Corporate Real Estate Strategies
August 2000
Enormous Growth
Julie Benezet guides Amazon.com from 400,000 square feet to 6.5 million square feet.
Consolidating in Seattle
When Julie Benezet joined Amazon.com two years ago, the company was completely out of office space. As the downtown Seattle workforce mushroomed over the next year and a half from 600 to 2,600 people, and people were cramped two and three to a room, employees came up with novel ideas to accommodate their own growth. One woman commandeered a broom closet, converting it into an office and decorating it with a little philodendron plant. Kitchen tables and reception stations substituted for desks. Benezet recalls more than one occasion when she'd walk down an empty hallway on her way to a meeting or lunch, only to come back through a couple hours later and find it furnished with a row of cubicles. This year, Amazon.com is ready. They've leased so much office space downtown that they actually have to sublet some. This summer, they also begin a long-awaited consolidation from 10 scattered buildings to two locations in the south end of town They've leased two new buildings encompassing 400,000 square feet at Union Station Headquarters, located nearby, is 184,000 square feet in a building shared with a hospital. A second building of 215,000 square feet is being built in the headquarters parking lot and is scheduled to come on line late 2001.
In January 1999, Amazon.com's Julie Benezet got the call that the pioneering e-commerce superstore needed five distribution centers of 750,000 square feet each. Acting almost alone, she had just five months to round up the space and bring it on line.
Benezet, Amazon.com Inc.'s director of global real estate and facilities, had been with the company roughly six months. The real estate portfolio consisted of a mere 400,000 square feet, and she was battling senior management for approval to strengthen her woefully thin management team. Her real estate and facilities group included 81 people, but most performed support tasks. Of the five people in her senior seats, she was the only one experienced in transacting major deals.
Benezet got her staffing plan approved by refusing to move forward otherwise. Her success at establishing the distribution centers on time played a key role in Amazon.com's ability to grow revenues 90 percent in the fourth quarter of 1999 while shipping well over 99 percent of holiday orders on time. It also contributed to the company's impressive sales growth.
Amazon.com acquired nine businesses last year, broadly diversifying its product lines and expanding its global reach to serve what is now more than 20 million customers in 150 countries. The company reported 1999 sales of $1.6 billion, a 169 percent increase from 1998 sales of $610 million.
Amazon.com is barely five years old, has yet to turn a profit, and does business in an industry so young no one can confidently predict where it might go or what its real estate needs will be. "There is no easily discernible route that our company is going to take," said Benezet. "In real estate, we have to position ourselves for being absolutely flexible and figure out what's important and what's not."
Speed and flexibility were of key importance last year. Without that, Amazon;com could not have closed the 26 transactions that brought the company's total real estate portfolio up to 6.5 million square feet. The portfolio today includes 4 million square feet of distribution centers, 1 million square feet of office space, 20,000 square feet of customer service centers, 120,000 square feet of data centers in the United States and roughly 1.3 million square feet of distribution center space overseas. All facilities are leased, enabling Amazon.com to conserve cash for information technology infrastructure.
Benezet gave up a successful real estate and management consulting practice to become Amazon.com's real estate guru. Over the last two years, she has transformed her department into what Peggy Emerson, Amazon.com's global property manager, calls "the crack team," because of its speed and ability to meet any challenge.
Benezet reports to Amazon.com's CFO. She's outsourced most support functions, reducing her total staff to about 45 people, while growing her management core to 25. The department is organized around five functions administration, which includes strategic planning and business case analysis; real estate/program management, which includes site acquisition, planning, implementation and lease negotiation; project management, which includes facility design and construction, planning and engineering; facilities management, which includes reception, mail, supplies, catering, transportation, building operations and landlord-tenant liaison; and global security.
Because of the speed at which Amazon must move, Benezet fills her senior seats with veterans. "Many of the people on this team have been in the real estate and construction business for 20-plus years and are accustomed to working in a very flexible, changing, volatile work environment," said Emerson, who has known Benezet for about 10 years and was hired away from Microsoft Corp. "We're fairly thick-skinned. That doesn't mean we don't work with a lot of passion and emotion, but we were hand-picked because Julie knew we could withstand the culture here and be successful."
"The big challenge last year was that at the time we had to lease those five distribution centers we did not know what our products were going to be," noted Benezet. "We were negotiating the specs of the leases as the specs were being written and with maximum flexibility in mind. That's why we don't hire people who aren't deeply seasoned. We don't have time to think it through and go through a dozen committees. We have to be able to figure it out almost on the spot and still have the standard of excellence that every company has to have, particularly a public company."
Wilma Warshak, a senior vice president with brokerage firm Colliers International, spent a good part of the last year and a half helping Amazon.com round up distribution centers. "Working with Amazon is like working in dog years," she said. "I've never seen deals happen this fast. They had a very short time frame in which to produce an enormous number of transactions, and because they negotiate as undisclosed principals they had to do it with great secrecy. That took a huge effort on their part and the ability to playoff relationships that people had built over years."
Companies typically spend three to six months negotiating leases. Amazon.com does it in two to three weeks. They work late into the night and have all key players on call. Credit also goes to Real Estate SWAT, a unit Benezet created to improve planning and facilitate implementation while moving at warp speed. Every Wednesday morning for one crisp hour Real Estate SWAT brings together about 30 senior people from every decision making body that affects corporate real estate, including overseas people who dial in. They discuss all current and prospective deals, air all issues and obtain all required sign-offs.
"Everyone needs the same tools," said Benezet. "If customer service is thinking of putting a call center in a given place, they have to know if it's going to work from a tax basis, whether to get incentives, and whether there are any legal hang-ups. With everybody in the room at the same time, it's a great place to put that idea out there."
Real Estate SWAT has helped participants understand what it takes to deliver real estate-no small feat in a company where the workforce tends to think physical space can be secured at the same speed with which their computer performs-and has become a respected institution.
"When I joined the company a year ago, Real Estate SWAT was the place where I got the best information as to what was going on," said Tim Leslie, associate general counsel for operations. "It was the only place where the effort was happening on a company-wide basis."
Benezet proudly noted that when the first draft of the company's capital budget came out for fiscal year 2000, the capital project list came from SWAT "We were the starting point because SWAT is where people do their dreaming all in one room," she said.
Benezet was consulting for Amazon.com when she was offered her current position. She had been a corporate finance attorney and held an advanced degree in psychology and had worked in that field for six years. But her specialty was growing companies from adolescence to adulthood. "This would be the graduate school of my specialty," she said. "How could I resist that?"
She was not quite prepared, however, for the Wild West-like culture that prevailed at Amazon.com. Back then, employees implemented directives by doing whatever it took to get them done. There was very little structure and few formal processes in place. Major real estate leases were being negotiated throughout the company by people who had never done them before. "I couldn't even budget because there weren't any records of how much it cost to build things," said Benezet.
Nor was she prepared for the lack of respect real estate had within the corporation. "I'd always been part of a company's core business, and it didn't occur to me that real estate wouldn't be considered very core or very important here," she said. Benezet had to battle for everything, from increasing her staff and building a financial infrastructure to securing the last available field in the corporate database. "I was really mucking with people's idea of how things worked," she said. "To have the conceit to come in and suggest that your little piddly department needed major infrastructure was appalling."
If Amazon.com was entering new territory in the way of e-commerce, so was Benezet in telling senior management that her group was more than a bricks-and-mortar department. "We're infrastructure builders," she said. "I put forth the mantra that we must think of ourselves as strategic planners and not make apologies."
"If I'm asked to put a distribution center in country X, I have to figure out how big it is, where to put it, whether it's going to ship all or some of our products, whether it makes more sense to ship a certain product into that country or from within that country, whether we can do expansion modules, and the cost of that," added Benezet. "These are business questions that have a direct impact on real estate. My biggest challenge now is to educate and condition people to think of this as solving the problem of how do we get the business going."
"Because real estate touches so many parts and pieces of this company, we have a huge database of information to draw upon, and that allows us to be the great all-purpose internal consultant," added Benezet. "If we can become the strategic internal consultant that builds company infrastructure and makes this a great place to work, then we will have achieved our goals."
With Benezet at the helm, they will no doubt be successful. Colleagues describe her as brilliant, frank, honest and an extraordinary communicator. She's someone who never loses her temper or raises her voice and who maintains a sense of humor even under duress. She prefers to delegate and push people to be the best they can be rather than micromanage. She is well known in the local real estate community as well. "
Julie manages with compassion and sensitivity, but people know who is boss," said Emerson. "When she asks for something, it's not done in a demanding way. When she has to take someone to task, she will."
Benezet has crafted her department into a safe haven for people on the front lines of growth. The atmosphere is collegial, respectful, supportive, a place where any issue can be aired Honesty and loyalty are key. People communicate face to face rather than send an e-mail to someone sitting 100 yards away.
"Julie's really good at bringing together departments and individuals with competing priorities," said Jen Steele, assistant treasurer. "She's very good at saying okay, let's cut to the chase, get everything out on the table, talk about the issues, make the best decision for our company, and move forward."
"She's a deal junkie," added Leslie. "She knows how to run all different types of deals-not just real estate deals. She understands the importance of legal issues, is able to weigh the risks and involves us at the right time and in the right way. She uses her legal experience to manage the deal, but she leaves the lawyering to the lawyers. Julie is one of the best clients we've ever had."
Amazon.com plans continued growth in products and services this year, but the pace has slowed now that the main body of the company is in place. Benezet's department is focused on further entrenching themselves in strategic planning circles of major customers and tightening program management, consolidating office workers from 10 buildings to two sites in downtown Seattle and developing standards for new customer service centers.
Profitability remains elusive for the company but funding real estate projects is no problem, according to Leslie. Amazon.com reported pro forma operating loss of $99 million in the first quarter of 2000 compared with $3 1 million for the same period last year. As of Dec. 31, 1999,it had accumulated a deficit of $882 million. "We obviously need to scrutinize our huge capital investments and our longterm lease obligations, but our cash flow is fine," said Leslie "Last year, we had the largest convertible debt offering in the market's history of $1.3 billion We raised another $600 million in a debt offering in Europe earlier this year"
Also, Benezet's staff knows how to save a buck. "Our corporate furniture package for a new person is the cheapest in the business," said Emerson. "We can slam somebody in for under $500 for office furniture." That's largely because the company is standardized on a $167 door desk designed by Jeff Bezos, the company's founder and CEO. All materials, including the standard birch door that serves as a work surface, 4x4 posts that serve as legs, and metal brackets that hold everything together, come from the local lumber yard. The facilities staff cut down the legs to lower the height when necessary and save the blocks in case they need to raise work surface height for someone else. "This door desk is the last surviving icon of Amazon.com," said Emerson. "Everyone has one" Including Bezos.
And since the company moves so fast that it cannot wait for the cheapest real estate deal to come along, it obtains very aggressive lease rates Benezet's team does this primarily by not asking for large build outs and by moving into a space on the heels of a vacating tenant, helping the landlord avoid vacancy. It also bids out contracts wherever possible And it prefers to work with people who, because they have long-term relationships in mind, are willing to offer fair but aggressive pricing
Benezet's group is currently developing a strategy for selecting brokers in different markets" At the pace we go, we need brokers to be business partners," said Benezet. "We will be roaring downstream to get a warehouse of 400,000 square feet and mid-negotiation we have to suddenly pop another 250,000 square feet on it with a mezzanine and a whole different system of doors, conveying, and so on. We need a broker that can shift as quickly as we shift. We only have a certain amount of time to train people. Once we train them, if they do well and it's a partnership that works, we want to stay with that partnership. We're very loyal to the people we work well with."
And she expects loyalty in return. Of her experience helping Amazon.corn build its distribution infrastructure, said Warshak. "They expected you to give 100 percent of your time, if necessary. You had to give them priority. But they also gave you a tremendous amount of trust. And because you felt you were part of them, you treated them like family and wanted them to be successful. It was a wonderful environment. Everybody was trying to help everybody else out. Everybody was working together in unison It was beautiful. It was so much fun."
It was also uncharted waters "When I looked around for models of what to do with this rate of growth, this diversity of products, this diversity of venues, and this diversity of challenges, there weren't any-in real estate or any other place," said Benezet. "This job has required me to draw upon everything I've ever known to be successful."
"We're in a brave new world," added Benezet. "I could go someplace and do something that's more charted and prewritten, but I'd be bored to tears. I'd much rather be in a place where it's an adventure and where whatever we do is going to be new."