Australia Post Property Division’s designation as 1997’s winner of the International Research Development Council’s (IDRC) Best Practices Leadership Award signals a remarkable transformation.

Australia Post’s (AP) real estate arm certainly merits the prestigious award from IDRC, the world’s preeminent association of corporate real estate professionals. In only two years, it upped return on AP’s real estate assets from 7.3 percent to 10.4 percent, cut costs by $13.3 million, and added $15 million in value through property redeployment and redevelopment. Not to mention prodding AP’s 39,000 employees toward cost-effective space utilization.

Only a few years earlier, though, real estate and leadership were total strangers at Australia Post, the national mail system serving Australia’s 18 million residents. As in many major corporations, real estate management then played a distant second fiddle to business unit decisions. In that environment, AP’s real estate arm was about as proactive as a dead letter office.

"Real estate responsibilities had devolved -- through default, rather than planning -- to decentralized core business units based on geographic distribution," says Peter Lavis, AP Property Division general manager.

That scenario, however, left AP idly sitting on one of its most valuable assets: its 1,500-plus property portfolio, valued at US$626 million, making up more than 70 percent of the organization’s total assets; and real estate costs are AP’s second biggest cost, trailing only labor.

Substantial real estate inefficiencies were another byproduct of the geographic management structure then in place at AP. Many real estate functions were duplicated within individual Australian states, and state real estate procedures lacked consistency.

Real estate’s role was emphatically reactive. "We were mainly involved in transaction and event-driven activities, often utilizing outdated practices," Lavis says. The staff included few property professionals, further limiting the potential for real estate leadership.

In 1989, though, Australia Post got two very loud wakeup calls. First, the government ordered the national mail service to act as a "fully commercial organization." In 1989, major international players like UPS and Federal Express also entered the national market, ending AP’s monopoly status. Like some huge express mail package, market pressures had rudely arrived on AP’s doorstep.

Those competitive prods set the wheels of change spinning. AP began the arduous task of remaking itself.

Ultimately, that transformation remade AP’s real estate arm. That process began in 1995, when a management team was created to formulate a new real estate model.

Here are key strategic elements of Australia Post’s real estate model, described in greater detail in the April/May Site Selection:

• Real estate is a separate profit center reporting directly to AP’s managing director and board.
• Real estate strategies are linked to broader corporate strategy.
• Strategic asset plans formulated for the entire corporation and for each individual property.
• Real estate is responsible for all property functions and operating costs.
• Users pay for space. "Business units and the corporation as a whole now understand the business costs of accommodations, and they are actively working with the real estate unit to reduce those costs as a priority," Lavis says.
• Joint business unit contracts specify services and fees. Contracts specify key real estate services to be provided and the fees for each, for example. Significantly, contracts also include mutual recognition that the business units will be charged market-based rents.
• All transactions are tracked on real estate’s IT system.
• "Key Performance Indicators" are continually monitored and benchmarked against the real estate industry’s best practices.
• Real estate’s overall focus is on strategic management services, not transactions.

"Our highly defined, organized processes and the centralized IT-based reporting system have facilitated a proactive approach," Lavis says. "Our unit has invested in the management capabilities that will enable us to consolidate our position as the corporation’s provider of best practice corporate real estate strategic advice. Our future direction will be focused on this strategic role." SS