United Commercial Realty, a retailthat first opened its doors in 1988, joined San Antonio-based ChainLinks retail broker network in 1991 for several reasons.
"We wanted to meet new clients, as well as be part of a group that could get information on what was going on in other markets," recalls Mickey Ashmore, president of the Dallas-based firm. "Also, we were looking for ways to help us grow our company into the dominant player in the Texas retail market."
Another retail brokerage firm, Ludwig and Karas Inc., joined Virginia Beach, Va.-based Realty Resources broker network in 1993.
"We are a strong competitor for top retail brokerage within the state of Michigan, and decided to go with network membership as a means of expanding our exposure on a national basis," explains Steve Karas, president of the Farmington Hills, Mich.-based company.
Ask 10 different retail brokerage firms why they joined a retail broker network, and the responses will probably sound much like those of Ashmore and Karas. And there are other reasons, including gaining expertise from other network members, augmenting the resources available to meet client requirements in an expanded range of markets, and competing more effectively with the retail operations of the national brokerage firms.
The big picture Commercial real estate networks - such as Boston-based Colliers International, Hightstown, N.J.-based New America International, and Washington, D.C.-based Oncor International - have been around for some time, but their focus on retail brokerage typically pales in relation to that afforded to other disciplines.
"Probably only 60% of Colliers affiliates have any retail component at all," explains Richard Wolf, president of Colliers' Retail Services Group. "But by the year 2000, we are committed to having a retail component within every affiliate."
At New America, about 30% of all business is of the retail variety, which network president and COO Jeffrey Finn considers "a significant part of what we do as a full-service commercial real estate network."
Meanwhile, Mike Scott of Minneapolis-based United Properties/ONCOR International, notes that while not all ONCOR members have retail brokerage operations, some firms in the network are strong in retail.
Retail details Some networks are devoted solely to retail because of the nature of retail brokerage and the distinctive needs of the firms involved.
"Retail real estate is a complicated business, with a lot more moving parts than office or industrial brokerage," notes Edward Page, principal of Houston-based Boyd, Page & Associates and co-chair of ChainLinks. This network, founded in 1981, comprises solely retail brokerage firms.
Delivering services to today's retail industry requires in-depth, geography-specific knowledge on the part of the retail broker. "Location is much more important to a retailer than it is to an office or industrial user," he says, adding that the expertise required of retail brokers is not something that can be developed instantaneously.
As a result, retail brokerage is largely dominated by independent regional firms. "If you look around, there is really no such thing as a dominant national firm in retail," says Ashmore.
Retail nationals on the prowl Not that the nationals aren't trying. "In today's volatile times," Page points out, "major national firms such as CB Richard Ellis, Grubb & Ellis and Trammell Crow are all trying to acquire retail expertise by rolling up independent companies. The national firms have money and big names, while the independents have expertise, relationships and track records."
Independents that allow themselves to be bought by nationals often get a rude awakening. "Retail brokerage typically generates lower commissions than office or industrial, which makes it a lower-margin part of the business," says Ashmore. "To be candid, retail is often treated like a stepchild within a national brokerage firm."
Adds Page, "Most independent brokers are entrepreneurs by nature, and many of them spun off from major companies to begin with. It is very difficult for individuals like this to be rolled up into a corporate structure with a corporate mentality after operating independently."
Networks a better? Networks can enable retailers to hook up with knowledgeable independent firms. Depending on the network and the deal, retail clients with multi-market requirements either contact the network member closest to them and get referred to network affiliates in other markets, or have a network corporate staff person work with them.
The smaller, independent companies that make up networks "are more agile and have less overhead and lower desk costs," says Page, "and can accommodate the needs of individual brokers better."
Says Karas, "National companies tend to have a more rigid structure. Independent companies can be more flexible and entrepreneurial in the way they operate."
This can be of particular benefit to the retailer looking for brokerage services in today's market, says ONCOR's Scott. To be successful, retailers must make sure their brokers understand the market completely.
"Their brokers must know about locations, centers, and tenant mixes of the centers they want to be in," he notes. "Independent firms have grown to know the market well as a result of growing independently, and we think they have a better knowledge than that of a national company."
Networks in action Take large-scale dispositions, for example. "There are several ways (retailers) can dispose of properties through networks," explains Colliers' Wolf. "Some networks have a corporate services director who becomes a single point of contact. This person calls the appropriate network member, who in turn assigns individual brokers who do the normal things brokers do: put up signs, contact prospects, market the property."
Colliers takes a different tack. "When we get an assignment," Wolf says, "the firstthing we do is go to the client's corporate office and set up a computerized reporting system that conforms to what they already have in place. We get to know the client's executives and learn directly what their wants, needs and constraints are."
Next, a Colliers corporate employee is sent out to do the necessary on-site due diligence for the property. "This person determines who is in the individual market for space and identifies potential sublessees," says Wolf. "They meet face to face with landlords to see if there are any exclusives, if the space can be bought out, and what (new) tenants can be approved."
If all this fails, he adds, "We then engage a Colliers broker - or the strongest one available in the particular area - to market the space."
Finn of New America International points to the continual process of retail clients acquiring new locations and disposing of surplus or underperforming properties. To accommodate those clients, he says, "We have a corporate staff that is directly involved in managing global portfolios of the clients we represent, while transactions are managed locally by members of the network, who pay fees for exclusive (geographic) territories."
Handling client acquisition and disposition needs is important, but the exchange of information also is a vital activity among network members. As Ashmore notes, "Members can pick up the phone and ask, 'Are there any two-story power centers doing well in Florida?' or 'What kind of deals are people doing in Atlanta?' at any time. Also, members can compare information on various retailers in different markets, which helps in understanding market positioning and co-tenancy requirements, among other things."
The major benefit of network membership is not necessarily the sharing of referrals but the sharing of market information, agrees Karas. "In order to compete with the national companies, it is critically important (for independent firms) to be up to date on what is happening in the marketplace," he says. "Network membership promotes the open sharing of this kind of information."
Outlook Many observers argue that, for independent brokerage firms interested in doing business on a national basis, today's retail environment mandates some sort of retail network affiliation. But there may not be room for all firms that want to become part of a network, at least from some perspectives.
"Many networks don't want to get too big," says Wolf. "They have distributed the markets among members, and they don't want to get too many dots on the map, which can lead to members infringing on each other."
Retail brokerage networks are increasingly involved in deals outside the United States. New America International, for example, has been active recently with a number of domestic retailers looking to enter Latin American and European markets.
"This is a fascinating and growing trend," Finn says. "We have been assisting those retailers by assessing these new markets for them. We will then help the retailers by doing site searches and negotiating with landlords as part of a package of tenant representation-type services."
Scott maintains that the role of networks in retail brokerage is growing. Like Finn, he sees retailers increasingly going international, led by companies such as Nike. "To the extent a network has good representation in overseas markets," says Scott, "the need for its services will be strengthened."
Here at home, broker networks watch as national companies continue to buy up smaller retail brokerages.
"The jury is still out on how successful these purchases will wind up being," says Ashmore. "Local market knowledge, in retail, far outweighs the benefits of being a big national company."
Martin Sinderman is an Atlanta-based freelance writer.