A $25 billion market is waiting to be tapped, and a national commercial real estate services company which now has Rhode Island ties is moving aggressively to exploit it. Trammell Crow Corporate Services, a subsidiary of Dallas-based Trammell Crow Co., has recently acquired one of its chief New England competitors, Phoenix Corporate Services, a Cambridge, Mass. firm which operates a 60-person customer service call center in Woonsocket.
Trammell Crow Corporate Services, based in Stamford, Conn., provides outsourcing services such as facilities management, office services, and transaction services. With the addition of 280 workers Phoenix employs in Massachusetts and 12 other states, Trammell will have more than 350 New England employees. No one will be laid off because of the merger, said Trammell Crow Corporate Services Chief Executive Officer Bill Concannon.
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The $19.1 million deal, which took effect July 1, represents the merger of two firms which serve the same type of clients. Each serves the healthcare, higher education, and corporate sectors. By merging with Trammell Crow, however, Phoenix will now be able to offer more services, especially in the brokerage services and transaction services areas. Its clients include Bayer Corp., Cisco Systems, Hewlett Packard, Media One, and Emerson College.
“It will be a much deeper, broader spectrum of infrastructure, (and) more services,” said John T. Killian, chief executive officer of Phoenix, when asked how his company’s operations will change. “This is a combination of two great companies.”
They are two companies that were formally competing in what is deemed to be a hot growth market. It’s also a fairly new one. It is only in the last 10 years, in fact, that corporations have begun to contract out for their real estate services, Concannon said.
And since the typical Fortune 500 company spends thousands per year to house its employees, the market for real estate services is huge – about $25 billion, Trammell estimates. Only about 15 percent of the market has been penetrated thus far, Concannon said.
“We believe that it’s only a matter of time before companies look, at some scale, (to) move toward relying on outside providers like us,” he said. “It’s just a dramatic opportunity for us.”
The same trends driving firms to outsource their information technology needs are driving them to consider contracting out their real estate operations, Concannon said. For one, it helps them save money, since a large company like Trammell Crow can negotiate prices more effectively.
Also, it allows companies to focus on what they do best, and leave their facilities management to someone else.
“We believe that all companies save in one form or another,” said Concannon – a Providence College graduate – adding that savings on a company’s real estate costs tend to be about 15 percent.
That is why Phoenix and Trammell are confident that the commercial real estate outsourcing industry will continue to see double-digit gains. “There’s a fundamental shift in how major corporations do business,” Killian said. “Outsourcing is a permanent change.”
But companies may also have other reasons for wanting to outsource, said Deborah Hensel, communications manager for the International Facility Management Association, a Houston-based trade group representing 16,300 facility managers nationwide.
For example, bringing in an outside company allows a firm to make changes in the company go more smoothly.
“A lot of companies are reluctant to enforce changes in their work environment, (and) they call in an outside provider to make these changes, which may be unpopular,” Hensel said.
Concannon said Trammell often hires its clients’ in-house real estate services staff members.
The association is now preparing a White Paper that will assess the trend toward outsourcing facility management services. The paper will be ready in August and will be made available to association members, Hensel said. She added that growth in the outsourcing business seems to be particularly strong in government and healthcare.
Companies with the greatest size will have the advantage in the real estate services outsourcing market, Concannon said, because the companies that are contracting out are looking more and more for long-term contracts, often four years or more. And since they are signing on longer, they want to work with a firm that can provide a number of services, he said. Because of this, the trend toward consolidation in the outsourcing business will continue, Concannon said. New competitors entering the field will likely become niche players, he added.
That, in fact, was the choice that Phoenix had: Merge, or serve a niche. It chose the former. One of the benefits of the merger to Rhode Island will be an increase in the staff of the Woonsocket call center, Killian said.
