Real estate companies are being creative in finding ways to enhance customer relations and revenue.

By Deidra Darsa

Traditionally, owners of real estate have capitalized on the leasing, renting, buying and selling of their properties. These days, owners are finding new ways to enhance their properties' revenue streams while strengthening their ties to clients and potential clients. Whether it is through enhanced technology, telecommunications or selling moving supplies and services, many REITs and REOCs are taking advantage of formerly untapped opportunities to create profitable long-term relationships with current and potential real estate customers.

Energy Expertise

In Los Angeles, CA, office REIT Arden Realty, Inc., recipient of the 2000 EPA Energy Star Partner of the Year award, is turning an energy crisis into an energy solution for commercial property owners with its Next>Edge utility advisory and installation service. Once engaged, Next>Edge professionals will audit an owner's facilities to determine which cost-effective ways should be used to reduce utility and operational costs. These solutions can range from high-efficiency lighting or HVAC systems to determining which cost cutting-edge technology or low-cost electricity to purchase.

"It took us years to build up this competency," says Dan Bothe, senior vice president and co-CFO. By changing to energy efficient lighting and HVAC systems in 50 percent of its buildings, Arden was able to cut one-third of its energy costs on those buildings. "It's very simple," he notes. "But very few building owners have implemented these changes." "The savings are very substantial, and today that's an important issue. More importantly, it gives you a competitive edge in retaining tenants," says Bothe. "Our utility costs are less expensive for our buildings than for our neighbors. We can use this core competency to sell it to other landlords."

Arden's success (they own 83 Energy Star approved buildings) has not gone unnoticed by California officials who have asked the REIT for help. "The state even sees us as energy experts. [State officials] asked us to look at some government buildings and provide them with feedback to make their own buildings more efficient."

Construction services from pre-engineering to design-build coordination and management and broadband technology services will also be offered through Next>Edge. "I'm not assuming we're gong to get any short-term huge pop in earnings from this," says Bothe. "But maybe over the medium-to long-term. It's a good business to be in."

The EnergyStar logo isn't the only banner to fly at Arden sites. The REIT is looking to sell signage opportunities to billboard advertisers. "On a minimal scale where it's tasteful we can maximize our bottom line by having more signage," says Bothe.

A Service Point of View

Satisfying customers and tenant retention is what prompted Brookfield Properties Corporation, Toronto, ON, to join real estate technology partnerships e-ffinity properties inc., a web-enabled service provider of broadband, application, office and facility services for its office and residential tenants.

"We continue to look at other services that our office tenants might like to use," says John Campbell, managing director of e-ffinity. "In the past we just offered space. We have to do more for our tenants to help make them successful."

E-ffinity partners include telecommunications providers Cypress Communications Inc., Norigen Communications Inc., ENN Elevator News Network that delivers advertising and news in passenger elevators and Semprio.com, a purchasing service for office and IT managers.

"I don't think it's critical to look at it from an income point of view," says Campbell. "It's critical to look at it from a service point of view. No one is going to find a gold mine in telecommunication commissions. Our underlying focus is to provide more services to our tenants."

Logical Logistics

While others might think globally, ProLogis Trust acts globally, assisting customers in locating in the United States and Europe, whether leasing existing industrial distribution facilities or building new facilities.

"Customers today are growing internationally and do not have the real estate or logistics expertise to do that, so we're there to help them do that," says Walter Rakowich, CFO of the Aurora, CO, REIT.

"What we try to do is begin the process with our customers early on when they're making their logistic decisions," he says. "From the minute they decide where they want their facilities to when they move in we can provide a full service, one stop shop for a customer." ProLogis staff assist their clients in selecting facility locations, negotiating tax incentives on the development of a new building, designing warehouse interiors and selecting technology.

"We offer logistics strategy for them based on various factors such as where their factories are and where their customers are. We actually design a network optimization for them that helps them understand where the most efficient places to build their warehouse."

"When we build facilities for them, we will either do it for a fee or for lease and we provide design-build and construction management services for them," says Rakowich. "Finally, when they move into a facility we actually provide the material handling equipment—forklifts and racks. Now we're actually providing financing for those forklifts and racks through a joint venture with Dana Commercial Credit, a material handling leasing provider for over 13 years."

Building relationships at a high level with customers is making ProLogis successful in its international ventures. "When you establish relationships at a high level you find out about their needs. It is during that time we actually sell our services," says Rakowich.

For instance, by establishing a relationships with United Parcel Service, the REIT has been able to place UPS in 11 facilities. "We're clearly a partner in their overall logistics supply chain. When you're a partner with them you are in a stronger position to begin to talk about other logistic services you can provide them," Rakowich notes.

"If you design your business around the customer as opposed to designing it around the real estate, and establish customer relationships and have those relationships in multiple markets, you're in a position to leverage off of that and grow the services that you provide for them and therefore grow your own revenue streams. Also, it's important to note that many of these revenue streams do not require additional capital, so it's a way of enhancing your overall return on capital," he concludes.

A Little Off the Top

Besides a commitment to serve its 3,000 tenants, AMB Property Corporation, San Francisco, CA, has found leasing its nearly 900 industrial rooftops to be an excellent way to feed its revenue stream. "There are opportunities unique to us as an owner in which we may be able to generate income from the property and transmitting telecom is one of those ways," says Bruce Freedman, executive vice president and director of real estate operations.

"Trying to lease as many rooftops as we can is something we pursue because it's found money," added Neal Hesler, director of portfolio programs. "We've used Apex Site Management, which markets our properties to carriers."

While this transmit side of telecommunications feeds the coffers, it also opens the door for AMB to negotiate access deals with telecom providers that service AMB tenants. "We let the carriers come to us and what we've tried to do is pre-negotiate an agreement with them so if they do need some space on the properties we own, it greases the skids on getting the deal done. We're happy to let people into our buildings. We're working hard to get some of these competitive local exchange carriers into our buildings. We're looking at a lot of different avenues cautiously because the last thing we want to do is bring a carrier to our building and have them go under. When you look at our typical tenant, there's a lot of way to bring broadband to our units. Potentially DSL, fixed-wireless solutions are more applicable. In as many cases dial-up is all our some of our industrial tenants need," says Hesler.

Broadband is only one service that can generate income. AMB has developed Ambcustomerassist.com, a web-based customer service site where tenants can purchase discounted services and products while creating incremental income to AMB.

"What we've tried to do is leverage the buying power of our customers," says Hesler. "Customer Assist" has a wide variety of services to offer to the tenant. For instance, tenants can arrange transportation (trucking, airfreight) and manage their facilities via products and services sold on the web site.

"Under transportation we've gone to Roadway Express and said through our program if a tenant wants to buy under the AMB customer assist program they'll get reduced pricing and expedited services," says Hesler. "It's a way to help our customers." Other services include security systems, furniture companies, temporary labor, vending machines and material-handling like Crown Forklift.

"We're going to market this through direct mail to all of our existing tenants and we've put together a move-in kit for our new tenants," he added. "If our leasing agent can hand over a kit that has a lot of these national vendors it might help make this process easier. It's a value-added service to make life easier for the tenants."

Like other real estate companies that develop customer service programs, AMB isn't looking to make money from this program. "The primary goal is a value-added service initiative to our customers as opposed to a money making machine."

Driving Demand

While AMB provides a service to help its commercial tenants move in, Public Storage, Inc. of Glendale, CA, leases trucks and sells the moving supplies and services its consumers need to move or store household items.

"We are basically functioning in three major product areas: storage, containerized or mini-warehouse; the second product line would be truck rentals, either local or long distance; and third would be moving services, either local or long distance, plus the merchandise to assist in all three of those major product categories," says Harvey Lenkin, president.

"We're not seeking to go far afield from our basic core business," notes Lenkin. "All of the non-real estate activities are relatively small compared to our real estate activities."

However, Public Storage has implemented these programs with three goals in mind: drive more consumers into its real estate-based storage business where its profit margins are the greatest, strengthen its brand name, and lastly, derive additional sources of revenue and net operating income from the non-real estate activities.

"Each of these business activities are tracked by themselves," says Lenkin, adding, "although it's always important for us to see how one business activity assists another. We do know that our merchandise sales and truck rental activities have been growing significantly on a percentage basis. Our containerized storage business has been growing quite well, too, but it is still relatively small compared to the mini-warehouse facility."

"The primary goal is to drive an increased demand onto the real estate side of the storage business," says Lenkin of the activities he says are very closely allied activities. "For instance," he notes, "long distance and local moving services require the same kinds of merchandise connected with the self-service move or storage activity of the consumer."

While considering ways to increase its non-real estate revenue, Public Storage has been careful to remain close to its core business. "Some we've tried and determined they just don't fit," says Lenkin. "We're not going to go out and sell women's clothes, or manufacture widgits."

The REIT is also building its web site so further down the line consumers will be able to access information, purchase goods and make reservations for its services online. Today, consumers call into a national call center that receives 2.7 million calls per year from people looking for solutions to moving problems.

"These are good business activities unto themselves. We think they enhance the real estate side of the business, and we think it is the right thing to be doing," he says.

Sharing Fees

If one of Public Storage's moving services customers moved into an Archstone Communities, Inc., apartment, they would find their new home wired with the latest in broadband technology. "We're able to provide our residents with services they need and want," says Jack Callison, director, investor relations at the Englewood, CO, REIT. By entering fee-sharing agreements for television, long distance phone service and high-speed Internet access, Archstone is able to provide residents with services they need and want. "It's a service that our customers appreciate. One-stop shopping where they can sit down with a leasing agent and get set up with their cable and Internet access. It's part of our overall operating strategy—focusing our attention on the customer and giving them exactly what they're looking for.

"It's a natural and logical extension of our core business," says Callison. "We found the fee sharing arrangement mutually beneficial. There is no cash out flow on our side and we have no exposure with being wed to a particular solution throughout our entire portfolio. Each property is evaluated independently."

It's All About One Thing

No matter what property type or what ancillary business real estate owners are operating, a common theme runs through each company's plans. As ProLogis' Walter Rakowich says, "The core is the real estate; anything else is an enhancement to customer relationships."