Residential integrated into real estate consultancy

Copyright: David Lawson 1996

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Switchboard operators breathed a sigh of relief when the property industry's biggest conundrum was solved recently. Irate callers no longer required patient explanation that Chesterton and Chestertons were separated by more than a single letter.   But the deal which brought Chestertons Residential back into Chesterton International has more significant implications than a reduction in dud phone calls. It has emphasised  the renewed importance of housing as part of an integrated property consultancy.

 This goes far beyond selling homes. It even transcends  residential management, a significant  area for both firms which will be amalgamated as the prodigal settles back into its old family. Housing is now seen as a fertile area for extending skills developed in facilities management. In the next week or two, Lionel Prodgers, joint managing director of Chesterton Facilities and Property Management (CFPM) will try to persuade a large  institution to hand over responsibility for around 200 homes in and around London. Or more accurately, he will offer to take over the task of housing the employees in them.

 The bid will involve more than rent collecting and fabric maintenance - the normal role of residential property managers. It stretches to the kind of strategic, partnering service that has become the norm for commercial contracts.  While the merged Chesterton/Chestertons teams will play a leading role, they will be backed by a  battery of business systems fed in by CFPM quietly developed through a testbed  project  in Aberdeen.

 Bell Ingram, now merged into Chesterton International, took over  responsibility for more than 500 homes worth ś100m when Shell contracted out its employee accommodation in 1994. This broke with the tradition of simple property management, following instead the systems introduced when the firm worked first on pipeline contracts and then the new offices for the  1,200-strong Brent offshore the city in 1992. This includes benchmarking, accounting modules and a whole new set of computer software which is now being offered to other clients with large housing requirements.

  'This is an entirely different situation than a standard letting agency,' says Ken Thomson, head of CFPM in Scotland. It involves services stretching from supply of furniture through gardening, cleaning and maintenance. 'If a tenant says the dishwasher has broken down, they come to us,' says Prodgers. That meant setting up a help desk on call 24-hours a day.  CFPM also has a wider portfolio management role.  Shell has effectively contracted out complete responsibility for accommodation, including how this should be held. 'We quickly realised that there was no need to own housing,' says Prodgers. 'It is no different to other just-in-time processes; you take space as you need it rather than holding a stock.' The firm is now the biggest customer for leased property in the city.

  This keeps Thomson on his toes. Shell is constantly shipping people in and out, so he faces a  turnover of around 20% a year. Tenures run from  a few months to  several years and cover the whole range from the managing director  to the newest graduate, from singles professionals to families. He cannot just shovel them into any vacant space, nor cut costs to meet tough targets as the accommodation is part of employee incentives. Shell also monitors the views of its staff, and CFPM's fees and bonuses hinge on their ratings.

  Thomson must balance these conflicting demands, judging the right proportion of long to short-lease property and ensuring a choice of available property. But he cannot be over-indulgent. Vacancy rates are also part of the performance standards CFPM must meet to earn its bonuses and lay foundations for winning a potential two-year extension to its four-year contract. 'A 10% void level can waste  £1m a year,' says Thomson. He keeps that down by ensuring that property is kept to a high quality, reducing the chance that staff will reject it.

  As the largest customer in the city, CFPM has the power to meet those demands. 'We work in close partnership with local agents,' says Thomson. 'They know what we want and can identify the property we need early and quickly.'  That power has led to another saving for Shell. 'We have rationalised the wide mix of leases as the portfolio has been completely turned over,' says Prodgers. Using standardised documentation has saved management time.

 The sensitivity of staff needs, plus constant pressure to keep costs down means managers have  to work closely with Shell, bouncing ideas and suggestions back and forth. This liaison has proved so successful that the company has even offered CFPM the unusual step of linking its accounting software with Shell's computers to calculate tax allowances. This effectively transfers all the oil company's property functions to Chesterton.   Other measures of success include lower rents, a 36% reduction in maintenance costs worth ś250,000 and an increase in the quality of service supply which CFPM says justifies a three-year extension so several of the contracts it established. Shell was impressed enough to pay a discretionary bonus after the first year of operation.

 Now Prodgers aims to carry the lessons into a wider arena. 'We have developed a whole new software and perfected the processes  which handle areas such as trend analysis and performance measurement.' The entire portfolio was mapped on computer and the contract management, accounting and help-desk initiatives captured on a system custom built to meet Shell's requirements for rapid response, feedback, accurate accounting and management information. This provided a user-friendly interface linking the help desk, planned maintenance, contract management and accounting with the property database.

 Teamed with the merged property management skills of Chesterton and Chestertons, Prodgers feels this system could be a potent force for other large businesses.  'Building societies, pension funds, insurance companies and banks have housing responsibilities as part of staff incentives which could be treated the same way,' he says. The highest profile residential deal - the Defence Ministry sale of 60,000 homes - falls outside this net, as it is structured as  a sale and leaseback rather than an FM package.  This may yet be seen as a major government blunder, as there seems no reason why it could not have out-sourced accommodation needs of service personnel without holding onto the property.

 PANEL

Wide publicity over the sale of 60,000 Ministry of Defence homes, plus increasing interest in compulsory competitive tendering of local authority services have raised the profile of housing as a potential source of FM business.  But  Oliver Jones, managing director of facilities management at the Symonds Group, says real interest lies in management of major private sector residential property portfolios.

 'We have noticed in recent months that the smart clients in this area are thinking about new approaches to the management of their portfolios. They realise that the  'Teflon desk syndrome' - by which agents simply pass on the costs of managing residential property to tenants via service charges - will be challenged by tenants, particularly those in prime London properties.  'We are having discussions with major residential property estates about how we might reduce their service charges and provide a better service to their tenants.

 'The top end of the residential market is of interest to us, particularly since the really successful residential property managers have people who could add weight to the high quality management and procurement skills we are providing to the corporate sector.'