REITs embrace new practices, tools to improve supplier diversity.

11/15/2022 | by
Stock image of supply chain

REITs are exploring and implementing strategies, processes, and tools that can both move the lever on increasing their supplier diversity and have a meaningful impact on the communities they serve.

Supplier diversity has become a bigger focus in light of growing attention to social and economic inequalities. Other factors fueling that momentum include an increased focus on ESG matters, pressure from stakeholders, and the need to improve business resilience and drive better outcomes in the wake of supply chain disruption.

According to Nareit’s 2022 REIT Industry ESG Report, 55% of REITs surveyed have a supplier or vendor policy that addresses diversity, equity, and inclusion (DEI).

“As we look more at driving equitable outcomes, being inclusive, and disrupting the way we have traditionally done business, we’ve seen a number of REITs, and real estate companies in general, are recognizing the business advantages of using diverse suppliers and Nareit is thrilled to expedite this shift,” says Ayris T. Scales, senior vice president of social responsibility & global initiatives at Nareit.

Host Hotels & Resorts, Inc. (Nasdaq: HST) is one REIT that is tackling supplier diversity as part of its broader focus on social initiatives around diversity, equity, inclusion and belonging (DEIB).

“We also recognize there is additional opportunity to expand our influence and impact in DEIB by increasing the business we direct toward diverse suppliers, consultants, and contractors,” says Helen Jorgensen, vice president of design and procurement at Host.

Diverse suppliers, consultants, and contractors build business resilience by helping to drive innovation and diversify procurement, design, and construction strategies, which have been especially important as post-pandemic supply and labor challenges continue, she adds.

That initial surge of interest is now shifting to focus on the practicalities of how to engage with minority suppliers, manage relationships, and quantify the impact.

“Organizations have evolved from ‘we have to do something’ to ‘we have to do things that create results,’” says Ade Solaru, founder & CEO of SupplierGATEWAY. Those results are generally in the form of creating jobs and economic impact. So, the focus on supplier diversity is evolving towards specifically making changes in procurement that can truly benefit communities where companies are doing business, he says.

REITs Evolve Best Practices

REITs are at different stages in advancing supplier diversity strategies, and a common challenge is simply figuring out where to start.

“We’ve really seen an awakening of corporations, who have traditionally not even thought about the engagement of minority businesses in the supply chain, that have started supplier diversity programs,” says Pauline Gebon, vice president, member success at the National Minority Supplier Diversity Council (NMSDC).

The NMSDC has seen its membership surge 40% over the past two and a half years to some 1,500+ corporate members and a network of 15,000+ certified minority business enterprises (MBEs), Gebon says.

REITs are also developing their own game plans. For example, Ventas, Inc. (NYSE: VTR) is employing different strategies for different parts of its business. The company has developed a survey for its top professional services and financial firms. In an effort to further develop baseline data, Ventas gathers and monitors all available minority/women-owned business enterprises (M/WBE) and workforce data on its construction projects. The REIT also engaged an outside provider to track and identify opportunities to increase its M/WBE vendor spend.

Each of Ventas’ asset class verticals has developed a specific target to increase M/WBE vendor spend in 2022, and the REIT is also working to increase its network of M/WBE suppliers. “We believe that supplier diversity improves the communities in which we do business, by supporting job creation, fostering entrepreneurship, and building sustainable M/WBEs,” says Tim Sanders, senior investment officer at Ventas. “We have also experienced first-hand that partnering with a diverse slate of businesses, contractors, and providers brings a diversity of perspectives to our projects that drives innovation and success.”

As part of that effort, Ventas is participating in a joint initiative with Nareit, The Real Estate Roundtable, and others  to increase opportunities for M/WBE organizations across the real estate industry, as well as leveraging other resources, such as the National Association of Minority Contractors.

Another goal is to track M/WBE spending for all current and future development projects, as well as tracking other large corporate expenses. “After collecting this 2022 baseline data, we will be able to identify growth opportunities for 2023 and beyond,” adds Brian Frost, director of construction and development at Ventas.

Gathering Baseline Data

For Host Hotels, a key starting point has been its Supplier Excellence Survey. The REIT first launched the survey in 2019 with the intent to deepen engagement with its furniture, fixtures & equipment (FF&E) suppliers. The original survey included one question regarding diversity.

Host has since added targeted questions on diversity for its strategic suppliers and professional consultants who support engineering services, design and construction, and project management.

That Supplier Excellence Survey helps to gather baseline data, which has been used to develop a procurement program to support businesses with minority ownership, as well as women, veterans, people with disabilities, and the LGBTQ+ community. Host also uses an in-house platform to track spend with those diverse suppliers and consultants identified in the survey. Through that process, Host has learned that it is important to engage with suppliers early, communicate clear expectations, and provide an opportunity for collaboration and feedback, Jorgensen notes.

“While we have been engaging suppliers on sustainability and quality management for years, this is our first formal survey tracking spend with diverse suppliers,” Jorgensen says. “These initial insights are helping us identify opportunities to expand and deepen our engagement, as well as improve our processes and IT infrastructure to better track spend and formalize initiatives and corporate objectives.”

Although Host was encouraged by its initial results, the company also sees room for improvement in its approach and overall spend with diverse suppliers, she adds. In addition, the REIT plans to continue surveying its strategic suppliers, consultants, and contractors on an annual basis.

“Host is just beginning its journey in supplier diversity, and we’re excited to see how we can drive innovation and social impact through diverse supplier spend,” Jorgensen says.

We’ve seen a number of REITs, and real estate companies in general, recognizing the business advantages of using diverse suppliers and Nareit is thrilled to expedite this shift.

Ayris T. Scales, senior vice president of social responsibility & global initiatives, Nareit

More Than Checking the Box

Improving supplier diversity can deliver significant benefits beyond simply checking the box and increasing ESG scores. “When the practice of supplier diversity first began, it was on the premise that it was the right thing to do or the need to fill a quota. It’s no longer that. It’s a business imperative,” Gebon says.

There is a virtuous circle where spending money with diverse suppliers from diverse communities creates a positive economic impact with benefits that include higher tax revenue and greater spending power that has the potential to improve the bottom line for corporations, she adds.

Beyond economic impact, companies also are looking at supplier diversity in the broader context of creating a more resilient, reliable supply chain—a lesson that was brought home during the pandemic.

“The minute you realize you don’t have good alternative sources for products or services, and you have fragility in supplier relationships, suppliers can impact your success,” says SupplierGATEWAY’s Solaru. People recognized that they needed to invest in a supplier infrastructure that is robust and resilient and diverse, not only in DEI terms, but in terms that they can’t rely on just one or two companies and hope that they are always going to be there, he notes.

There is clearly a growing commitment within the REIT industry to increase its supplier diversity. In many cases, that is an extension of broader DEI initiatives. The industry is thinking about ways that it can increase diversity at all levels of an organization from its boardroom and employees to the vendors, suppliers, and contractors that companies are working with in a variety of aspects.

“At Ventas, we know that if we want to see the change, we have to be an agent for change. DEI is part of our core value system, and a key component of that is supplier diversity,” Sanders says. “We will continue to drive change internally and externally by increasing our spend with M/WBEs throughout the company, standing-up M/WBEs through mentorship, and working with industry partners to ensure that we are sustainably growing the M/WBE ecosystem across the country.”

New Resource Improves Access

In response to the growing interest in supply chain diversity, Nareit is actively involved in creating a new resource for its members and the broader real estate industry.

Through a collective partnership known as CREDS (Commercial Real Estate Diverse Suppliers Consortium), Nareit is teaming up with five other real estate industry associations—The Real Estate Roundtable, the Innovating Commerce Serving Communities, the Mortgage Bankers Association, NAIOP, and the National Multifamily Housing Council—in a collaboration with SupplierGATEWAY. The CREDS platform is expected to officially launch at the start of 2023, although Nareit members can sign up before then.

SupplierGATEWAY is a cloud-based supplier management solution that has been connecting buyers and suppliers to create more resilient supply chains since 1997. Currently, its database includes more than 5.5 million businesses that are owned by ethnic minorities, woman, veterans, LGBQT+, and people with disabilities. Its list of clients also includes some of the world’s most recognized brands, municipalities, and hospital systems ranging from Amazon and Target to Major League Baseball.

“We know there are so many small businesses that are minority- and woman- owned who are out there, capable, ready, and excited to be able to support our industry,” says Ayris T. Scales, senior vice president of social responsibility & global initiatives at Nareit.

The SupplierGATEWAY partnership will help bridge the gap in identifying those companies. The industry is making this commitment to saying that we want to engage more with these businesses, and this collective group of associations is helping to provide the tools to help make those businesses more readily accessible, she adds.

Anyone can do a Google search and come up with dozens of supplier options for a particular product or service, says Ade Solaru, founder & CEO of SupplierGATEWAY. The SupplierGATEWAY platform, however, allows for procurement from a singular place. Its searchable database provides information on qualifications, experience, references, and certifications. The platform also verifies information, such as confirming a company’s status as a minority or woman-owned enterprise.

Another advantage of the SupplierGATEWAY platform is that it functions as both a procurement tool and a supplier management tool, tracking things such as whether insurance and certifications are current. REITs also can use the dashboard to track who they’re hiring; total spend, along with the type of jobs and where spend is going to better quantify the economic impact. “All of those nuances that companies want to do today, our software helps them to do,” Solaru says.

Phase two of the SupplierGATEWAY partnership aims to provide ongoing technical assistance and capacity building for registered business that fall within the suite of services that the REIT industry is focused on, Scales says. “We want to make sure that if we’re giving woman and minority-owned companies this opportunity, that they have the capacity to perform and execute at the level that we are expecting,” she adds.

Organizations have evolved from ‘we have to do something’ to ‘we have to do things that create results’.

Ade Solaru, founder & CEO, SupplierGATEWAY

Steps for Success

Several years ago, the National Minority Supplier Diversity Council authored the eight best practices of supplier diversity, and those best practices remain relevant today, says Pauline Gebon, vice president, member success.

  1. Broadly speaking, the eight components that help guide supplier diversity strategies are:
  2. Establish corporate policy and top corporate management support
  3. Establish comprehensive internal and external communications
  4. Identify opportunities for minorities in strategic sourcing and supply chain management
  5. Establish a comprehensive minority supplier development process
  6. Establish tracking, reporting and goal setting mechanisms
  7. Establish a continuous improvement plan
  8. Establish a second tier program