Steve Todd: Data, Finance & Workplace

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How does capital investment in real estate improve profitability?Coming from a background in finance, Todd challenges the audience to think about presenting business cases for workplace change to a CFO or COO. What are the inputs and outputs? What is the present value? How do we present information that allows you to make decisions about workplace productivity and drive the bottom line. Can we tangibly track and display results to make that business case?

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Steve Todd, AVP, Global Head of Workplace, NASDAQ

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VIDEO TRANSCRIPT:

My name is Steven Todd,  I'm Global Head of Workplace at NASDAQ and I'm also the founder of Open Sourced Workplace. So what I want to talk to you about today is I want to challenge you. I want you to think about workplace in a different way. I want you to think about workplace and how you would present a business case to a CFO or CEO. So in essence think about what you would need and how you would present that information and then we're going to get to optimize and productivity.

So the way I sort of position is that I'm a finance background, I spent 15 years working in finance, everything we did we did an investment appraisal every time we did a business case. That was what were the inputs and what's the output of a CEO or CFO or interested in is what is that profitability? Is it gone back to what was said before what is a net present value? Is a positive as a negative? If it's a positive okay let's go and do it. So how would you then position that if you wanted to think about workplace. What are the attributes. what are the inputs that drive the outputs? When we consider workplace and how do we sort of position how do we think about that? 

So in 2014 when I got into real estate these are the questions that were going through my head. How do we actually get together. How do we present information that allows people to be able to make those decisions? And these are some of the questions that sort of were flowing through my head. What makes employees productive. What features of an office actually drive the bottom line? We all have a perception that given everyone great coffee drives productivity but actually can we tangibly track that to actually display that actually helps the profitability of an organization.

Do employee engagement scores actually move the bottom line. We aspire to improve them every year but actually does it really materially make a difference. Anecdotally we think it does but we don't have any scientific proof behind it. How does capital investment in real estate improve profitability. So whenever we're presenting a business case how do we actually know that we're going to drive profitability. Real estate is an expense sucker right you have to pay for that through layers letter. You hope you gain benefits from it so how do we put that narrative ahead of time and how do we work that idea and does an employee compute impact profitability and this is just the way my brain works.

I just think along those different lines is it actually a benefit or is it does actually hurt if employees have to travel further. So that's sort of where some of this where this lays. So as I thought about this how do you even start to think about getting the data to answer some of these questions. And so again go through that concept inputs and outputs right. So what are the inputs that we could collect that actually would help us address some of that information. So yes we've got the usual suspects of real estate and human resources but again bringing in that corporate financial information where's the sales revenue coming from per location. 

What is the expense associated with every single office across the organization. What is the product profitability of every product that we produce as an organization on what location are they associated with. Whenever you marry that with real estate with employee turnover with other aspects of some of the other data points then you can sort of start to see pictures evolving and actually the conclusions may be able to get to. 

So what are the marketing KPI is what are the seals KPI is how can we bring that together into one data set to help funnel some outputs and some conversations and external data. So where is the access to talent in all the locations that we operate in right. How many if you've got sales associate. Does it actually impact them for the actual amount of people they're connected to on LinkedIn. Is there a direct correlation. I don't know but again these are some of the ways that our brains are sort of working and obviously the whole point of this is to drive outputs.

So to try and picture this a little bit more I put together a little scenario. So you know you're a sales manager you've just got given this initiative we've built these new widgets you got to go and sell it. So how do we sort of package these datasets to help the sales manager one pick the right location where he wants to put all these people and how does he present that business case again thinking about the CFO and the CEO or he wants to present or she wants to present that information. So what if we were able to pull all this information together? What is the average cost of employees of every word that we operate.

What is the occupancy cost associated with all those various locations? What are employee engagement scores? What is the real estate score for all those various locations, what are the utilization rates the staff turnover, the commute time, access to local talent, what actually is the cost of that local talent that we want to grow? What is the sales revenue by office? As I said are the distance to direct supervisor so how many time zones away is your direct supervisor how does that impact the sales potential of whatever office.

So can you imagine a sales manager sitting down with their eight hour business partner and this is all the information they have at hand. How much smarter and how much better decisions can their sales manager actually make when he then goes to take or she goes to take the business case to the CEO or the CFO. It's a lot more substantial that there's a lot of data behind it. Year two whenever they come back to evaluate they think back and track an index against okay these are the reasons why we made the decision was the outcome as expected. 

So when we go through when we collect this data we always aspire to get more data and part of that. One of the things we have to do is always ask ourselves what is the ROI of this data. What is the cost to actually get it and if we get the information will it actually make a difference to the decision. So today you know we talk about how we can actually look at security badge data and we get utilization rates. Well then if you have that and utilization rates and we all know is usually around 60 percent. If the management isn't going to make a decision or change the decision on that information why pay for it.

Asking for a Desk Utilization Study because they are  hardly gonna change their mind later. Is this how you evaluate what actually should be taken?

So part of this is we go back to the last question are there sort of one of those questions we had up on the board, how do we actually engage with the CEO and CFO to actually allow them to make decisions and how do we present information to them to make decisions. And one of the things we did at Nasdaq was we try to tackle the question up there, what is workplace productivity what is employees productivity and what does that look like. We actually went out to our employees and we asked them. 

We provided 35 attributes of an office and asked them which of these attributes makes you productive. And over half our employees responded and this is what we ended up with. So this is our true north in everything that we do and how we look at and evaluate what we have to do in real estate.  When we're designing a new office, this is where we go. This information, we can look at it by every location. 

The actual productivity factors change by location, so whenever we actually assess what we need to do we go back to this, the attributes, and we look and those are what we benchmark against and we put that forward.

So we have these attributes, each year we ask the employees how do we rate against each of these attributes and what is the opportunity we have to improve an employee experience at every single office. It also helps us whenever we come to make those capital investment decisions we're able to display this information we're able to display the feedback we get from employees. And here's the investment we want to make. And we're now in a cycle where actually we are able to go back and validate actually here's where we invested the money and this is the impact it actually had on the employee experience and how they're rated their real estate portfolio.

So as I said my background finance I come at this at a slightly different way and my brain's a little complicated. Yes it is. But in essence that's how I try to look at this stuff and I sort of want to challenge the team and I sort of hope you've taken a little bit away from what we've said and how you sort of present data and information to the CEOs and CFO. So thank you

Mordechai Katzman: Saving $$ on your Largest Real Estate Expense

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When considering your largest real estate expense, most people think of utility charges, insurance costs, H.R. fees paying for your employees administration and a slew of others. But would it surprise you if in fact property tax is your largest expense? In 2017 in the US alone over five hundred and thirty billion dollars was paid in property tax and upwards of 300 billion was paid by owners and multi-property portfolios businesses organizations.

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Mordechai Katzman, President & Co-Founder, ReThink Solutions

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VIDEO TRANSCRIPT:

Hi Everyone. 

My name is Mordecai Katzman and I'm the President and Co-Founder of a company called Rethink Solutions. Today I'm gonna talk to you about your largest or at least one of your largest real estate expenses that really any typical occupier owner and manager of a multi property portfolio is going to encounter.

When we talk about real estate expenses what comes to mind?

I think typically most people think of utility charges. Insurance costs you know H.R. fees paying for your employees administration and a slew of others. But would it surprise you if I told you that in fact property tax is your largest expense? In 2017 in the US alone over five hundred and thirty billion dollars was paid in property tax and three hundred billion dollars out of that or  upwards of 300 billion was paid by owners and multi property portfolios businesses organizations 

What I still find interesting is when I'm speaking to multi property owners and I ask them what they pay in property taxes, I'll still get answers that are really in the form of ranges oh anywhere from two hundred to five hundred million dollars. at least for me three hundred million dollars is still quite a significant range for one of your largest expenses. I think that's because it's tax and people look at tax a little bit differently. Frankly as soon as I mentioned property tax people's eyes typically glaze over and I think it's because no one has patients for tax or even property tax. 

They see it as a tax that simply needs to be paid and I'm here today to tell you that property tax is really unlike the other taxes. I think it would be fair if you're talking about income taxes or corporate taxes or even sales and use tax that are very fact based. You're providing the individual taxing jurisdictions information about your sales your profits your income and as a result they're taxing you. But for property taxes individual jurisdictions are telling you what the value of your property is and hence based on your value this is the tax you're going to pay. 

Property tax is different, as I mentioned it's really very subjective because you're getting values from the individual jurisdictions and I should point out that there's over 17,000 different taxing jurisdictions in the US, so when you talk about transparency and standardization it's all over the place. All the more reason that this needs to be managed and can be controlled because there is tremendous opportunities for savings. Just to stress on that point for a moment there was a study done by an international organization that measured all the various jurisdictions both in the U.S. and globally that found the average U.S. jurisdiction just got a grade from a C to a D when it came to transparency and standardization. Again tremendous tremendous opportunities here. 

I was recently talking to one of our clients the senior property tax manager for this particular portfolio and he had told me that the CFO now recognizes that they exist and that it's a good thing and a bad thing. I proceeded to ask, OK so where's this going. What's good what's bad. So firstly it's a good thing because he says now that you're such a significant line item on our balance sheet and income statements we need to be paying more attention. So whatever tools resources you need to mitigate and control this expense and cost, we're all for it whatever you need you let us know so that frankly sounds pretty good. 

So what's the bad thing. Well he said, Now the CFO knows that we exist, which means there's tremendous pressure on this department to do something about controlling this vast and wide expense property taxes are also rising and our research has shown that even when values are staying constant, meaning your values aren't going up, the taxes are still going up because those local jurisdictions, their fees aren't going down and they need to pay for their local improvements. 

Another interesting thing about property tax is that it's going to impact your organization in a number of different ways across all sorts of different departments. It would be very typical or traditional to find one or two people within a property tax department sitting somewhere in the office again which department they belong to is usually questionable as well but sitting there doing their thing managing their values managing their taxes and submitting some information to accounting but as you can see the entire property tax management process is very complex and it really touches on all sorts of different departments. 

So yes once you verified your payments you'll send it off to accounting but you've got your finance department doing their forecasts and budgets and isolation in a silo using their own data their own spreadsheets to determine what they think property tax is going to look like. You'll have acquisitions going about acquiring more properties for your portfolio. Sometimes doing their own work up or not even inquiring with property tax as to what the tax impact is going to be. And what I'm happy to see that that more recently this is now becoming a requirement. Certain companies aren't letting their acquisitions team acquire without having sort of a suggestion or a report from property tax. 

And the list goes on. It affects operations it affects your leasing in terms of setting your rents or even recovering tax from those individual portfolios. So again it affects the entire department. And today it's all done in silos. Each with their own.

That sets of data without one talking to one another so that's so we're where we come so far. So we've noticed that the property tax itself is going to be one of your largest expenses. We know that there are significant opportunities for savings there. And we know that up until now it's been fairly mismanaged as we've seen it's all done in silos all over the place. And there's a lot of data involved in the process itself. In fact from a data perspective because again you're getting data from so many individual jurisdictions. It's not uncommon for an individual property to have at least one hundred pieces of individual data on an annual basis. 

Again extrapolate this to a portfolio of two three hundred properties you're easily dealing with 30000 pieces of data every year. So that's a concern. 

So what do we do?

Well we have to rethink the way we manage your property taxes and that's frankly where we come in our solution lets you manage and optimize the entire process and bring everyone together on a common platform and what that's going to achieve and that's going to allow you to empower your users to make smarter better decisions when it comes to every aspect of your operation that that addresses or includes property tax and these aren't just buzzwords anymore. It's very important. Again all these technologies exist today and they fit quite naturally and very well within property tax the ability to collaborate with those other departments the ability to automate some of your workflow. So as soon as you get a new value forecast and Budget has that so they know exactly they can alter and adjust in real time you can integrate with other systems you can apply a eye to help you determine where the values are out of sync maybe certain values certain properties. This is what we should be looking at to appeal to further drive savings.

At the end of the day I think we're all trying to achieve the same goal. The goal is to maximize portfolio value. And what I'm here to tell you today is that rather than you know addressing the revenue side which a lot of systems and usually some of the easy pickings to be able to you know acquire better properties to make sure they're fully rented out to drive and maximize the revenue from individual locations. That's obviously a way to drive value and revenues. But another way to do it is also by looking at your expense side and being able to control the costs especially something as large as the property tax is going to have a significant impact on the bottom line value so quite a bit so far.

So just as a quick recap if there's one message I can leave you with is that don't ignore your property tax. As I said there's tremendous savings opportunities there. If they control all tax again you just need the right tools information and data available so that you can properly address it make well-informed decisions that will impact not just the tax side but all the other departments within your organization. Thank you very much. 

Sean Fitzpatrick: Faster, Smarter, Easier - A New Era in CRE Valuation & Underwriting

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CRE is evolving and technology needs to evolve with it. Coupling years of experience consulting for commercial real estate decision makers with technological know-how, rSquaredCRE launches to tackle advancement in CRE valuation and underwriting.

Filmed in Partnership with Realcomm | IBcon

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Sean Fitzpatrick, CTO, rSquaredCRE

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VIDEO TRANSCRIPT:

So CRE is evolving and what we've found is while our industry is rapidly evolving the technology hasn't quite kept up pace. In particular we're expected to close acquisitions now and half the time that we previously did but our software isn't keeping up with the task. 

So valuation software in particular hasn't met our expectations. We're still using desktop software, we're using software that was built over a decade ago. And while that's okay it's not going to get us to the efficiency that we need to be as an industry. So things like multi day training sessions to get you up on your valuation software. We think this is really a symptom not a solution. It should take you an hour, two hours tops to get you up on your your CRE software. 

So we're going to show you a solution here in a moment that hopefully will solve some of those problems. 

Our company our squared CRE is a brand new company but we're based out of an original consulting company. We've had hundreds of years of experience producing software. We have two existing software applications right now, our abstract and our budget that our SAS software applications in use for over a decade. So we're not new to this game where we're very much in a technology leader. We've got wonderful very popular clients, clients like Hines, EOP, Griffin Capital, First Capital to name just a few. 

These clients have reaped the benefit of our experience are hundreds of thousands of hours of modeling commercial real estate software. So we used our experience our frustrations that we found in modeling software to come up with a new solution a solution we think that the industry will greatly benefit with.

Here's our mission statement. So we're of course all about empowering CRE. We feel that our solutions will allow the industry to grow more quickly to have less friction and to get what we all need to get done which is valuations more efficiently processed.  So what do you need? What is absolutely necessary to solve this problem? Your solutions have to be SAS based. There's zero cost of ownership as it relates to owning hardware. So your TCO is going to be lower. You don't have to make those commitments, there's no sequel server upgrades. This is what is required for 2019. We cannot be using desktop software. We can't use software that you have to be at your office to actually be able to use it. You've got a SAS solution. All you need is a browser, ubiquity anywhere you have a browser. You're going to be able to use our application.

So again if you've got to spend time training people, if people have to guess what it means in a particular field you're going to introduce errors, you're going to have problems. So our application is intuitive. We have something we call an input carousel so you don't see hundreds of columns, you have to studiously scroll through the input carousel shows you just the field you need to see and just the areas you need to see them. So you're going to realize a much more efficient more intuitive interface. The UI feels kind of like a rich desktop application but you're in a browser so you get all that benefit of the rich desktop but you're in a browser environment and fast.

So we've got all sorts of hooks in the application. We've got hotkeys, so hotkeys to navigate to different places quickly hotkeys to add things to delete things. In addition to our hotkeys we have things called walkthroughs. So we can walk you through common things so you'll find in the application that we can get the data calculated the data in and the data out in the most efficient fashion.

So one knock on a lot of the incumbent software is that they're just pretty close environments and we built this with an open environment we want you to get your data into and out of our application with no friction. We have what we call round tripping of Excel so you can export your data manipulated in excel and return it. And while that's helpful for a single asset if you have hundreds of assets this can be a huge time saver. Take inflation for two dozen buildings change it in one place upload it simultaneously. 

There's a lot of benefits of being open. And we also open in the ability to consume data from other applications out there. So we've got a very robust VTS integration. We can import deal data from VTS we can import portfolio information from VTS we have links to legacy software. So we wanted to be as inclusive as possible to gain as much traction as possible our application is available for third gate trial for free. We don't want anybody to not have the opportunity to try to use the software. While you're using it, you have the ability to create snapshots. These are little things you can email anybody else or you can share the snapshots via our own email links. So you can send out to as many people as you want and get them up and running on the application.

So obviously everybody wants to use a DCF application that's accurate and it's something you'd expect. We try to bring it home further by giving you the ability to see all of your reports in excel. So these are not just CSV exports of data. This is formulas, these are presentation quality reports and that ability to vet them in excel guarantees the accuracy. 

Finally we need things to be transparent, so you can look at that formula, we have wonderful audit reports. A lot of times things like recoveries become black boxes you don't understand how the numbers came to be. When you see the formulas you can confirm to yourself that the application is doing precisely what you want. 

Collaborative. So we've got this in the cloud SAS application. We can have multiple users simultaneously editing the same property, they can be editing the same property, they can be running reports, they can view doing portfolio analysis, they can be working on multiple properties simultaneously so there's no ability to have to check out a property check in a property all of it can be done simultaneously allowing for a more collaborative environment. And again you can send out those snapshots so it doesn't have to just collaborate within your organization. If we collaborate with organizations around the world. 

Our underwriting work this may be our single biggest differentiating factor. So you get this rich 15 to 20 page workbook that has all of the analytics that are typically very difficult to find within these reports. So we've got excel where everyone kind of does their last mile analysis. They're going to layer on debt they're going to put in partnerships going to tiered participations. All this stuff is typically done by taking canned reports cutting and pasting into Excel. 

You know cutting and pasting into Excel you're going to introduce errors.  You know it's going to take you a long time. So we get rid of all that by having this underwriting workbook. We think this will save hundreds of hours for each client each month.  So this is the kind of stuff that we think has to be in an application to be fast and efficient in 2019.

So what we're talking about is a new era. were going to have a new era where people can openly collaborate fast efficient intuitive. No need for weeklong training sessions multi day training sessions. No need to engage another consultancy to get your users up on the application. Our DCF will be that solution that allow you to cleanly efficiently model from start to finish your last mile analysis and excel and we think we will change the industry with it. 

Thanks for your time.