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into real estate equation

Kodak managers put return
into real estate equation

Bausch & Lomb Inc. snagged three years’ worth of headlines for building a 20-story downtown headquarters.
Over the same period Eastman Kodak Co. quietly created the Bausch & Lomb tower’s virtual equivalent, made out of wasted space found in its State Street headquarters.
After shuffling 1,300 workers around in the building last year, Kodak found enough unused space–300,000 square feet–to accommodate an additional 500 workers, moving them from outlying locations.
In real estate as in all else, company officials say, Kodak is learning the lesson of the 1990s: less is more.
The firm began rethinking its property management and slimming its portfolio in 1993, said Vice President Bruce Russell, director of corporate real estate.
But while Kodak has shed property with the zeal of a movie star dropping pounds at a fat farm, Russell shrinks from the term downsizing.
He prefers to speak of RONA–return on net assets. The point is not merely to downscale real estate, but to make it pay.
By better using space and shedding what it does not need, Kodak believes it can create savings equivalent to $100 million in annual sales, he said.
For Russell, the story is not what real estate Kodak is leaving behind. Rather, it is what the company does with what remains.
Nevertheless, he concedes the shrinkage amounts to a large chunk of real estate.
In Rochester alone, Kodak vacated roughly 1 million square feet of space during 1994, exiting both its own and leased space, said John Englert, Kodak director of program development.
In January, for example, the firm quietly moved out of Corporate Place, leaving some 80,000 square feet in the East Avenue office building vacant.
The move followed departures last year from space in Canal View Office Park in Brighton, Air Park Office Park on Scottsville Road, and Carlson Road and Farmington facilities.
Such moves virtually closed Kodak out of leaseholds in Rochester.
But the company by no means is done, Englert said. It is looking to get out of the Hawkeye plant on St. Paul Street and has another facility on Lee Road on the market now. Others will follow.
While Kodak has kept a low profile in its real estate efforts, they have not gone unnoticed.
“On a market this size, this has got to have a very big impact,” said Angelo Nole, executive director of advisory services for Pyramid Brokerage Co. of Rochester Inc.
Indeed, he said, so much commercial and industrial space hitting the local market in one year is unprecedented and could have sent the market into an oversupply tailspin.
Yet, the landing was soft. Most of the former Kodak space filled easily, creating hardly a ripple in the market outlook, Nole said.
He gives Kodak itself much of the credit. In its local real estate dealings, Nole said, the firm has been a model corporate citizen.
Instead of abandoning properties to market whim and leaving owners to their own devices, Kodak gave them as much as a year’s notice and worked closely with brokers to fill the vacated space, he said.
In addition, it left properties in outstanding condition.
Indeed, Nole speculates, the high-quality space Kodak put on the market may have created demand. For some firms that wanted to expand but were unwilling or unable to pay for a new facility, high-grade former Kodak office and industrial space provided a one-time opportunity to make a move more cheaply, he believes.
Owners have filled former Kodak space at Canal View and Air Park, Russell said. The Corporate Place offices remain empty while Kodak continues to pay out a lease, but he is confident that it too will fill.
Meanwhile, the company is undergoing similar exercises worldwide.
Russell declined to say how much space the company has exited globally or how much more it plans to lose.
The money saved, however, will total well into the hundreds of millions of dollars, he said.
More important to the firm than immediate gains from property sales or savings in rents are ongoing maintenance, acquisition and construction-cost savings that result from smarter use of remaining space.
Such concerns reflect a new role for corporate real estate in the Kodak hierarchy, Russell said.
In the past, he and his counterparts were “executioners,” Russell said. They would oversee a property sale or acquisition, arrange a lease and then move on.
Now, corporate real estate maintains a constant link with other departments as it rides herd on space use in an ongoing effort to keep RONA high.
In a sense, the department’s new role is re-engineering made manifest, he said.
It is not merely a question of squeezing workers into smaller spaces to save money but one of creating work spaces that reflect new working conditions and make intrafirm dealings more efficient, Russell said.
Sales staffers, for example, can largely work away from the office using notebook computers, cellular phones and fax machines. Why does each need his own office or even his own desk?
Private offices themselves are outmoded, Russell said.
In the old way of thinking, you claimed more and more personal space as you moved up the corporate ladder. Now, workers are encouraged to work in teams, so work spaces must be open and flexible.
Russell himself has no private office but sits at a desk surrounded by moveable partitions.
Indeed, companies themselves have less need of “trophy” buildings, Russell said.
IBM Corp. sold its former U.S. headquarters in Purchase, N.Y., and a Manhattan office tower, reportedly fetching $75 million and $200 million, respectively.
Such shrinkage is the corporate wave of the future, Russell said.
Yet some things may not change.
At this time, Kodak has no plans to put State Street on the block and CEO George Fisher will keep his private office, Russell said.

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