Disruptor blog copy blog

TwentyFive years of disruption for TwentyTwo

18 August 2015, by Dean Croucher

‘Disruption’ is a buzzword in the business world at present and, here at TwentyTwo, we also talk about being disruptive. About being a challenger brand. Challenging convention. But what does this mean in practice? And how do we live up to this claim?

Disruptive businesses/sectors

The internet is considered the most ‘disruptive’ invention for some time as it is changing fundamentally ‘everything’. No argument there!

But disruption involves much more than using new technology.

In every industry, there are businesses that take on the role of the disruptor because they genuinely see a better way of doing something.

These businesses are generally smaller/new entrants to the market offering an alternative approach or product/service to conventional providers. To gain market share, revenue and a client following, they need to make the market aware of a different way before they can convince the market their way is a better way. Changing market perception and offering new ways of doing things is their way of challenging convention.

In NZ, there are numerous examples. Xero disrupting the accounting industry and making compliance a commodity, requiring accounting firms to offer more strategic and added value services. Trade Me disrupting the newspaper industries’ ‘classified advertising’ revenue by offering a different model for buying and selling stuff. And so on…

TwentyTwo is disruptive by nature – it’s part of our DNA. We like to challenge convention and be a little bit provocative. And we don’t like being told ‘how it is’, especially by those businesses in the property industry still hanging on to conventional business models. We prefer to look at ‘how it could be’.

Tenants-only

When TwentyTwo started acting exclusivity for tenants (and owner-occupiers) in 1990, we unsettled the traditional real estate community. Why would you act for tenants? And why should tenants tell landlords and developers what they want and don’t want?

Tenants weren’t sexy. In theory, the money was with the large, institutional landlords and light-on-their-feet developers.

However, we saw the role of the tenant adviser as a missing part of the equation. Large businesses – public and private – were not being represented and were making poorly informed property decisions. The real estate process was too weighted in favour of the landlord or developer. They engaged all the consultants and advisers to assist them. The tenant was generally left to make their own decisions or rely on their lawyer.

Twenty-five years on, acting exclusively for tenants (and owner-occupiers) is still not mainstream – but there is a growing awareness internationally that brokers and consultants trying to represent both landlords and tenants have an inherent conflict.

Tenants have become much more informed and sophisticated. They want strategic and commercially savvy advice to ensure they get the best outcome. ‘Smart’ businesses recognise property or premises decisions involve significant cost and long-term commitments… and impact on their entire business. As a result, they are prepared to pay for specialist advice in the same way they pay for legal, accounting, ITC and marketing advice.

Business-led

When we insisted clients link their property planning more directly with their business strategy, we disrupted the accepted process. Typically, tenants would spend little time thinking about their business, how it was changing and what this meant for their premises and workplaces in the future.

Instead, they generally jumped straight to the solution by engaging a broker to find options for them. Not only is this process inefficient and frustrating for all concerned, but it also misses the fundamental point. Premises decisions are far reaching.

By forcing the client to spend more time upfront understanding the ‘risks and opportunities’, we were able to build greater trust with senior management who were previously disinterested in property per se.

This trust allowed a more thorough and interactive engagement process with the client. We learnt that understanding their business, looking into how the business could change and challenging the key planning assumptions resulted in a more robust brief and, more importantly, a better solution. The engagement got the client at a senior level thinking about their business, rather than driving around town with a broker looking at buildings!

By looking at their business, they were able to see ways to improve their culture, brand, productivity and the things important to their performance. And they could also see that the location they selected, the building and premises they chose, and the decisions they made about fitout and technology, could actually help enhance the way their staff worked and ultimately performed.

The conventional real estate providers and brokers are still sceptical. How hard can this be? Write up a simple brief and we’ll show you a bunch of options that could meet your needs. Don’t overcomplicate it.

They are still hanging onto an old model, while the world outside is changing. Tenants want more intelligence applied to the problem, rather than just a speed-dating service!

Holistic solutions

When TwentyTwo introduced workplace strategy as part of our suite of tools, we disrupted the architectural community. And a few old-school architects’ noses were put out of joint. “How dare you...!” they cried.

Traditionally, considering how teams work together, their productivity, space planning, concept layouts and change and communication with key stakeholders, was the architect’s domain. But many of the traditional practices had lost touch. They were too caught up with their own designs and ego trips to realise that the client had a view on the world… and that world too was changing dramatically.

Through our research offshore, we could see it clearly. The nature of the workplace was going through a 1-100-year change, driven by new technology.

So we saw a natural extension to our briefing process. Not only did we get the client to think more critically about their business and how that affected decisions on ‘which premises’ to lease, but now we were able to have a more intelligent and in-depth conversation of ‘How are you going to use the space?’.

It didn’t take long for the leading architectural practices to react and broaden their offerings. But one of the key benefits we continue to bring to this area is that our advice is independent of the architectural solution.

In most cases, an architect/designer is still needed to implement the solution – although we are offering more turnkey solutions where the client wants us to provide end-to-end advice.

We are not driven by picking up the architectural design role where an architect typically earns the bulk of their fees. So we don’t loss-lead this work in the hope of a larger fee later.

We also have a strong connection with the client from the initial engagement process. This allows us to make sure the original vision for the project and business objectives are kept in view and not lost through the implementation process – which is often the case.

With ‘workplace strategy’ generally understood by most leading organisations, our next focus is on further integrating workplace planning with a broader range of levers that influence the final solution – technology, work practices, business process, customer engagement, brand, and change and communications. Watch this space for the next phase of disruption.

Controlling the leasing process

When we put the leasing process back under the tenants’ control, we started a new wave of disruption.

The leasing process has been traditionally controlled by the landlord/developer and their leasing broker/agent.

We’ve been instrumental in putting control of this process back to the ‘purchaser’, rather than the ‘seller’ – i.e. the tenant who is ultimately paying the rent and committing to a long-term lease.

In the early 2000’s, we pioneered the use of a Building Performance Specification (BPS) to define in more detail and in performance terms, the base building ‘product’ that the landlord/developer was offering. The first time we used this approach was representing NZ Defence Force in the leasing of a new 18,000m2 building for their Wellington HQ.

Until this point, the definition of the ‘building’ was left to the developer’s architect to define and document as they saw best. It was not written in a way that the tenant could understand or determine whether they were getting what they were paying for.

Working with an engineering practice, we developed a performance-based specification defining all of the elements of the building the landlord was delivering, as per their solution/proposal. This document was then attached to the Development Agreement to define the landlord’s obligations and the performance criteria for major items like air con, lifts and acoustics.

Nearly 15 years on, the use of a BPS is now standard practice across the industry and our form/document has been adapted/pirated by many!

The second initiative we were early to pioneer was the use of a Term Sheet to concentrate the negotiation of commercial lease terms. Historically, the negotiation process ‘to’d and fro’d’ between the landlord and tenant, ultimately resulting in a set of legal documents. The use of a Term Sheet focuses the parties on the top 20 items they need to agree. It allows the parties to easily track the changes in position until resolution is reached and becomes a sound basis to brief the legal teams before they draft the appropriate documentation. Again, this is becoming industry practice.

More recently, we have taken back control of the premises’ search process from the leasing brokers. Often clients appoint a leasing broker to source options for them based on their brief. What we’ve found is that, first, no one agent in the market (despite what they may tell you) controls all of the options or knows all of the potential solutions.

Secondly, as already mentioned, the leasing broker has a split allegiance. Their client is the landlord who is paying their fee. Their ‘customer’ – so to speak – is the tenant. However, there is an immediate conflict of interest as the leasing broker cannot effectively advocate for both tenant and landlord.

As a result, we’ve developed an RFP-type process for searching for potential options for clients. Read more on Briefs.

Once the brief is signed off by the client, we send it first to our network of landlords, developers and property managers within the appropriate market. These parties will either respond directly or advise they have an exclusive leasing broker representing them.

Once we have exhausted our direct relationships, we will often send the RFP to selected leasing brokers to ensure we fully canvass the market. While the leasing brokers are typically frustrated with this process (because they’re not in control and therefore have a lower probability of earning a fee), it’s proven to be a successful process to source the widest range of options in the market. It also supports our core negotiation strategy – keep the market guessing!

More disruption to follow 

Looking forward, we will continue to disrupt and be the innovators in the market. We are not driven by real estate outcomes per se. We are constantly driven by great business solutions for our clients and we’re happy to change convention in the pursuit of this vision.

...

About the author

Loves anything blue. Avoids routine and making plans. Dreams of playing golf on the senior tour. Should have been a chef or writer. Fond of chardonnay and food (any kind).

Dean is one of NZ's leading property advisers with 25+ years’ consulting experience acting for major tenants and owner-occupiers. He specialises in property strategy, tenant representation, project leadership and major transactions. He also continues to provide peer review advice across all major projects.

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