The Leader - May/June 2008 - (Page 50)

We lls F a r G o ’ s s a n Fr a n cisco spa ce str a teGY: Dav i D ne ls o n’ s cYcle -p ro o Fi nG Make s Fo r i Mp re s s i v e c BD p o rt F o l io p l aY FIG. 1 Drivers oF cHanGe long-term cyclical economic shocks tiMe “How do you make CRE more efficient and more effective for the enterprise?” Nelson asks. “That’s been our focus for the last 10 years.” rationalizinG tHe exuBerance Overarching economic drivers, and of course cycles, come and go over periods of time. The arrival of the millennium also brought a senior management change at a time of already-extreme change. The Dot Com explosion hit, and San Francisco felt it particularly hard with its base near Silicon Valley. “We took a position and implemented it,” Nelson recalled: n Lease more than own n Go outside San Francisco for back office because of costs: n Payroll taxes Higher salaries on average Held 2-million square feet in downtown including corporate HQ Nelson described the “pre-crash rush” of rapid space expansion with pressures for short cycle times to market that characterized those misleading, heading days of the Y2K buildup. “It was a new world for Wells Fargo,” he remembers. CBD trends were not necessarily encouraging. Rents were escalating and space was being absorbed at an historic rate. Greenspan had characterized the time with the term “irrational exuberance.” The commercial real estate markets weren’t singled out like the stock and equities markets, but they could have been. Wells Fargo even dipped in, absorbing n n about 75,000 feet in San Francisco in the midst of this space acquisition frenzy. “Now we found ourselves in the middle” of the expanding bubble, too, Nelson recalls. He honed in on a specific example that led to an “A-HA!” moment inside the bank a short time later: Three deals in excess of $50 a foot and very little in the way of tenant improvements, also known as T.I.’s. These three leasing deals represented only 70,000 square feet, but they exemplified the pathway that Nelson and his team did not want to travel down any farther – the road to too much space at too high a cost per square foot. “It wasn’t a lot but it was enough to shake us. We didn’t want to go there again.” The realization became that the markets indeed turn quickly, even after an incredible build up like Y2K spawned. “It can turn worse or better, for that matter, quicker than you think.” “We knew then we had to expand our presence in San Francisco in the context of a dynamically changing market,” Nelson relates. “We could no longer ignore local market conditions by going elsewhere.” That meant devising a new, longerterm strategy to match fundamental changes in the marketplace. keY Questions: HoW Wells FarGo cre DevelopeD a neW strateGY n Do we need a new plan and strategy to grow in San Francisco in good and bad rental markets? YES n Do we continue to lease all of our new non-home office locations? NO n Do we need to be in more than two dozen locations? NO, too many places n Do we need to establish closer relation- tH e le aDe r 50 MaY / j u n e 2008

Table of Contents Feed for the Digital Edition of The Leader - May/June 2008

The Leader - May/June 2008 Leadership Contents Message from the CEO Real Estate in the News Green Real Estate Work Without Boundries Building Flexibility Into the Business Strategy Multi-Generational Work-Force Design Work Force Longevity Analysis Wells Fargo's David Nelson Pennsylvania's Michael Rossman Globalization 2.0 Site Selection Consultant Directory The New York Report: A Core of Traditional and State-of-the-Art Opportunities Discovery Forum Findings Industry Tracker Young Leader Career Development Effective Leadership Economic Development in the News A Look Ahead In Our Next Issue Calendar of Seminars Index of Advertisers Executive Development Spotlight

The Leader - May/June 2008

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