Once upon a time, when someone wanted to sell a piece of real estate, they went to a broker and said, "Here, go sell it. Bring me some offers." The broker dutifully made his contacts, gathered, a batch of offers and went back to the seller. That was it, end of story, right?
Oh the times they have a-changed. Now the entire investment brokerage business, including the small- and mid-sized markets, is run on longer-term relationships and an exclusive listing basis. And Marcus & Millichap Real Estate Investment Brokerage Co., based in Palo Alto, Calif., was instrumental in changing that culture 25 years ago.
"It's (the investment landscape) changed dramatically over the last 25 years," says Bill Millichap, Marcus & Millichap's president. "When we first got started, the exclusive listing really was unheard of in commercial real estate. When we went out and started talking about exclusive listings you'd talk to people with a blank look on their face. They'd say, `You don't understand the business son, there's no such thing as an exclusive listing in this business. If you want to work on it you can bring me an offer and if I like I'll take it.' The first couple of years, '71 through '74, we found a reasonable number of people for a couple of us to make a living.
"It was really a race-track environment," says Millichap. "There were little or no relationships, there was really very little the brokers were doing to bring value to the transaction other than this frantic attempt at matching buyer and seller needs, which was just nothing other than finding the first buyer you could find that would write an offer then run back to the seller as fast as you could. You never had time to do a lot of qualifying. It was a haphazard process."
If that's how it all began, today's Marcus & Millichap is a far cry from the gang of four who took off with an idea all those years ago. Now M&M employs nearly 450 people in 23 markets across the country. Last year's sales totaled a record $1.975 billion in 1,300 transactions. For 1995, M&M is 10% ahead of last year, doing $2.2 billion in 1,500-1,600 transactions.
Marcus & Millichap Real Estate Investment Brokerage Co. is one of four subsidiaries of the Marcus & Millichap Co. The other three subsidiaries include Marcus & Millichap Corporate Real Estate Services Co., a provider of tenant-oriented services; SummerHill Homes, the company's real estate development division; and Hanover Property Co., which initiates and oversees the real estate investment activities of the greater Marcus & Millichap organization.
M&M's transactions range in categories from about $500,000 to $2.5 million, $2.5 million to $10 million, $10 million to $25 million, and over $25 million.
Overall as a company, about 60% of M&M's transactions are in apartments, with the other 40% divided among retail, shopping centers, office, industrial and its specialty groups. In some markets, M&M does 60% of its business in retail and office and 40% in apartments.
In 1993, Marcus & Millichap started forming specialty groups to service specific market niches. So far, divisions are up and running for senior housing, hospitality and lodging, land and mobile home parks. In the works is a mini-storage division. "Without a doubt there's a specialty division there," says Millichap.
M&M's future plans call for new offices in the Miami/ Ft. Lauderdale market, Tampa/St. Petersburg, Charlotte and Vancouver, Wash., to open in 1996.
Matching buyers & sellers
Whatever you do, don't tell Bill Millichap he's in the exclusive listing business. "What we tried to do back then and have honed to a fine degree today was to find a better way to match buyers and sellers rather than going through this frantic process of taking the first buyer who comes through the door and running to the seller trying to jam it down the seller's throat."
George Marcus had worked for years as a broker, and when he finally hit on the idea of listing commercial properties on an exclusive basis it was a tough sell. So he decided to take the leap by forming his own company, which eventually became Marcus & Millichap.
"I had a strong feeling about what the market needed", Marcus says. "I found if there wasn't an early relationship of trust and confidence with the owners of properties as an agent, you really didn't get anywhere. It was clear you had to have better information to market properties. You had to spend more time on the analysis, on the appraisal and on the issues relative to marketing. You couldn't do that unless you had the trust and confidence of the seller, and that ultimately led to the exclusive relationship or some kind of representation agreement that gave you the responsibility to sell the property at a price that is agreeable to the parties."
Qualifying became a key part of the M&M business philosophy. "We tried to find out exactly what the seller wanted, sit down with the seller and try to position the property in terms of price, in terms of conditions that were at the upper end of the market and still not out of the spectrum of where reality is today," says Millichap. "Then instead of going out and saying to the buyer, `You've got to get your offer in today because there may be some other offers and we can negotiate the deal later,' trying to get a buyer to understand the value on the property and then ultimately trying to bring in the most reasonable offer from the most qualified buyer."
It didn't take other firms long to realize the potential of the exclusive-listing arrangement and relationship building. "Somewhere in the late-'70s to mid-'80s there were other firms that started to adopt the concept on a firmwide basis as they saw what we had done on a limited local level. Now in the late-'80s and early-'90s, everybody does it pretty much with the same concept because it really works for the sellers. There's not much to selling the exclusive representation concept any more. So people saw that it did work, thanks to George's early vision and sticking with it," says Millichap.
Now bear in mind that this concept predates the original REITs, tax-shelter syndications and many of the sophisticated building owners that have existed since. Ultimately, Marcus found his niche by concentrating on the commercial investor market that was being only partially served by the larger brokerage companies of the day.
"I felt very strongly that the company, through its managers, had to screen the process so you couldn't take any property at any price no matter how ludicrous it was or whether it was undeliverable," says Marcus. "These are basic things, but they weren't being done and often still aren't being done today."
With the concepts in place, and a few brokers, the business followed. "When we got enough people believing in the concept and we got enough people who were demonstrating the fact that you could make money doing this and that the client did benefit and we kept business, it really started to grow from there," says Millichap.
"Interpretation of the data and the advice to the client is probably more of what we are compensated for than just delivering a bunch of numbers to someone," says Marcus. "You have to be a super-specialist in this world."
Bigger is better
Critical mass became an important part of doing business. "Critical mass is really defined as having a large enough group of brokers so that you can effectively canvass 100% of the owners that are in that particular product type," says Millichap.
This goes back to the mid-'70s when we started having some successes," says Millichap. "We kept on hiring people and we found that each time we added a successful broker we were better able to access owners, and owners are primarily the people who are buyers of real estate. With three guys you can't really look a seller in the eyes and say you're accessing the market. It was really amazing because a lot of the `old dogs' were sitting around thinking, `Gee, these new guys are simply going to cut into my market.' Instead, not only did more business come in, we also did a better job of representing the existing clients," says Millichap.
Retension and compensation are part and parcel of the company's way of doing business. M&M's incentive program encourages sharing listings rather than holding them. "It really involves having transactionally capable regional managers who are making sure this communication process is being fostered and that the qualification process on both the seller side and the buyer side is constantly being implemented," says Millichap.
"We believe that if you don't put a property in the system within 24 hours you're terminated in our company," says Marcus. So all 450 agents have access to the listings and can find the optimum buyers.
Expanding its reach
Since real estate is still a local business, M &M knew it could service key markets based on many of its existing clientele. A good example is the firm's new Atlanta office, opened in July 1995.
"In some markets almost 100% of the buyers are people who already own that type of real estate somewhere within that serving area, which can be nationally and even internationally. It is that concept that has precipitated and motivated us to expand our offices. The reception that we've had in Atlanta has just been fabulous. We've gone in there and offered our existing clients who already own property in Atlanta the Marcus & Millichap process, which they already embrace and value. The numbers that we have coming out of Atlanta in terms of the number of calls, the appointments, call ratios, are all very favorable because the owners there see us as an alternative to what has been more of a local market in Atlanta," says Millichap.
"The only way you can maintain contact with those owners of real estate and those potential buyers of real estate is to have somebody locally who is sitting down and touching them, qualifying them on a fairly reasonable frequency and understanding their needs. This concept has been working extremely well, and why we're probably going to become a little more aggressive in terms of expanding than we thought initially," says Millichap.
M&M's early successes and subsequent growth on a national scale led the company down the path to new technologies. So far, Millichap estimates he has invested about $1.5 million in the computer system. And computers are nothing new to the company, which had a wide-area network linking its offices as early as 1978.
"When you get into a more national market or a regional market the sales-people are not within close enough proximity to have them meet on a daily or weekly basis, so you've got to provide some other means for them to exchange information," says Millichap. "The computer is the only way to effectively do it."
M&M's system allows its brokers to tap into the company's entire inventory of properties using an on-line service. The database is updated every 24 hours.
"When you're starting to get 1,500 to 2,000 listings, you have to find some way of making it easy for them to exchange information. We're doing deals now in terms of inter-office deals that we never would have been able to do with old phone systems and the old process," says Millichap.
M&M also has created a proprietary computer-matching program for tracking clients. "A salesperson can enter their clients' buying needs into the system and when a property comes in that matches their buyer needs, the computer automatically notifies them," says Millichap.
"The future is in making communications more efficient. The computer is the way. If a company isn't investing the time, effort and manpower and executive attention to it, they're not going to keep up," says Millichap.
Along with the rest of the world, M&M has created a home page on the World Wide Web and has spent about $25,000 so far on its Internet project.
"We've got a couple of buyers that we never would have found that just came through the Internet," says Millichap. "It's a communications medium that brokerage companies are going to have to learn how to use. It's going to become part of the marketing process, although it's a little fuzzy right now. Once people know that this is the site they have to go to first, then I'll start getting results out of it. There are some clients who visit our site every day now."
Marcus & Milichap Co.
Marcus & Milichap Real Estate Investment Brokerage Co. Produces efficient transfer of equity into and out of income-producing properties for the professional investor.
Marcus & Milichap Corporate Real Estate Services Co. Provides tenant-oriented services to Fortune 500 firms.
Summer Hill Homes Develops and builds in-fill, single- and multifamily residential projects in urban settings, ranging from 75 to 200 units.
Hanover Property Co. Initiates and oversees the real estate investment activities of the greater Marcus & Milichap organization in the western United States.