Building Operating Management

Tall Order

Peyton Owen's challenge: boosting performance at the nation's largest REIT

Hurricane Katrina was bearing down on New Orleans. Peyton Owen, chief operating officer at Equity Office Properties Trust, the nation’s largest publicly traded real estate investment trust, took a call from his colleague, Bill Pietri, senior property manager at the company’s 1.1-million-square-foot facility in Metarie, La.

Pietri called to inform Owen that advance storm preparations were being made for the facility — three high-rise structures housing 150 businesses and 2,500 occupants — and to tell Owen that Pietri and a maintenance technician, Chuck Cox, were going to ride the storm out in the building.

“They didn’t ask to leave,” says Owen, who is responsible for operations of the company’s 700 buildings, only one of which is in New Orleans. “Had they asked, I would’ve told them to get out of there.”

Equity’s commitment to keeping its portfolio of 124 million square feet of primarily Class-A office space safe and financially sound is evident in the operating procedures Owen has established. From putting in place an enterprise energy management tool to conducting a national audit of facilities to determine compliance with local codes and laws, Owen is trying to influence outcomes.

“We believe that building operations absolutely add value to our portfolio, and we want to be the best at it,” he says. “We’re certainly on the journey to that. I don’t know if we’ll get there, but we’ve got the right people in the right places.”

Pietri and Cox are two of 19 Equity Office employees in the New Orleans facility, Lakeway Center. Although the decision to stay with a storm as strong as Katrina moving in is gutsy under any circumstances, it proved even bolder once the hurricane passed. Much of New Orleans was flooded and inaccessible following the storm.
Staying Power

Lakeway Center III is located 10 miles east of Louis Armstrong International Airport, site of the ad hoc emergency center that government officials established to treat evacuated hospital patients and those injured during the storm. The facility also overlooks Lake Pontchartrain, the site of one of the breached levees that led to widespread flooding in New Orleans.

Being holed up in the building with a generator providing power and a supply of food and water gave Pietri and Cox the ability to assess damage quickly after the storm passed. About 1,100 glass panels, including windows and spandrels, were blown out. There was extensive roof and cooling tower damage. More than 6 inches of water flooded the loading dock and elevator sumps. With the building still largely functional, however, the two were able to offer the facility to Jefferson Parish officials for use as a command center.

“I think, in the scheme of things, we’re pretty lucky,” Owen says.

Although the staff at the New Orleans property played a significant role in Equity’s ability to respond to the hurricane — Pietri has a background in engineering, construction and property management — equally important was Equity’s ability to leverage access to resources. The day following the hurricane, daily calls were made between corporate, regional and local teams.

Regional teams provided backup manpower and helped secure contractors to perform emergency repairs. Those teams also coordinated an appointment program for tenants to access the building, allowing them to retrieve critical files and computer equipment. Meanwhile, the corporate office contacted national contractors it had in place to determine what help they could provide the New Orleans facility. The corporate office also established a toll-free line and used its Web site to supply daily updates to tenants on the building’s status.

Owen has been working over the past few years to have in place knowledge, processes and procedures that would allow staff at all of Equity’s properties to respond as efficiently as the New Orleans staff. Since joining Equity in 2003, Owen initiated an audit program aimed at checking code compliance as well as determining whether building systems are operating optimally. Also as part of the audit he’s making sure warranties, systems manuals, maintenance records and other documents are available and accessible at every site.

Passing Grades

His goal, he says, is to have all properties in Equity’s portfolio score at least a 90 percent on the audit. This year, his team audited every building to determine a baseline. Under the program, every building will be audited again in 2006. In following years, one-third of the portfolio will be audited each year.

In addition to ensuring buildings are up to code and operating as efficiently as possible, Owen is conducting the audit to create flexibility in how Equity staffs its properties. By making sure all properties meet minimum standards and putting similar procedures in place, Owen intends to create continuity through the organization that should allow any Equity employee to be called in to work on any building.

“Our buildings are different, but our processes and procedures shouldn’t be,” Owen says.

Equity went public in 1997. Its predecessor was a real estate management and acquisition company founded by Sam Zell, who still serves as the company’s chairman. In the past eight years, however, the need for standardization across the company’s portfolio has become apparent in response to the company quadrupling in size. Since its initial public offering, Equity has grown to a total market capitalization of $25 billion. The company owns and manages about 115 million square feet of office space, up from the 32 million square feet it started with following its initial public offering.

The company’s portfolio spans 26 metropolitan areas, but is primarily concentrated in 10 markets: Atlanta, Boston, Chicago, New York, San Francisco, San Jose, Los Angeles, Orange County, Calif., and Seattle.

Richard Kincaid, Equity’s chief executive officer, has been with the company and Zell since 1990. Kincaid says Equity’s future success lies in its ability to remain competitive in the central business districts of the nation’s largest cities and in suburban areas with strong urban centers. He expects organizations in need of office space to continue the trend of migrating to these areas because of fundamental demographic shifts.

Urban Movement

One of the statistics Kincaid tracks is the age at which people marry. As today’s singles delay marriage they are more likely to stay in or migrate toward urban centers. Organizations that want to attract those workers will need to locate in the same urban environment where employees live.

“If you study the demographics, they’ll tell you where you want to be,” Kincaid says. “We don’t want to be in any commodity market.”

Kincaid started working with Zell at age 28 after working in the banking industry for a few years. He was named chief financial officer at age 33, when he spearheaded Equity’s effort to go public, and later served as chief operating officer.

Kincaid says Zell gave him two instructions when they started working together in 1990: “If you have problems, come see me,” was Zell’s first direction; the second instruction was, “Don’t surprise me.”

“To this day, I still don’t surprise Sam,” Kincaid says.

One of Equity’s operational goals for the next couple of years is to maximize the use of an enterprise energy management system. Installed over the course of the past year, the system is identifying energy cost reduction opportunities. The system can help Equity reduce energy costs by establishing benchmarks for each property, monitoring trends, aiding in budgeting and helping reconcile utility bills.

Although Equity personnel are still learning to use the system, Owen says they are realizing benefits already. In one building, data produced by the system showed that the HVAC system wasn’t shutting down properly on weekends. In another building, the energy monitoring system showed night setbacks were operating improperly. Other capabilities of the system include helping identify the efficiency of energy-using systems while minimizing the influence of occupancy and weather, projecting energy-usage forecasts from predicted occupancy, and identifying and correcting utility billing errors.

“With energy costs going up, this is going to be a powerful tool in controlling expenses,” Owen says.

While the enterprise energy management system is put in place, Owen is also overseeing the development of emergency plans in every Equity Office property. Although no building should be without such plans, events of the past four years have clarified their importance. The terrorist attacks in 2001, the East Coast power outage in 2003 and hurricanes Katrina and Rita this year serve as ample evidence of the need for emergency response plans.

Likewise, crisis management plans are essential to helping an organization continue operating should an emergency occur. One of the lessons Owen says was reinforced by Hurricane Katrina was the importance of having contacts with people who can help.

“You have to leverage the relationships you have to focus on the specific building in need,” he says.

Another lesson of Katrina is that effective emergency response starts from within an individual property. As Equity’s two staffers in New Orleans showed this go-around, having the right people in place is essential — and that’s Owen’s goal for every Equity property.

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  posted on 10/1/2005   Article Use Policy

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