Office & Industrial Properties
June 2000
Benezet's Out of the Box
But Can She Tame Amazon's Real Estate?
Door Desks ad Skate Rats: Amazon Office Space
Working at a company with thousands of employees whose last home was a dorm, Peggy Emerson is Amazon.com's unofficial RA She's on the other end of the line when other tenants and owners call to express concern about a pack of young techies with purple hair and nose rings brandishing cigarettes outside Seattle's premiere office building The caller is concerned about how the loitering impacts the building's image But Amazon has left its imprint on downtown Seattle Conservatives from old economy companies only now are getting used to sharing office towers with kids who look more like skate rats than highly paid computer programmers.
"This is the first time I've seen tire tracks on the walls from the bicyclist who brought the bike into the office because they didn't have bike parking," says Julie Benezet, director of global real estate and facilities. "A lot of these people have never been in office buildings before, so they don't know how to behave. I can understand the landlord's reaction to this. But the [employees] don't ruin the place. They are not really hurting the enterprise."
At Amazon, real estate strategy is not just educating senior management about advance space planning It's also encouraging content editors to be good tenants and convincing the building's owner to allocate smoking areas and install bike racks.
"I make sure all of our employees know how to use a building, so that we're good citizens," says Emerson, Amazon's global property manager "We can leverage that good citizenship into a renewal later The [owners] all talk to each other and this is a small town."
"I've had room inspections to make sure we don't look too creepy, by [owners] who have known me for a long time," muses Benezet.
Amazon is not a traditional office user, agrees Ed Curtis, a principal with Washington Partners Inc., a Seattle-based real estate broker who has had to sell the company to skeptical landlords "Most of the buildings in downtown were constructed for the tenants of the '80s and before
Amazon is looking for something a little different, a little more creative. We don't have a lot of product that fits that bill. We've made an effort to track opportunities that are somewhat unorthodox, such as the potential of a hospital and a conversion of a post office."
That hospital, the 184,000-square-foot, historically registered Pacific Medical Building, eventually became Amazon's headquarters Unlike its other office space where there were no improvements, it was gutted and an architect designed the interior to suit the company At that headquarters, it's not only scruffy kids showing up each day - employees can bring their pets, too "It's not your standard building amenity, but it's important to the high-tech community," says Benezet. So the landlord agrees to a pet policy and a "three poops and you're out" law.
"We rely on our employees to self-police," adds Emerson "That's been part of why we're so successful Julie can actually convince people to have a lot of self reliance."
Curtis meets with the owner's finance people to make sure they clearly under- stand Amazon's story "One of the challenges of working with a company like Amazon - and they are not unique - is they've been successful in raising a lot of capital and they've invested it in grabbing marketshare and not making a profit. Obviously, there are challenges in taking that to a landlord."
The Once and Future Tenant
Even still, there are landlords eager to house the high-profile company. And, Amazon clearly needs space "We went from 600 to 2,600 people in the last year and a half," says Benezet. "We snarled up every piece of property over 30,000 square feet in town We would go in and start a deal before it was even on the market. For that. I had to really pull in old relationships to get the information."
Even at five years old and with $164 billion in revenue, employees are quick to point out that Amazon is still very much an Internet startup. "It's still day one," says Emerson, quoting CEO Jeffrey Bezos. As such, the company fore-goes tenant upgrades when it occupies new office space Every employee, including Bezos, works at a $157 desk made from a door and several 2x4s. Landlords are told not to bother painting, breaking down walls or even shampooing the carpets. Just wire the office, allow around-the-clock access and control the temperature, and Amazonians will go about their business. "We're part of the 21st century There will be many more tenants like us," avows Benezet.
Forty people huddle around four doors converted into tabletops in a conference room in Seattle. A few more are on speakerphone. It's 9a.m Wednesday. Julie Benezet, director of global real estate and facilities, enters and the weekly real estate "SWAT" meeting begins at Amazon.com
These meetings are where Benezet's clients tell her their fantasies. One property manager wishes aloud for square footage. It's Benezet's job to make Amazon's real estate dreams come true.
When the Internet startup went online in July 1995, touting itself as the world's biggest purveyor of books, it gave little thought to its real estate strategy. But the company has expanded its offerings to videos, music CDs, toys, computer games and electronics. And, it has grown 2,500 percent in the last two years. It's now the largest private entity office occupier in Seattle, and its industrial buildings are some of the nations biggest.
These SWAT meetings are one way Benezet's team was able to finalize 26 deals last year, including the buildout of seven distribution centers averaging 750,000 square feet each - a feat the department now refers to as building the Eighth Wonder of the World.
At SWAT meetings, every site proposal gets air time and ideas are hashed out. "We started with a group of six senior representatives - operations, legal, treasury, tax, human resources, and I represented finance at the table," recalls Benezet. "Now, the room bulges and we have tons of people asking to be a part of that meeting, because it's where all of the pieces are brought together."
Chapter One
It has been two years since Amazon sought to bring structure to its 400,000-square-foot portfolio and created the strategy position for Benezet, a former corporate finance attorney. Today, it leases 6.5 million square feet around the world, including sites in the United Kingdom, Germany and the Netherlands.
Benezet came to Amazon as a consultant to advise on an interim strategy while the company scoured Seattle for a headquarters. She initially refused an offer to head the company's real estate division, but she admits that even then, she was intrigued by Amazon.
"There's no tool off the shelf that you can use to make this real estate work. And, that's what enticed me," recalls Benezet. "The only way you can succeed at this pace - the Internet is one click away so you're guaranteed growth that is erratic and fast - is if the real estate is going to ride at the front of the bus, rather than in back. And, that's a strategic position."
If Amazon was looking for someone to take care of air-conditioning and to make sure the lights go on, she was not its candidate. "It's certainly a very important function, but it's not me," she told them. Amazon's senior management mulled this over and agreed it needed strategic operational oversight. It created two top real estate positions where it formerly only had one. It hired a seasoned facilities manager. And, for real estate planning and strategy, it tapped Benezet. "She has the ability to look at issues from that 20,000-foot level and preempt delays and snags," says Andy Kaplowitz, Amazons treasury manager in charge of global incentives and a regular SWAT attendee.
"What stunned me is not only had they created two senior positions where there had been one, but they heard me and understood that this was a strategic position," says Benezet.
From her brief dealings, Benezet already knew a few things about the department she was about to inherit. The people running it had no real estate background. One was a former legal secretary and another had never heard of a tenant improvement.
And she knew the company had, in three months, grown from 600 to 900 employees in a city with an office vacancy rate below 2 percent. Today, the department is laden with experts. "I held out for the right people," says Benezet. "I have filled the bench with 20 seasoned real estate and facilities specialists."
Amazon Time
Around the time she was hired, Amazon found its headquarters atop a hill on the outskirts of Seattle - and outgrew it before the ink dried. It's now talking expansion projects there. "And there's more to come," teases Benezet. The company is tight-lipped about its growth strategy, its future product lines and its proprietary logistics systems.
Even its developers often don't know whom they're working for. On the 586,000-square-foot distribution project 30 miles east of Reno, Nev., the developer, Panattoni Development Co. L.L.C., was left in the dark until a month before closing. "We and the lender had to go on faith," recalls Doug Roberts, project principal at Panattoni. "We kept quiet and that's when it helps to have a good reputation."
It also helped that Panattoni agreed to work on what insiders refer to as "Amazon time." Early last year, Amazon realized that in order to accommodate its new product offerings of electronics and toys by Christmas, it needed more distribution centers - yesterday: "Normally; Wal-Mart takes 18 months to put up one distribution center. We did seven in seven months," says Benezet.
Although atypical in the real estate industry, the birth of its 727,000 square-foot Campbellsville, Ky., distribution center exemplifies how those seven deals got done.
Panattoni located a 320,000- square-foot property owned by Fruit of the Loom in April 1999, and closed on it June 1. Operating with a right-to-early-entry agreement, Panattoni set about constructing a 207,000-square-foot expansion in May. Meanwhile, Amazon employees were stepping over underwear and T -shirts when they moved into the first half of the building in July. By September, Fruit of the Loom had fully moved out, Amazon had installed its massive conveyor and racking equipment, and the distribution workers went from the briefs business to books overnight.
"Our real estate is Mach II with your hair on fire," quips Peggy Emerson, Amazon's global property manager. Emerson was a property manager with Microsoft Corp. who socialized with Benezet at Commercial Real Estate Women meetings before she was hired at Amazon. "It's not for the faint of heart. That doesn't mean we lose our fiduciary sensibilities or that we don't put our expertise to bear. It just means we move a little faster and have to find support people who agree to move at that speed."
"The landlords who don't fuss are the ones we have the most success with," agrees Benezet. Amazon seeks business partners who are fearless in uncharted territories. For example, when Panattoni was purchasing a distribution ware- house, Amazon exercised its 18- month expansion option before the developer closed on the sale. But Amazon is equally as flexible, says Roberts. "They are more interested in working together than being adversarial," he says. "We've had to work on expansions, and spend money on buildings we don't own. We were exposed, and so we asked for a letter of indemnity."
In another instance, when she learned of the urgent need for distribution space, Benezet formed an army of 40 brokers that located, in two weeks, every industrial box in the United States that remotely resembled the company's parameters. While the operations team was busy designing sorting machinery, she was rerouting senior executives' trips to make sure all potential sites were scouted. There have been several instances - such as its latest call center in West Virginia - where Amazon was already moved in and fulfilling orders while the lease was still running the red tape gauntlet.
Meet The Demand
Benezet admits her department is the one that really feels the impact of head count gone amok. "If someone needs a distribution center and doesn't tell us until four months before they need it, we're the ones that have to pull a rabbit out of the hat. And, I'm running out of rabbits," she jokes.
"While other people would melt under the pressure, Julie has the ability to laugh and dive in at the same time," says Ed Curtis, a principal with Washington Partners Inc., a Seattle-based real estate broker that has worked with Amazon for more than two years.
"We have honed our sense of humor to the max," agrees Emerson. "Particularly with people who have a hard time conceptually understanding real estate or why it's important, or that say, 'Why am I even in this meeting?"'
At Amazon these days, real estate is becoming more scientific, "but you basically have to work with the law of ambiguity," concedes Benezet. The finance department now collates employee growth in a way that real estate needs to see it. And executives from other departments consider real estate implications when formulating business plans.
"It's been a long education process," says Benezet. "If they don't give us the information on growth trajectory so we can formulate a business case, we can't get the real estate because we're not signing up for a large lease liability."
Benezet also established a properties committee, which meets quarterly to discuss large policy decisions and capital allocations. All of the Os attend: the CEO, the COO, the CIO and the vice president of operations. "I want the property and capital consequences to be on their conscience," she says. "I decided I'm going to get them all in a room and they are going to agree on something. Then they are going to own it. It's a painful process, but it's law and order. Because the consequences of not planning becomes obvious when you bring in 650 extra folks and the only place you have to put them is in a conference room."
One of Amazon's challenges now is consolidating its nine Seattle offices, which it was forced to lease as need arose, into four larger, more structured locations.
Developing company-wide space standards helped identify which departments were "space hogs," says Emerson. Today, there's a formula in place that allocates 180 to 250 square feet per employee based on position. Each department is accountable for its office usage and is billed rent - an incentive to have higher occupancy density.
While Amazon's real estate planning needs remain a challenge for Benezet, she's managed to recruit co-workers to her way of thinking. "People are saying, 'You guys finally got it.'" Says Emerson. "We're in a groove."