FEBRUARY ISSUE: Property Management–Getting the Goods
- Feb 18, 2015
Dictionary.com defines “procurement” as “obtaining or getting by effort.” In commercial real estate, that effort is a multifaceted undertaking that involves extensive research, analysis and decisions about big-ticket items. Procurement also means cultivating relationships with stakeholders that range from property owners and managers to vendors.
Because it covers products and labor, procurement can be complicated. Dave Rock, managing senior vice president of the west region for Transwestern, ticked off some universal challenges that require procurement managers to be on top of their game:
■ Union versus nonunion labor rules;
■ Budgeting issues, such as the cost of janitorial supplies and equipment;
■ Depreciation, markups, overhead and profit.
“We line all this generally up by vendor before we make that selection,” Rock said. “We have to be accountable for our services as we ask accountability of these vendors and all others who participate in helping us manage the real estate. It’s kind of a fiduciary responsibility to expect that.”
The place of procurement in business strategy is itself evolving. The changes were summed up in an analysis provided by a panel of corporate real estate specialists during the 2012 CoreNet Global Summit in London:
“(Historically), procurement was responsible for supporting the acquisition of goods and services at an acceptable price in support of business needs. … (Today), procurement must be more fully integrated with the business and support functions to protect the brand and achieve the corporate goals.”
Ticking Off Tasks
To a large extent, the tasks comprising procurement are universal. Whoever leads the process is charged with requesting and evaluating bids on sales and service contracts; weighing price versus quality; choosing national, regional and local vendors; and incorporating new products to improve performance.
What products and services come under the procurement manager’s bailiwick?
“There’s a long list of them, but it really depends, quite frankly, on the firm, the policies and procedures of that firm, the capability of your real estate managers who are in charge, and the approval protocol,” Rock said.
The property’s category also influences that list, explained Pam Darmofalski, director of advantage services for Greystar. “It’s important to make sure you are making the appropriate product selection,” Darmofalski noted.
“Products such as carpet or luxury vinyl are great for multi-family use, while commercial buildings typically use tile or carpet tiles.
“HVAC units are very different for multi-family versus commercial, as well, depending on the space. There is typically a lot more turnover in apartments than in commercial space, so making sure the product is durable but also at the right price point is key.”
Although price factors into procurement decisions, seasoned property managers emphasize that “inexpensive” can really mean “cheap.” “You get what you pay for,” said Edward Pajarito, director of purchasing and maintenance for Western National Property Management, which owns and manages apartment and senior living properties in Southern California, Nevada and Utah. “We try to be in tune with that to be sure we’re expecting this much work, this type of quality, and therefore we should be willing to pay for that.”
For instance, a contractor who provides painters for $10 an hour for apartment-turnover jobs is unlikely to satisfy Western’s standards. And specifying the use of paint free of volatile organic compounds probably means higher prices, but the investment pays off in resident goodwill.
Who’s in Control?
One major decision—who handles procurement—varies considerably from company to company. Some organizations that own large amounts of real estate prefer to keep procurement in house. Others farm it out to third-party property managers. How much local autonomy to allow is another fundamental issue. Each firm must decide whether to allow on-site managers to make purchasing decisions, require them to strictly follow contracts negotiated at headquarters or find a middle path.
At Western, control of the vendor list stays in the main office. “We want to make sure that all the communities only buy products and services from contracted and approved vendors and suppliers,” Pajarito said. “The whole purpose behind that is to protect the company. We don’t want individual people, staff members, contracting on behalf of the company for possible faulty products or contractors.”
Nevertheless, the views of the management staff should be highly valued. When introducing a program or a new vendor, Pajarito makes his mission to win the confidence of the company’s local service managers and technicians.
“If I start rolling it out without any buy-in from those guys, it’s going to be a difficult rollout,” he said. “We need to get their buy-in before anything else.”
Earning that support calls for communication among multiple layers of management, online or on site. Conference calls and in-person meetings may precede a rollout. In addition, Western likes to assign a senior service manager who is an expert in the new product or service to train local staff and answer questions.
Historically, DTZ (formerly Cassidy Turley) has allowed local property managers considerable leeway in procurement decisions.
Keith Fatzinger, vice president for procurement, works with his team to leverage national relationships with vendors. For paper products, Fatzinger contracts with a big supplier like Staples to save money and keep buildings running smoothly.
The company’s local property managers are responsible for procuring janitorial, pest control and landscaping services, which may be governed by local ordinances. For HVAC and electrical services, the company prefers local or regional contractors for competitive pricing, better control and maintaining vendor relationships, Fatzinger explained.
“The ultimate responsibility lies with the property manager of that individual property,” he added.
Transwestern also confers significant responsibility for procurement on its on-site managers, treating each as “the CEO of the asset,” according to Rock.
“We teach and train them,” he said. “We hire really good, seasoned people to help them be good decision-makers so that they can run these assets and make a lot of these types of decisions.” Those choices often lean toward products that are new and—increasingly—sustainable.
“We are always researching and looking for new products to not only improve the centers that we manage but reduce expenses and maximize (return on investment) for the owners,” wrote Brian Kent, vice president & regional operations manager for JLL Retail, in an email. “The advancements in LED fixtures are well documented and offer substantial savings in electric consumption and lower ongoing maintenance cost(s) on behalf of our clients.”
Collaboration between local managers and their higher-ups can be an effective way to vet new products. A local DTZ professional in San Diego asked Fatzinger to help shop for electric vehicle charging stations. Fatzinger researched them online before sourcing them for the manager.
Procurement calendars also vary considerably by product and service. Local contracts are often reviewed annually, while three- or five-year deals with national vendors are often the preferred way to cinch the best prices on products and services that range from office supplies to elevator maintenance and landscaping.
Even purchasing gifts for customers can benefit from a systematic approach, according to Rock.
“We use a holiday gift vendor that our property management people buy from for a client for which we manage the real estate from coast to coast,” he said. “This client wants to make sure that their tenants receive a certain kind of holiday gift at a certain price point and it is delivered at a certain time.”