Cesar Chekijian

Cesar Chekijian: Self-Made Mystic

By Theresa Braine
GRID Magazine, New York
Fall 1999

From his spacious, immaculate office, tastefully furnished in cherry, at Chase Manhattan Bank's headquarters at 20 Pine Street, Cesar J. Chekijian presides over a $5 billion (market value) Chase-owned real estate portfolio. With leased properties added in, the empire spans 1,300 buildings in 55 countries, 33.2 million square feet in all -- including 625 retail branches in Texas, New York, New Jersey and Connecticut -- occupied by nearly 73,000 employees.

A Senior Vice President at Chase, Chekijian lives and breathes corporate real estate. "I do, I do, I do," he says. But he tries to beg off being the point of focus. "Put the spotlight on corporate real estate, please."

It's hard to separate the two. He pontificates on the subtleties of his field with a quiet, almost religious passion and is held in awe by many of his colleagues. "Cesar is a visionary," says Gerard M. Levy, former Managing Director of Chase's Real Estate Finance group and now President of his own real estate consultancy, Gerard M. Levy & Co. "[He's] a challenging force in the industry who is on the frontier of corporate real estate strategy."

Chekijian's first ambition was to become an astronaut. He graduated from the University of London 31 years ago with a B.S. in aeronautical engineering, intent on going into space. But after the July 1969 moon landing, with American interest in its space program beginning to wane, Chekijian turned his attention elsewhere. "I went into different space management," he says.

After 14 years working for Tenneco and Warner Lambert, Chekijian began at Manufacturers Hanover in 1982, before any glimmerings of a merger with Chemical Bank, let alone Chase. He cemented his reputation in the Eighties with a series of innovative deals that involved joint ventures with builders and building owners in which the bank would receive an equity stake in return for signing on as the first major tenant. The bank saved on rent, and the landlord could tout the bank's tenancy as a selling point.

Chekijian still won't reveal details of these deals. He will say only, "I cannot discuss any specific business -- past, present or what we may do and may not do." This goes, too, for an aborted headquarters swap Chase contemplated with Bear Stearns a few years ago: Bear Stearns' building site at 383 Madison Avenue and 46th Street for Chase's building at 270 Park Avenue, a block away. Those discussions -- which involve properties Chekijian knows well, since 383 was once the headquarters for Manny Hanny and 270 housed Chemical -- were revived again recently, but appear to have tailed off. Chekijian denies they ever took place, but sources familiar with the talks refute that claim.

By all accounts, Chekijian's skill lies in his ability to see ways to make real estate not only cost less but also create value for the company and thus enhance profits. He believes -- fervently -- that corporations should view real estate as an asset instead of an immutable expense. As a result, he regards real estate costs as more than the sum of their respective parts. He says the focus should be, "what's the best way to do something to make it more profitable, to create more value, to improve productivity, to improve on all the performance measures."

This rather obvious approach is, surprisingly, what sets him apart from many of his colleagues. "Cesar likes to look at more creative financial solutions to the accounting of real estate," says Barry Barovick, the Global Director of Corporate Real Estate Consulting for Ernst & Young, who has known Chekijian since the early Nineties. "Cesar looks at it from a real cost-accounting point of view, understanding how it impacts shareholder value and the bottom line, while a lot of corporate executives don't get into that."

The difference extends even to how expenses and earnings are reported. "We don't report our earnings in dollars per square foot," says Chekijian, referring to corporate accounting methods. "And real estate keeps reporting on everything on a dollars-per-square-foot basis. That's only good for the developer, the architect and the space planner."

Chekijian modestly claims his approach to real estate has simply been dictated by economics and the business cycle. In the Eighties, when occupancy costs soared because real estate values outperformed everything else, the effect on the consumer (or in this case, the corporation) was that an ever higher percentage of revenue was devoured by real estate. Between 1983 and 1989, Chekijian says, the percentage of revenue spent on occupancy overhead doubled.

In the early Nineties, the corporate growth rate slowed with recession and losses. "Corporations were forced to consolidate to lower expenses," says Chekijian. Part of the expectation of the mergers was that they would lower the ratio of occupancy expenses relative to overall revenue, "which is the story of Manufacturers Hanover, Chemical and Chase banks," he explains.

Though few would attribute his success to this version of events, some associates admit -- mostly off the record -- that Chekijian's often dense theorizing can be light on substance. Consider: "The challenge now is for the real estate supply side to reinvent itself in how it measures its performance, for the supply side to reinvent itself with new performance measures that exceed the expectations of the broader investor community." In conversation, it can be hard to distinguish whether his rhetoric constitutes advanced thinking or merely veiled delivery. "After you listen to him you probably have to interpret about 99% of what he said," says Barovick. But, he adds, that's only because Chekijian may address three or four issues at a time in the same sentence.

And he may be thinking about them in three or four different languages. Armenian by heritage and raised in Beirut and Iraq, Chekijian speaks Armenian, Arabic, Turkish and English, with smatterings of French, Assyrian, Persian and Kurdish. "I am aware of it," he says of his reputation for being difficult to follow, and then offers a demonstration: "When you grow up speaking four languages at once, and think and speak in different languages, then not only the words or the accents, and the communication aspect of, in whatever language, becomes a challenge to everybody -- the audience and myself -- so that the way of saying things, for various reasons, gets affected."

But to focus on his delivery alone is to miss the point. Chekijian's ideas "are not all necessarily rocket science," says one real estate insider who asked not to be named. "But when you add them together, they form a flexible real estate strategy." For instance, in negotiating for space, Chekijian short-circuits the usual process by using the needs of the business as a starting point instead of the rent, extrapolating from revenue projections what the company can afford to pay.

"He was one of the first to focus on controlling occupancy costs as a means of creating shareholder value," says Terry L. Rees, Senior Vice President of Latin America for Staubach International, a corporate real estate brokerage firm, and a member of the International Development Research Council, a trade organization that is a friendly rival to one Chekijian helped found, the National Association of Corporate Real Estate Executives. "He was controlling corporate costs long before most people knew what benchmarking and cost control really were."

This outlook has enabled Chekijian and his department to bring down the ratio of occupancy costs to revenues during the past decade. According to Chase's financial statements, the bank's efficiency ratio -- the percentage of revenues spent on operating expenses -- has dropped from 66% in 1991 to 54% in 1998. Nearly half of that drop, Chekijian claims, came from the corporate real estate side.

During the same period, according to Chase's annual reports, total operating expenses rose from $8.47 billion to $10.8 billion, yet Chekijian's group reduced net occupancy costs 28%, from $973 million to $798 million. And although the number of employees dropped from 79,379 in 1991 to 72,683 in 1998, the occupancy cost per employee also declined, from $12,258 to $10,979 (partly, Chekijian allows, as a result of allotting each employee less space.)

"In the past, corporate real estate was kind of like a necessary evil in the company," says Gerard Vanella, a Vice President at Chase who works for Chekijian. "You needed space, you had to pay for space, you had to get it -- it was very mechanical. Cesar took that function and really stepped it up a notch."

So why haven't Chekijian's methods taken the field by storm? Peter Brooks, Principle of Corporate Real Estate Consulting for Ernst & Young/Kenneth Leventhal's New York City office, agrees with Rees that in fact some of the things Chekijian pioneered in the Eighties are now fairly common practice, but also suggests that the difference in Chekijian's approach may be as much philosophical as methodological. "He is leading the pack of folks who say that one should run the real estate business with more of an eye toward the bottom line," says Brooks. "You're more likely to be well thought of by senior management in a corporation if what you do makes sense to them in terms of the overall corporate business."

And in any language, getting senior management to sit up and take notice of corporate real estate as more than a fixed expense is a real accomplishment.

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