Do Commercial Real Estate Companies Lead or Follow the Market?
Okay, it’s an unfair question. The behemoth that is the American Commercial & Investment Real Estate (CIRE) Market really cannot be “led” – especially when so comparatively few people (brokers) stand in the middle of the market, trying to connect the supply and demand “dots”. They can’t control the market, since transactions are not regulated federally and principals can do all the business they desire among themselves. But, let’s look back at some of the factors and influences that have brought those of us who profess to practice in this arena to where we are today through the following filters:
• Ethical Practice of Commercial Real Estate & Its Licensure
• Specialized Practice of Commercial Real Estate
• The Application of Technology for Commercial Real Estate Companies
Not well known today was the impact the great San Francisco earthquake of 1906 had on the industry. Some land agents in post-quake San Francisco were buying property from devastated families and reselling at a huge profit. Commercial property owners found themselves in the same position. Three men formed Tucker, Lynch and Coldwell that year, dedicated to putting the client first through honesty and knowledge. They established a code of ethical practice that later became the model for the National Association of Realtors.
You could say that Government actually played a leading role in stabilizing the practice. Now, every state in the U.S. regulates real estate through licensure and mandatory education for those who represent the interests of others in the purchase, sale or leasing of property. When a new natural disaster occurs, like the two hurricanes that hit Pensacola, Florida in one year, unfair speculation and undisclosed dealings by licensees would cost them their careers.
Today, principals to transactions involving CIRE are presumed by many states to be more knowledgeable about their business and the markets in which they operate, and more capable of assuming financial risk. As regulation has become standardized, a number of states accept and grant defined reciprocal licensure to agents of other designated states after a formal issuance of a license.
“You never make more than when you focus on less” is one of those counter-intuitive lessons in knowledge-based sales, such as commercial property. Those agents who know the most fare best in the process of making a market. They connect the dots of supply and demand, which means the more “dots” they know and the more they know about those dots, the more connections they will make. Trying to remain a “Generalist”, who attempts to succeed across the whole span of properties in a market requires a knowledge too wide and too deep to master.You never make more than when you focus on less. Click To Tweet
Individuals and teams of agents, in some commercial real estate companies, have narrowed their focus to niches by property type, growth corridors or other types of segments. This allows them to grow their knowledge in a specific and specialized direction. They work to learn about deals, values and needs – applying their superior knowledge and techniques to a “limited” market. Their reputation grows along with their knowledge and success, making them the “expert” in their chosen niche. Look at any of the national CIRE firms and you will find niched teams by property types and geography, i.e. the Sperry Van Ness National Medical Office Product Council, or the CBRE Atlanta Retail Services, or CLASS which specializes in Apartment Leasing and Marketing.
“All real estate is local”. True in the past; true no longer. A prior deterrent to broadened markets and specialization has been a lack of a centralized information source. Agents kept to their local markets because they couldn’t build a knowledge base beyond their own city. Now, technology, especially the advent of the internet, has turned the market on its head – changing it from local-only to as far as information and communication can lead.“All real estate is local”. True in the past; true no longer. Click To Tweet
Good examples of information leadership are found in three commercial real estate companies: CoStar, LoopNet (now a CoStar company), and the CCIM Site to do Business (STDB). CoStar excels in aggregating listings and leased space data, sold in various packages to market users, such as brokers, owners and investors. LoopNet is the largest CIE, with over 800,000 listings, $425 billion for sale, 6.3 billion square feet for lease and a data base of over 25 million property records. The CCIM Institute, which trains and nationally certifies CIRE brokers, created STDB as a service to overlay demographic and other market data on specific geographies. Members can analyze relevant market demograhics and value indicators from anywhere.
No longer is there a real barrier to very specialized CIRE services delivered across a wide geography or customer base for a very focused market. One brokerage has even specialized in serving just law firms leasing in large urban areas across the U.S. But, knowledge is the key and the internet is the vehicle. In my local market of Pensacola, Florida, our agents use analytic software for valuation, a cloud-based CRM application to document and report activities to clients “24/7”, and actively engage in social media to inform and attract prospects and clients.
Ultimately, “leadership” will come only when an information exchange can effectively align supply and demand. How this would work is the challenge to innovators seeking access to the biggest and best of the assets that drive the American economy. I’m talking about the great pool of tenant-occupied, investment properties in Office, Retail, Industrial, Apartment and Hospitality where so much value rests and it can be made available for sale. This will truly lay the groundwork for the first, real Exchange in the CIRE market place.
Otherwise, to serve a market that is second in size only to the global oil trade, agents, local brokerages, national CIRE firms and emerging innovators must be engaged and flexible. While they may not all be able to “lead” such a market, they can be observant, inquisitive and flexible enough to anticipate needs and nimble enough to respond. Is that “control” of a market? No. Is that “leadership”? Yes.
About Bob Young – Bob is a Certified Commercial Investment Member (CCIM) who has been working with commercial real estate companies in Pensacola, Florida since 1999. He has gained a great deal of industry related insight, through his experience, and is a skilled analyst and advisor. Click here to read his full bio, or if you would like to contact him, you can call him at 850-434-7500 or email him at [email protected]
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