What can we learn from the US property industry? Does the American reputation for customer service in everything from restaurants to department stores and big business extend deep into real estate? And if so, what ideas can we steal from them to make our businesses better? To answer these questions, I joined a group of UK property people (see box overleaf) on a tour of the US in the summer to see what we could find out.
Massive scale of the industry
The dominant impression is the scale of the industry. Scale in terms of land area and building size, but also the size of property-owning entities. The past few years have seen the emergence of mega-REITs through mergers, creating organisations such as Equity Office, Simon Property Group, Equity Apartments and ProLogis.
Why have these companies opted to create such great scale? The answer is the powerful combination of sector focus and operating efficiency. Simon Property Group, the largest retail property company, owns 290 malls across the US. It is using its buying power to procure engineering, building contracting and maintenance services from just a handful of providers. For the industry as a whole, this creates, at its best, a powerful alliance – as is the case with Simon – and, at its worst, a dependency that some UK organisations might regard as dangerous.
The US business model, which focuses on net operating income, gives American property owners a greater incentive to aggressively manage property outgoings than the equivalent UK full repairing or even service charge lease. For example, Equity Office, the largest office owner in North America, has reduced the number of its service partners from 950 to 75 across its 120m sq ft portfolio.
Scale is also being deployed in the area of retail marketing. Simon has developed a series of national promotions. For example, it recently developed a mall promotions campaign around the “American Idol” theme. This is strongly directed from the centre of the organisation, which dictates the nature of the promotion and when it will be run. All the marketing materials are centrally produced – duplication and fragmentation is avoided.
It appeared to the UK delegation that there was relatively little discretion for local marketing managers. Is this a good thing, or could local needs be overlooked? The overriding impression was that scale was enabling the retailer to get better quality of service and more professional support.
Debate waged throughout the tour as we questioned whether this approach would work in the UK. Were these ideas transferable or just US gimmicks? Some of our party, who came with the preconception that US customer service was paper-thin and built on the “have-a-nice-day” ethos, were quickly won over by the conviction and commitment to customer service of everyone we met.
Nowhere was this more apparent than at Equity Residential, the US’s largest residential apartment owner with 200,000 apartments under management. Its five-point commitment, which guarantees high quality moving-in days, total satisfaction, express service, flexible living options and personal attention, was bought to life through some simple ideas from the moment we parked at the “future residents” parking area.
Apartment renters, typically aspiring young professionals, received such extra services as plant watering, pet feeding and laundry service. They were invited to regular social events by building management: from bake-offs in which residents compete for the prize of best chocolate brownie maker, with the winner receiving a rent discount, to poolside parties offering the chance to meet your neighbour or make a friend for life. The philosophy is, “customers won’t pay extra for service, they expect service”, and this is rewarded with higher retention rates and lower vacancy rates.
Equity Residential even has a rent charge for pets, with a formula for calculating wear on carpet and other fittings. There was plenty of evidence that commercialism goes hand-in-hand with customer service, and there was doubt as to whether some of these examples would cross the Atlantic with ease. But the undeniable point was that residents will pay for hassle to be taken out of their lives with loyalty to landlords who understand this new business fundamental.
In order to provide this level of service, what skills do property managers need? Wherever we went in the US, we met people of very high calibre with confident communication skills, a great service ethos and in-depth technical know-how. Yet, not one of these was a chartered surveyor.
Mike Norton, Tishman Speyer’s global head of property management, told his own story as an example of the skills required to be a modern property manager. He came into the industry at the age of 30, after having served with the Marine Corps. His view is that property managers are business people first and foremost and there is no room in his organisation for property managers who see themselves only as technicians.
By transforming the company’s training programme into a “junior officer-style” regime he has been able to fast-track young, high-calibre individuals to senior positions. “I want to give young people as much experience as they can get,” he says, and he talks enthusiastically about the importance of “promoting from within” to maintain motivation, citing 200 internal promotions in the past 12 months. Of course, this is possible when you are managing a global portfolio of 74m sq ft and can afford to pay salaries that will attract MBAs.
Norton explains how the role of property management has been “upskilled” by outsourcing routine business processes to specialist organisations. For example, outsourcing the processing of certificates of insurance for fit-out contractors and the use of paperless work orders allow managers to spend more time running their buildings.
Evidence of new technology being used to streamline operations and improve service was everywhere. Equity Office claimed to have reduced personnel by 15%, but to have increased customer service by setting up regional customer service centres supported by internet and telephone helpdesks.
Building managers go out of their way to hand-deliver cheques to tenants whose lower operating expenses have been achieved through management efficiencies. As they say, “If you want to keep a customer, there is no better way than giving them a refund cheque.”
Hi-tech tracking of service responses
Companies use software systems such as Angus to streamline the handling of service requests and to manage preventative maintenance, and use palmtop devices to monitor service response in real time. Organisations are investing in relationship management software to keep track of customer contact details and relationships.
Although the larger real estate investment trusts that we visited have in-house management arms, international owners and fund managers such as ING Clarion continue to use third-party management firms. Both approaches seem capable of delivering high levels of service if properly directed and resourced.
The companies we met hold strong views on the subject, and for Equity Office and ProLogis outsourcing of management is unthinkable. As ProLogis itself says: “We will never outsource property management or leasing – that would be like outsourcing the customer.”
And commercialisation? There has been a lot of talk about it, with landlords selling more services to occupiers and generating new income streams from advertising, broadband services and so on. The story we heard generally was, “We thought it was a great idea, we tried it, but take-up was poor and we’ve dropped it”. Some landlords had got their fingers burnt during the dot.com era after ambitious investments in broadband. On a more positive note, Simon Property Group has scored a success with its gift card system.
The study tour brought to life the fact that customer service is not a marginal activity in the US, but at the core of each business we visited. We found evidence of great leadership at the top of organisations, and even more importantly at the front, from individual property managers. Our impression is that the gap is closing, but the job of raising service standards in the UK is far from complete.
Howard Morgan is managing director of Kingsley Lipsey Morgan (Real Estate Performance Consulting) and Real Service
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Customer service benchmarking group Real Service undertook a study tour to Chicago and New York organised by Kingsley Lipsey Morgan. The 18 participants represented a broad range of UK-based property owners and property managers. These included public and private companies such as British Land, Land Securities, Brixton, Evans Property Group and Marchday; estate owners such as the Crown Estate and Grosvenor; fund managers such as Prudential, Legal & General and Arlington; and property managers including DTZ and Regent Street Direct. |
