U.S. companies have been recruiting minority-owned businesses for decades to expand their supplier networks, but commercial real estate companies have been slower than others to do this.
“Commercial real estate is at the bottom left of the curve, in my opinion,” said Darrien Pinkman, senior director, Tishman Speyer, at NAIOP’s CRE. Converge 2023 conference in Seattle.
“If you look at other industries, automotive has been doing this for 50 years, pharma for 35 years, aerospace for 45 years. So, we have a long way to go.”
Pinkman joined Tess Wakasugi-Don, LEED AP, principal, GLY Construction; Nathaalie Carey, senior vice president, HR, Prologis; Rock Irvin, chief commercial officer, SupplierGATEWAY, for the panel discussion titled “Practical Strategies to Future-proof Your Supplier Network.”
There are real benefits for CRE companies to leverage supplier diversity programs and develop a network that includes woman-owned and minority-owned suppliers, particularly in recent years, when CRE projects have faced labor and materials shortages.
Pinkman said CRE companies will start to catch up only after realizing that a wide and diverse supplier network can be profitable.
“Folks need to tie this back to the investment, the benefit in the business case of why it’s important for someone that’s making a lot of money to do this,” Pinkman said. “Until we can tie that back to the business case of why it’s important for profits, it’s going to be difficult to move past where we are today.”
According to a 2021 study from The Hackett Group, companies globally dedicate 7.2% of their company’s spend to diverse-owned businesses, and that is expected to rise to 13% by 2025. But Thursday’s panelists suggested it is often closer to 2% or less for U.S.-based CRE companies. Some companies are making little or no investment.
Irvin said that any increase for a company would be a win, and companies shouldn’t get overwhelmed and discouraged trying to hit ambitious targets.
“Don’t think that this is so insurmountable that you shouldn’t get started,” Irvin said. So, they’re [CRE companies] normally starting off at 2% and normally their goals are like 12%. Some people might look at that and say, that’s not enough. I look at that and I say, that’s success, we like that. We’ll take that.”
Companies can bolster their networks in several ways, such as holding supplier events for diversity-owned businesses and assigning a dedicated employee to the task. But it also requires a top-level executive within a company championing the effort.
Carey said Prologis is committed to expanding diversity within its network, but the effort is still at the initial stage.
“We are really at the part where we’re baselining and trying to understand what our current spend is,” Carey said. She noted that this includes investigating who identifies as being a minority-owned or woman-owned enterprise.
“Then the next step for us is to benchmark and research to see what our peer groups are doing and then set our own goals as a company that match and are right for us at this particular time,” she said.
She noted that it isn’t simply a matter of identifying minority-owned companies, but also finding the right fit. She said targets are fine, but they need to be made in the context of a business plan.
“It would be really hard and difficult for us to say in this particular issue, we should go against the grain of what has helped us become successful as businesses,” she said. “There should still be a business model. There’s a business rationale and reason for why we’re doing this.”
Pinkman said it will take time for CRE companies to expand their networks to include more minority-owned suppliers but it will eventually happen. He noted that among attendees of the session, half of those polled indicated their companies were just starting an effort to expand their networks and 30% weren’t doing anything.
“I honestly see a glide path of three, five, seven years,” Pinkman said. “And the reason why I say that is you need a North Star. From a developer’s perspective … most people don’t know where to start. So, just from the data we saw today from a raise of hands just tells us that we have a long way to go, and these things don’t happen overnight.”
Read more about the Commercial Real Estate Diverse Suppliers Consortium to learn how NAIOP and other associations are joining forces to promote supplier diversity in commercial real estate (CRE).