Finding a Cure to Your Real Estate Blues

Conseco, Inc., the Carmel, Ind.-based insurance company, used to be known for its high-flying ways. In 1998, the company purchased Green Tree Financial Corp., a mobile home mortgage lender, for about $6 billion. As Green Tree's loan portfolio deteriorated, the company brought on GE alum Gary Wendt to help turn things around, enticing him with a $45 million signing bonus. In 2000, several board members were given the boot; according to reports, they had been loaned more than $100 million by the company. Finally, Conseco filed for bankruptcy protection in late 2002. The company had about $6.5 billion in debt and its stock was trading for pennies.

Today, a different culture can be found at the firm, which emerged from bankruptcy in 2003. Everyone is paying greater attention to costs. In 2004, several hundred staffers in Conseco's Bankers' Life and Casualty Company division moved from the Merchandise Mart in Chicago to a suitable -- but lower-profile -- office in the River North neighborhood of the Windy City. "We looked at what we needed to run the business," says Todd Hacker, senior vice president of finance and operations and treasurer. "It was clear that being in a marquee building like the Merchandise Mart wasn't needed."

Still, the move wasn't easy. In addition to leaving a high-profile landmark, employees' workspaces were downsized. Everyone up to the manager level now works from a cubicle, says Jeff Groth, vice president of facilities. And, rather than the larger, often extravagant, executive offices of old, today's are standardized at about 10 by 15 feet and are "very average," Groth says.
The changes have paid off. Lease costs are lower by about 30 percent, Hacker estimates. Moreover, the new space sets the tone for the company's approach to business today. "You need quality office space, but it needs to be reasonable," Hacker says. "We want to grow the business, and fancy offices don't compute with that goal."

The focus on corporate real estate costs by Conseco's management team illustrates a change under way across corporate America. "Real estate has more significant visibility higher up in the organization than at any time in the past," says Mark Costello, a New York--based managing partner with the construction and real estate advisory practice at Ernst & Young. Executives around the country are keeping a closer watch on the dollars consumed by their companies' facilities. Whether they're structuring real estate deals to conserve cash, deploying new technologies to analyze locations and streamline processes, or taking steps to reduce operating costs, at many companies they have real estate at the top of their minds.

One driver is the sheer amount of dollars flowing to many companies' real estate holdings. For most, it's one of the three largest expenses, experts say. Also, today's software applications allow managers to better aggregate the amounts they're spending on real estate. Previously, these costs often were scattered across several accounts, such as rent and maintenance. "They're quarters and nickels, but they add up," Costello notes.