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corporate real estate

Examining the Irrationality of Paying Ever-Increasing Prices for Real Estate


Our report on corporate real estate generated lots of letters to the editor. The following letter, from the president of an advertising/marketing services agency based in Jersey City, NJ, was selected for publishing (with the writer's consent) as representative of the sentiments exhibited within the overall small business community. Below, is Al Berrios, the author's, response:

From: Frankie Gonzalez
Subject: Re: Report - Corporate Real Estate & Electric Utilities
Date: Wed, 28 Mar 2007 12:07:26 -0400

Hi Al,

A very interesting report. I agree that there is absurdity in the pricing here. However, one thing your report fails to take into account is that location of a company serves as a way to attract the right talent and employees in SOME industries. For instance, we are in the design and advertising industry. Being in proximity to NYC, itself a hub of creativity and a perpetual self generating axis of more creativity and cutting edge marketing, helps ad agencies and design firms to attract talent from these areas. If I located my business further away somewhere in the boonies, all of a sudden I lose the ability to attract that superstar who does not want to commute that far because that does not suit their idea of a good lifestyle. It's particularly more of a problem with small businesses. A larger business could simply pay their employees more to make that commute.

I've thought about this every now and then. Being in the "metropolitan areas" provides employees with the major transportation arteries to commute to the work location. Also, some business do indeed benefit from an "insourced" model. What are your thoughts about that?

..................................................
Frankie Gonzalez
President
3rd Edge Communications

 

On Mar 29, 2007, at 8:09 AM, Al Berrios wrote:

Hi Frankie,

Thanks for reaching out and Thanks for the response!!!

Here are my thoughts:

There are obviously some professions that can't get around needing space. I was thinking hospitals, schools, or manufacturing. But then it hit me; if police can have mobile stations, surely, a tricked-out ambulance can be a fully-functioning mobile hospital. And what school doesn't offer some courses or even degrees online? And manufacturing, well, it all went to India and China to screw over unions, really. In other words, although I was writing about services that are easily detachable from their real estate, it appears that with enough of an imagination, this theory can really apply to any industry.

Your point about attracting talent is valid, however, I did account for that in reason #4:

"Consider outsourcing's and offshoring's impact on labor. It no longer matters where you or your labor resides or what workers know because you can have anything made or addressed anywhere after the right standards and training are put in place. (Check out our HR study that keeps labor from offshoring with a lower cost and higher output and quality)."

What you're not accounting for is that

a) very, very few workers live near their jobs, particularly in a city like NY;

b) workers will commute or even move across state lines for a job regardless of pay or benefits - and they'll pay for that expense out of their own pocket! And if they don't, as you state in your assessment of superstars, well, superstars have fallen out of favor precisely because they're too demanding to the organization in where they want to supposedly contribute. Case in point: Julie Roehm and Wal-Mart.

c) you ideally base your own location needs based on accessibility of customers, not accessibility of workers. Once the client is secured, you'll find the workers. (This is assuming you're a rational buyer of office space, which I attempted to prove most of us are not.)

Your business is actually the epitome of flexibility I'm referring to in what I'm describing. You can locate yourself anywhere and get done what you do. All it takes is a DIFFERENT way of recruiting, training, hiring, and even transporting talent than the traditional, paternal, and obsolete way of "building it and they will come" approach. Another case in point: Crispin Porter ( http://www.businessweek.com/magazine/toc/06_21/B3985magazine.htm), who, based in Florida and Colorado, miles and miles from Madison Avenue, have been able to become a creative juggernaut.

In other words, it has been proven long ago in your business that New York City is no longer the only hub of marketing and advertising. (Remember that firms set up office in Bentonville and Cincinnati to be around Wal-Mart and P&G respectively; they'd never dare ask those companies to set up their corporate execs closer to them in NY, would they? So, why would you cave in to the needs of "superstars" who won't budge?) I'd expand the hub to really include the whole country, not just one street in one city.

I think you're underestimating the power of the small firm vs. large firm. As I often say, headcount and office space is not a measure of performance. When you're attracting "talent", they're coming to be part of the brand and the vision of the founder (you), not the office. In fact, if they're in the office all the time, they're not earning their keep, as far as I'm concerned. They should be out researching, at the client site building relationships with clients, and should be in the office about 15% to 20% of their time seeking or cranking out inspiration. And even this is probably unnecessary since most of the work that knowledge workers do gets done overnight, anyway; and usually from home, no less, while on the toilet or something!

If you feel otherwise, then that implies you've had insecurities about your firm and brand and that a group of people is the only thing that qualifies as a company with any value. Neither are true. A final case: McGarryBowen, who Chase bank selected to be their advertising agency of record after only 2 years in existence and like 5 guys: http://www.mcgarrybowen.com/html/pdfs/release_Chase.pdf. These were the guys responsible for changing the logo, a task generally reserved for the big guys. In the advertising and marketing worlds, stories like these are so common, we barely notice, but everyone from Mr. Ogilvy to Sir Martin Sorrell all started as little guys with big ideas; and nothing's changed... they're still little guys with big ideas, just like you, no?

.al

P.S. No offense, I hope. :)

Note: Mr. Gonzalez pointed out that McGarry Bowen refers to itself as "the largest independent agency in New York" in the press release, to which I replied:

I did see that sentence - have you ever heard of "puffery"? It's an old marketing concept where advertisers realized that they aren't legally liable for fraudulent claims for using any kind of adjective to describe their clients. "Largest independent" is puffery, especially since there's really no external, objective benchmark to fairly make that determination.

3rd Edge can certainly claim to be the largest independent marketing services agency in New Jersey. Or the largest minority-owned marketing services agency... Or the... LOL... knock yourself out.

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Al Berrios is Managing Director of al berrios & co., a pure strategy consulting firm, specializing in advising organizations + entrepreneurs on managing their enterprises in a service economy. Write or Subscribe to Consumer Strategies Report.