of Data
Business Rules
Access Control
Ongoing Monitoring and
Measurement
Planning and Prioritization
Manage Changes to Data
Organizational Structure
Data Owners and Stewards
Roles and Responsibilities
Training and Education
Data Security
Change Management
a age C a ges o a a
(Including Communication)

How Does IWMS Fit Into the Enterprise
Advantages and BarriersAdvantages and Barriers
IWMS Trends

Consideration # 5: Find 10 Technology Enablers to Increase
EfficienciesTaking a broader enterprise and portfolio approach to deploying CRE
technical enablers to support functional capabilities and provide efficiencies

There are many advantages to implementing IWMS across a global
workplace …

… but some technology challenges must still be overcome

IWMS Trends in 2009
1. CRE has become the most important vertical within the IWMS arena
Both driven by the Credit Crunch and the disproportional real estate prices, organizations
started to focus on the corporate real estate domain as the primary cost reduction source.p p y
2. IWMS’s are undergoing a transformation from a local to global orientation
Triggered by the rapid evolution of the Internet, FM and RE have evolved to become a C-
level strategic management domain.
3. Cost reduction is the key driver for investing in IWMS’s
The customer demand for ROI, Metrics, Benchmarks, and Management Reports is
increasingly having an impact on the IWMS domain.
4 S t i bilit i i t t4. Sustainability is important
There is a clear distinction between those IWMS vendors who have embraced
sustainability as an organizational obligation and those who have not.
5 Decision making support is driving executives5. Decision making support is driving executives
CRE Managers, Project Managers, and other senior executives need to decide on specific
investments, disposals, relocations, or other programs based on data, so reports,
dashboards, and Business Intelligence are driving decision support.
Source: IWMSnews.com, Steven Hanks
4 May 2009

Critical Success Factors for a
Smooth Implementation

Follow these tips for avoiding project failure
The Standish Group has reported high failure rates among IT projects for years and a recent study by
KPMG found that about half of the respondents reported at least one failed project in the past year.
CRE must be able to speak the language of IT and understand their concerns
• A single system requires less database platforms and applications to support, resulting in less staff
• Ensure the solution complies with corporate IT Standards
• Configure your IWMS, so the FM and RE professionals can do modifications to the systemsg y , p y
• Consider having the software hosted and maintained by an Application Service Provider (ASP)
Some of the common reasons projects fail include:
• Lack of clear scope of workLack of clear scope of work
• Not defining the project success criteria and expectations
• Lack of communication
• Inadequate planning
L k f kill d• Lack of skilled resources
• Unrealistic time, budget, and/ or scope
• Lack of risk management
• Lack of Senior Management and business ownership support and involvement
IWMSnews.com, March 20, 2009, Don Wood; April 2, 2008, Steven Hanks

Real estate technologies will influence how effectively
CRE is able to have an impact on the recovery
• As a result of the global economic crises, CRE has raised its visibility in the
C-suite, becoming a more strategic player in identifying solutions to the
problems faced in the current operating environment
• CRE must take an enterprise view of the organization and gain visibility into
managing the Total Cost of Ownership for the entire portfolio of assets
• Implementing IWMS into the broader enterprise technology stack enables
efficiencies and increases productivity, allowing the CRE department to do
more with less
• Like many business cycles before, technology will be a key enabler to help
corporations recover from the current crisis

About DeloitteAbout Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which
is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal
structure of Deloitte Touche Tohmatsu and its member firms. Please see www.deloitte.com/us/about for a detailed
description of the legal structure of Deloitte LLP and its subsidiaries.
Copyright © 2009 Deloitte Development LLC. All rights reserved.
Member of Deloitte Touche Tohmatsu

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