News: Analysis & Commentary: Real Estate
BIG BLUE'S WHITE-ELEPHANT SALE
The I.M. Pei-designed building in Purchase, N.Y., once headquarters for its sprawling U.S. operations, fetched an estimated $75 million. Its prestigious Madison Avenue office tower went for $200 million. The posh country club on Long Island's north shore brought in an additional $10 million.
Acre by acre, IBM is shrinking. Last year, Big Blue sold off 25 properties, quietly dumping 20 million square feet of offices, factories, and research labs--about 13% of the space it owns or leases around the world. That works out to an area twice the size of Manhattan's two 110-story World Trade Center towers. The savings: $1.75 billion, on top of the $1.4 billion from facilities-related cuts in 1993. "This has been one of the significant ways to reduce cost and expenses--not just by laying people off," says Bob Djurdjevic, president of computer consultant Annex Research.
NOT-SO-HIGH TECH. And nothing, it turns out, is sacred. On Feb. 3, IBM Chairman Louis V. Gerstner Jr. told employees that the company would abandon its 30-year-old corporate headquarters in Armonk, N.Y. Too old to accommodate expanding the use of such Information Age amenities as videoconferencing, personal computers, and cable television, and too costly to rewire, the concrete-and-glass hilltop headquarters will be sold off. In its place, IBM will spend about $70 million to build a much smaller, state-of-the-art corporate campus elsewhere on the same 450-acre parcel.
Rethinking real estate has become an IBM axiom. After shedding 183,000 employees--27,000 of them in the past year alone--from a high of 406,000 in 1986, IBM simply doesn't need the rambling space it once did. Consolidating space and subleasing, which reduced electrical and heating bills, accounted for nearly half the $6.3 billion in cumulative cost cuts in the past two years. Managers now are evaluated, in part, on their ability to shrink property bills.
That's why IBM's mainframe unit balked a few years ago at paying what it thought was an unreasonable rent at a company-owned facility in Somers, N.Y. With top management's blessing, the organization found cheaper digs a few miles away. The IBM Personal Computer Co. has consolidated two manufacturing sites into one in Raleigh, N.C. In all, Big Blue has slashed the number of its manufacturing facilities to 19 from 39 over the past two years.
What's more, other factories have begun taking in non-IBM work or have signed up partners willing to share costs. For instance, a joint venture to build semiconductors with Dutch electronics giant Philips will take over an IBM-owned plant near Stuttgart, Germany. Salomon Brothers Inc. analyst John B. Jones Jr. says that's a recent change in strategy. "Rather than sell [the plants] because there doesn't seem to be enough demand, IBM is doing ventures with other companies to fill their facilities," Jones says.
ORANGE RUGS. Now comes the hard part. IBM has promised Wall Street that it will cut nearly $2 billion more in expenses by mid-1996, and analysts wonder what other properties could go on the block. The Armonk headquarters may be a tough sell. Not the sleekest office building--the 1960s-era orange carpeting throughout is justly infamous--it may need considerable spiffing up. Gerstner himself, after all, announced to the world that updating the old digs would cost almost as much as what IBM intends to spend on a new building.
"It's a big dinosaur. Who has the money to spend retrofitting that entire facility?," says Rita Cohen, owner of RCR Realty in White Plains, N.Y. "They're going to take a real bath on it." All reasonable offers considered.By Ira Sager in New York