18 February 2008. This is the first Manhattan Blog. I decided to focus on the CoreNet Northern California Discovery Forum which I attended on Valentine’s Day on a beautiful day in San Francisco. The host was Union Bank at their Headquarters location on California Street where the Northern California Chapter also held a reception in their historic turn of the century bank building (and where I won a magnificent bottle of French brut rose). The attendees were participants in CoreNet’s Global Learning Partnership which Manhattan has just joined this year. Tim Venable was the moderator for the day and Richard Kadzis was the scribe who will be sending out a synopsis of the event for the participants in the coming week.
I decided to make our employees and customers aware of the discussion, findings and case studies from a Manhattan point of view. I have included a synopsis of the group discussion on relevant CRE topics, the two case studies of Sun’s datacenter design and Wells Fargo’s flexible portfolio strategy. The last discussion was focused on some of the issues addressed in CoreNet’s first State of the Industry publication due out in the coming weeks. Please use the ideas expressed during this incredibly full day of presentations and conversations to give your input to what the CRE and FM industries are focusing on today and how Manhattan can best enable our industry to reduce costs, increase efficiencies and productivity.
I. Group Discussion: Key Issues, Challenges and Opportunities
The following are the points brought up by the group in order of discussion:
- REDUCE OCCUPANCY COST EXPENSES: have to become efficient, cannot grow without adding costs; Sun concerned with creating an efficient workplace and it is not only costs, but supporting work processes (not good at understanding these)
- SUSTAINABILITY OF TALENT: much discussion on alternative workplace strategies needed to attract new employees, but problems with older employees right of entitlement of a corner office; HP-disconnected from what going on in rest of world and haven’t changed in years; C-level has to set standard and be out in a cubicle like Candle and Microsoft; Tom Crowley talked about getting ready for next wave of growth at Robt Haft;
- LIFE CYCLE ASSET MANGEMENT: This is being discussed more and more as is the importance of capital planning; Genentech discussed the huge cost of construction and IT in new buildings currently costing them $100/sf for IT and $485/sf for construction in UK-how do you decide to relocate or stay and invest in buildings; HOK sees a lot more adaptive resuse of buildings like they recently did for HP; Amgen discussed issues of deciding do you optimize your portfolio or take a new location? They own 70% of portfolio and makes no sense; Royal Bank of Scotland having trouble with long term decision of building new and how costs escalate in the process, as GSA agreed (head of Western region not on attendee list).
- OWN VS. LEASE DESICIONS: Must build in exit strategy as markets more volatile every year; CBRE discussed how they help clients make this decision and pitched CoreNet education session.
II. CRE Case Study #1: Sun Microsystems: ECO DATACENTER REALTY:
Dean Nelson, Director of Global Lab and Datacenter Design Services, gave the presentation with input from Charles Barry, Workplace Resources (reports to David Harris, CRE). Dean is an engineer from IT who has worked at Sun since 1989 and now is the bridge between CRE, FM and IT. He is also a great salesman for the new approach to the design of datacenters. The problem emerged in MAC projects that the biggest issue was the technical infrastructure (i.e. datacenters) that supports the engineering environment at Sun. And in the MAC process, the CRE group did not understand this technical environment. Hence was born the TECHNICAL INFRASTRUCTURE PROGRAM OFFICE which made the whole MAC process more efficient. And efficiencies and cost reductions were gained through consolidation into a smaller footprint.
Sun had 1.3 million sf of datacenters and engineering labs. They decided to have a discussion on ‘economics and ecology’ and realized they needed more than ‘greenwashing’ (painting things green and calling them sustainable). They created a program to INNOVATE (with eco friendly products and services), ACT (enable energy conscious operations – Dean’s group) and SHARE (apply transparency and discuss what do with other companies-200+ companies have been to the Sun campus to see the new datacenter designs hosted by Dean).
The problem that there has been an incredible increase in the demand for power in that it has risen in wattage from 40 watts/sf in 2003 to 120 in 2005 to 800 predicted this year. Location still matters in that distance still is a factor in performance across a network (Juniper concurred). The fact is that 70-80% of the cost of consolidating RE is the power in the datacenter! By 2012 it is predicted that the cost of running equipment will be higher than the cost to purchase it.
At Sun they calculated their Technical Infrastructure Portfolio, they realized they had 1.3 msf of engineering and IT space globally with 1,537 individual rooms; IT was 8% of portfolio. They created GDS-Global Lab and Datacenter Design Services- as the bridge between FM and IT. The goal for this group was to plan and manage the technical infrastructure, gather requirements and normalize them, create specs and have JLL remodel what they would keep. In this way, they would also tract the global technical portfolio and adaptive reuse what space was not needed for IT (i.e. more conference or project rooms). They also wanted to ‘futureproof’ by being scalable with a smaller footprint. This coincided with the corporate mandate to reduce costs.
In Santa Clara, in 2007 they got rid of 1.8 msf and in the process, compressed 202,000sf of datacenter into less than 80,000 which effected every group on the campus. Real estate funded replacement hardware (modular power and cooling-used to take months to build in place, now minutes with plug in power modules) paid for by the consolidation and fueled by the decrease in energy costs (reduced 3,277 carbon dioxide which is = to ridding 450 cars off the road). The ROI was realized in 3 years. They also eliminated 13 out of 15 buildings (dc), reducing operating expenses by 30% and receiving a $1.3 rebate from Silicon Valley Power and a $250,000 Innovation Award. The technical infrastructure is now no longer a barrier in MAC projects and CRE/FM is ENABLING THE BUSINESS of INNOVATION making the C-level happy campers with this agile environment. Everyone should pay attention to what is happening at Sun as Lawrence Berkeley Lab has just organized an ‘chill off’ at Sun’s datacenters to determine which level to set as the new Energy Star rating and will reveal results in April 2008.
What is the future?
Look at a new Silicon Valley startup called International Data Security (IDS) has sent some big waves through the data storage industry by announcing (PDF) its intent to set up a fleet of data-serving cargo ships. These floating data centers will come equipped not only with standard storage services like SAN (Storage Area Network) and NAS (Network Attached Storage), but also with amenities such as private offices, overnight accommodations, and galley services. To save money, IDS is purchasing decommissioned ships that were scheduled to go to the scrapyard, then refurbishing them in drydock. According to founder Ken Choi, the first ship—which will also house the new IDS headquarters—is scheduled to come online in April, and it will be parked at San Francisco's Pier 50 along with its sister ships. Each ship has approximately 200,000 square feet of usable space. The company plans to deploy as many as 22 ships in North America and 50 ships worldwide.
IDS has plans to make use of the seagoing nature of their data centers for more than just Homer Simpson-esque parties in international waters. The ships will use sea water for cooling the servers, which IDS says will will eliminate the need for external cooling solutions and shave 30 percent from their total energy consumption. In addition to the standard data center backup generators, the ships will use their own built-in generators to provide additional power. During disaster scenarios, these generators can run off the ship's fuel, providing nearly a month of continuous operation. IDS says they will be able to outfit a ship and have it docked in New York or San Francisco in a matter of months.
Related stories:
III. CRE Case Study #2: Wells Fargo’s Flexible Portfolio Management
David Nelson has been the CRE for Wells Fargo through most of its growth. WF is the 5th largest bank in the US with 158,000 employees and 6,200 locations with a total of 60msf, half is owned and half is leased. There are 2,000 outside tenants in these buildings and there are 100 new branches coming on line each year, slowing down in 2007.
David talked about the need for a new long term strategy in 2000 when WF decided to expand in downtown SF in a dynamic changing market. They needed a plan that would hold up through a good real estate market and a downturn and they needed better CRM to predict the future of their customer base who wanted them to grow in the SF market. This strategy development was to create a flexible portfolio that balances the future space needs with the reality of the real estate cycle. The results were to:
- Negotiate long term leases with option periods (15 year leases with 2-5 year options by floors)-providing future expansion with predictable rates
- Purchase several buildings in downturn market- bought low and then did sale/leaseback; made profit and had 30 year fixed cost
- Decrease number of buildings occupied – migrated to big buildings with big floor plates for better planning options since “MAC costs so much,” wanted to minimize.
- Determine best customer locations
David showed a TERMINATION OPTIONS CHART which is the product of the strategy and negotiations done by his brilliant CRE team. It shows staggered options coming due in 2008, 2010, 2015 and 2028 for the maximum flexibility. His goal was to “make that keep going.” (This would be a report in Manhattan that would be interesting to compare with some of our customers’ strategies).
IV. CoreNet Global’s State of the Industry Report – Key Findings
This is CoreNet’s first report on what is happening in the CRE and Workplace industry and compares where we are to where we said we were going in the 2010 report. We only had time to discuss a few of these topics. It will be released to the Global Learning community and then to the membership in the coming weeks. It covers:
- Sustainability
- War for Talent
- Strategic Competencies
- Workplace
- Solutions Delivery
- IRIS
Sustainability: We are moving faster than 2010 predicted, yet still less than 50% have energy policies and even fewer have active energy management systems (where is JCI and Siemens, one asked). And 40% of energy usage is in commercial buildings. Shell is leading the pack with “energy free meetings” which means the least energy used to get people together (using virtual settings, smaller closer gatherings and then virtual conferences). CBRE has declared they will be carbon neutral by 2010. CoreNet is holding the first SUSTAINABLE COMMUNITY meeting in May in San Diego (Manhattan will have representation there-Sherri Everheart). A discussion was held on how important LEED was and RBS said they are turning to ISO 1401 instead. They have a $40m budget to seed energy efficient projects (spearheaded by Barry Varcoe). HOK created for Citibank sustainable scorecards and checklists. Sun and CocaCola have Sustainability Chiefs who report to the CTO.
What are the leading energy practices? The early adopters are getting investments from the local power companies (HP in San Diego), green and white rooftops, gray water for irrigation and cooling and global measurement (bill payment for energy), travel management, virtual conferencing.
War for Talent- Harder to hire people: cycle time was 2-3 months, now 4-6 months for good talent. New concept of ‘itinerent execs’ coming back to workforce after retired. Union Bank has Talent Management Program. More problem seen on service provider side of the talent search, particularly Project Managers (CBRE and GSA). HP said we are still not good at forecasting and planning; Harvard has studied the difference between the US and Europe over the years and we are less systematic. Robert Haft believes that strategy should remain in-house and tactical work should be outsourced; trying to teach staff client focused selling to strategic planners. This is a faster growing problem than was predicted by 2010. CBRE won an innovation award on their LABOR LONGEVITY MODEL to plan for the best locations for sites to take advantage of labor pools.
Contact Nancy Johnson Sanquist, VP of Strategic Initiatives for Manhattan at nsanquist@manhattansoftware.com (858 699 0827) in San Diego, California.
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