Brokerage firms are beginning to feel the tremors of what may be a radical industry shake-up. Real estate long ago earned a reputation as a good ol' boys, old-line industry slow to adapt to change. This stereotype has crumbled as brokerage firms recognize that in order to compete in the new, emerging economy, they need to make substantial changes - and make them quickly.
A transformation would be easy to accommodate, if brokers were responding to a single-market shift. However, real estate firms are battling a series of trends that include the rise of Internet technology, ongoing industry consolidation, continued global expansion and a growing demand for more services.
"Historically, companies viewed real estate as a necessary raw material," says Peter Roberts, managing director and co-president of tenant representation in the New York office of Chicago-based Jones Lang LaSalle. "Now they're looking at it as a critical success factor in achieving their business model."
Companies are realizing that real estate can create a competitive advantage by reducing operating costs or serving as a recruiting incentive. As a result, clients want more from brokers than representation for a lone lease or sales transaction. Brokers are increasingly asked to help clients develop a real estate strategy.
"We're seeing a major trend in that businesses are focused on tying their real estate strategy more closely to their business strategy," says Roberts.
Client expectations are changing. "Ultimately, end users are starting to redefine what they want, where they want it and how they want it. That is forcing these other changes," says Michael McKiernan, executive vice president and Midwest regional managing director at Northbrook, Ill.-based Grubb & Ellis.
The most basic change is that customers no longer view real estate firms as simply providers of a single service or a one-time transaction. "They are really defining our role as an overall service provider. They want us to be able to provide one-stop shopping for all the services that they may need," says McKiernan.
Corporate partners Real estate historically was viewed as a "necessary evil" in that companies were forced to buy or lease space to house workers and equipment, says Martin Peck, managing director at Trammell Crow Co. in Dallas. That perspective has changed. "Real estate is viewed today at the CFO level as a manageable expense," says Peck. Real estate issues have risen to the forefront as firms realize that real estate has a direct impact on the bottom line of a company's profit-and-loss (P&L) statement.
Instead of throwing money into occupancy costs, companies recognize that they need to become smarter at reducing occupancy costs and gaining efficiencies. The challenge for real estate professionals is to help their clients achieve that goal, Peck says.
In the past, brokers closed a transaction, received their commission and were gone. "Now companies want real estate firms to help them understand the strategic picture," says McKiernan. Firms want brokers who can help them recognize how real estate affects their business model.
Going forward, many clients will look to their brokers to make strategic recommendations such as what space the company should occupy, how that space will affect productivity and what future logistic issues the company will need to accommodate, McKiernan says. "The client is looking to the brokerage industry to be a solver of business problems that just happen to have a real estate orientation to them," he says.
New skill requirements Shifting their role from being transaction-focused to that of a strategic partner is the key change brokers face. "To respond to that trend, what we're doing is implementing what is fundamentally a human resource strategy," says Roberts. Jones Lang LaSalle's goal is to attract and retain brokers who can bridge the gap between real estate and business strategies.
Brokers are being called upon to provide a wide variety of skills that include consulting and strategic development, as well as negotiating the deal and closing the transaction. "That means we focus on hiring people with substantial business experience and advanced degrees who can sit with a CFO, or head of human resources or director of real estate, and work together to craft a strategy and then implement it," says Roberts.
Grubb & Ellis is responding to changing client demands by re-establishing skill requirements for new hires. One quality the firm is emphasizing among its existing and new brokers is an understanding of business and finance. Grubb & Ellis wants its brokers to talk intelligently with company CEOs and CFOs regarding aspects of their business such as P&L statements, McKiernan says.
Brokers with strong communication skills and a high aptitude for learning continue to be a priority as well. Every project requires that the broker quickly get up to speed on the client's individual needs and objectives. "In short, you're looking at more of a consultative type of individual who is well-educated and well-rounded, but at the same time who is still very aggressive in how they're out there trying to develop business," says McKiernan.
Communication and education Continuing education is an integral part of staying at the forefront of the real estate industry. "The biggest challenge is keeping up and adapting to change," says David T. Miller, a principal at Signature Associates*ONCOR International in Southfield, Mich. Signature encourages its employees to participate in industry organizations such as SIOR, CCIM and NACORE. "You have to continually educate yourself, and you're not going to be able to totally educate yourself from within the company," says Miller.
Joining local and national industry associations helps brokers develop skills, stay abreast of market activity and recognize local and national trends. Signature also supports in-house training with its Signature University program that provides ongoing education. As part of the University program, the company periodically offers seminars that range from computer training to professional and personal development. Topics run the gamut, from improving organizational skills to physical fitness.
Improving internal communication is another key component to tracking market activity and providing clients with the best information. Brokers are increasingly called upon to advise clients on market conditions, trends and real estate strategies. "We have deemed information to be the most important thing we provide our clients," says Jim Ledbetter, executive director in the Atlanta office of New York-based Insignia/ESG Inc.
One challenge for real estate firms is to keep information flowing throughout the company - across various operating groups and divisions. "We have regularly scheduled meetings with heads of the individual departments, as well as the entire brokerage unit, to talk about trends, transactions and share information among the entire office," says Ledbetter. "It may or not be relevant to what others are doing, but usually in the course of those monthly meetings, there is something to share. Ultimately, we learn something to benefit our clients."
Growing service base Not only are clients demanding that brokers play a bigger role in business strategy, but companies also are looking for brokerage firms to provide a wider variety of services. "The clients that we serve don't want to make 10 different phone calls to get different services or access 10 different locations," says Thomas Falus, president of New York-based Cushman & Wakefield. "They want one phone call that can seamlessly deliver all of those services."
Cushman & Wakefield is working to expand its menu of services with the addition of four new initiatives that include ownership services, financial consulting, land development and general advisory groups. The general advisory group, for example, provides a variety of information and consulting services, ranging from strategic location advice to demographic studies, Falus notes.
The days when brokerage firms could offer one-off tenant representation or focus on a single discipline are gone. Real estate firms need to offer full-service capabilities in order to remain competitive in the changing market. "The foundation of our business still rests with the client," says Peck. And those clients prefer to use fewer vendors to better control costs and improve efficiencies, he says.
Real estate firms are finding that they have to expand core services in order to remain competitive. "As in-house real estate departments in Corporate America get whittled down, like everyone else, they are looking for more and more resources to rely on," says McKiernan. As a result, firms such as Grubb & Ellis are seeing a growing number of clients looking to outsource real estate-related tasks. Those assignments are increasingly diverse. Projects range from traditional leasing and sales transactions to managing corporate cafeterias and mailrooms.
Expanding expertise Some real estate firms are beefing up expertise in specific industries as a means to capture new business. Trammell Crow rolled out two new initiatives in early 2000 - a Call Center Site Selection Division and a Telecommunications Technical Site Selection Division. "The focus of those divisions is to make sure they are best in class," says Peck.
Trammell Crow's Telecommunications Technical Site Selection Division features 50 tenant rep professionals located across the country who have made a commitment to the telecommunication site selection business. Telecommunications firms are on an aggressive expansion track. "With the deregulation of the telecommunications industry and break-up of the Bells, competition for these start-up telecommunication firms is intense to get networks and locations in place," says Peck.
Trammell Crow is positioning its new division as a highly specialized outsourcing resource for these telecommunications firms. Telecommunications companies require unique expertise and understanding of their business. Timing is one crucial component. Telecommunications firms need to find adequate space, and find it quickly. Companies in this niche also have unique real estate requirements that pertain to technical aspects such as floor loads and fiber optics.
"Our folks need to be telecommunications professionals dealing in real estate services," says Peck.
Call centers are another industry segment that demand unique real estate requirements due to high employee concentrations. The site selection process involves intense scrutiny of issues such as labor availability, demographics and wage rates. Trammell Crow recognized the opportunity to provide a full range of call center site selection services such as demographics and labor research, as well as transaction and construction services. "Our call center site selection team rolls all of those services into one," says Peck. The end result is a single-source solution for clients.
Insignia/ESG is another firm working to bring added business expertise to its brokerage teams. "Telecommunications is probably the biggest central focus of what we're trying to accomplish from a brokerage perspective," says Ledbetter. The company recently hired a broker with a background in telecommunications engineering to join the firm's tenant representation team.
"Brokers understand the jargon, but he understands the business and engineering," says Ledbetter. "And he understands where telecommunications is headed in the future."
Insignia/ESG also hired a construction manager with experience in high-tech build-outs for dot.com and telecommunications firms. Hiring someone with technological expertise at the construction level added to the entire team's ability to deal with the specialized needs of high-tech clients. "What is so critical to these companies is being on-line at a specific time and a specific date," says Ledbetter. Understanding the building processes involved helps to meet those goals.
Changing space needs Chicago-based Transwestern Commercial Services is active as a developer, owner and leasing representative. The company has identified a number of trends in recent years that have resulted in shifts in development and management strategies aimed at boosting tenant retention.
One trend Transwestern anticipated was escalating rental rates for traditional mid-rise and high-rise developments. "We believed that at some point those tenants would resist paying escalating rental rates," says Larry Heard, Transwestern's Southwest Division president.
Transwestern's solution was to create less expensive space tailored for new-economy tenants such as high-tech and dot.com firms. Transwestern zeroed in on markets such as Austin, Texas; Denver; and Dallas, and now is building single-story flex space and two-story value office space. Recent projects include the 135,000 sq. ft. Monterrey Oaks in Austin and the 200,000 sq. ft. Lincoln Executive Center in Denver. Both are single-story, flex properties. "In almost every case we have exceeded our lease-up expectations," says Heard.
Transwestern also realized that high-profile CBD and urban locations would continue to be desirable for traditional tenants such as banks, law firms and accountants. "We felt location and image would still be very important for this tenant base," says Heard. But Transwestern also recognized that rents in these core areas were headed for significant increases. "As it turns out, rents have doubled even quicker than we thought they would," says Heard. The higher rates make it much more difficult to lock in renewals.
Transwestern analyzed buildings it owned and managed and realized that strategic upgrades would be a key part to justifying the higher rents and retaining tenants when their leases rolled over. "We felt that bringing those buildings to a level of new construction was critical to keeping those tenants in the building," says Heard. Transwestern focused on upgrades to common areas such as elevators and lobbies, as well as increasing services such as added security and laundry pick-up. "We thought that by adding services like that we would make the building more valuable to the tenant," he says.
The global market Brokerage firms are under pressure to expand both their service base and geographic platform. "As the business strategy goes global, the real estate strategy must follow," says Roberts. As a result, real estate firms are expanding their global capabilities to keep up with the growing international demand. "Clients are saying, 'I want a firm to drive this real estate strategy across the world, because that's where our business is going,'" he says.
Cushman & Wakefield has 143 offices in 44 countries. "We are not going to be satisfied until we are the lead service provider in all of those markets," says Falus. "We need to produce the same quality of advice and service in New York and Los Angeles as we do in Hong Kong and Madrid," Falus says.
Real estate firms are achieving that globalization through merger and acquisition activity, as well as international affiliations and networks. "The need exists to be able to compete on a worldwide platform," says Signature's Miller. The company has been affiliated with the ONCOR network since 1993. Formal networks such as ONCOR offer perks that include a marketing arm, training platform and communication systems, he says. Another advantage to a network affiliation is that it provides a level of quality control among network members. Signature receives about 15 to 20 inquiries from its ONCOR affiliation each month.
Jones Lang LaSalle established a dominant international presence after the merger of London-based Jones Lang Wootton and Chicago-based LaSalle Partners Inc. in early 1999. Since the merger, Jones Lang LaSalle has created a Global Services Management Organization to facilitate client use of the firm's international services. "Having dots on the map just doesn't get it done," says Roberts. "You need to be able to deliver the service."
At Jones Lang LaSalle, the Global Services Management Organization is the "glue" that holds the international network together and fosters seamless service, Roberts says. "Their responsibility is to ensure that our firm delivers a consistent, high level of service across the globe," he says. The Global Services Management Organization is charged with developing a skills database and infrastructure to allocate the firm's global resources. For example, if a telecommunications client is expanding in China and needs someone who understands the business and speaks Mandarin, the Global Services Management Organization is charged with finding someone at Jones Lang LaSalle who meets those criteria.
Real Estate.com The Internet has the potential to transform traditional brokerage processes. "It's not a question of whether the 'Net changes real estate and real estate services, but the question is how quickly and how profoundly," says Falus. Many firms are grappling with the dilemma of how to act or react to the Internet. Brokerage firms do not want to make the mistake of investing too heavily in new technology and squandering scarce resources, and they also do not want to be left behind. "I think the changes that are occurring are going to change the way we do business in the next 36 months," says Falus.
Brokers are turning to the Internet more frequently to communicate, distribute information and even interpret that information. Frequently, clients can access portfolio or transaction status via a broker's Website. Jones Lang LaSalle, for example, has established working Websites for individual projects that allow the broker to post documents to a server, which is readily accessible to different members of a project team.
Jones Lang LaSalle recently created an entirely paperless project for one Dallas-based client, PageNet.com. The Website was used to communicate all of the project information electronically including surveys, building tours, lease negotiations and approvals. "We're using technology to improve internal communication, communication with clients and to improve access to information," Roberts says.
Electronic transactions Technology is expected to play an even bigger role in real estate transactions in the future, and Hightstown, N.J.-based New American International (NAI) is one organization positioning itself to compete on the World Wide Web. "The Internet has a severe impact on what we're going to be doing," says Gerald C. Finn, CEO of NAI. "Either you go into the Internet in a big way, or you get eaten by some other big firm," says Finn.
NAI is in the process of launching a new Internet marketing site, NAI Direct (naidirect.com). The site will offer complete property marketing with extensive listing information and property descriptions. A user has the potential to conduct the entire transaction over the Internet, viewing information, taking a video tour of the property and contacting brokers. NAI Direct is expected to be up and running this month. Initially, the site will contain marketing information on more than 7,000 properties. Users also can search the database for properties that meet their criteria.
Insignia/ESG is another brokerage firm exploring ways to use the Internet as a value-added tool. Insignia/ESG recently launched a Website - edificerex.com - for all of the condos the firm manages in Manhattan. The Website provides access to residents, and allows them to check if their mail has arrived or to place an order for a repair. In addition, Insignia/ESG is setting up an international task force on technology that will bring together key individuals from different offices around the world. The goal is to stay on top of what clients are demanding and where markets are headed. "We want to make sure all of that knowledge is shared with our respective offices," says Ledbetter.
Such collaboration is an important step for firms that are working to find ways to use advancing technologies. But the real challenge is to analyze how these high-tech tools fit into a brokerage firm's overall strategy. The various components - technology, globalization, expanded services - are all tied together.
"The intersection between the web and globalization and consolidation in the industry is so incredibly reinforcing," Falus says.
The Internet allows brokers to service clients around the world 24 hours a day, seven days a week. "Technology," Falus emphasizes, "makes this strategic business a reality."
We asked brokers from across the nation two key questions about their profession. Here are the questions and their answers.
What is the defining characteristic of a great broker in today's market? "Successful brokers need two essential tools: self-motivation and organization. Part and parcel to this, great brokers create a business plan and then stick to it for developing new business and for serving their existing clients. Success also hinges on maintaining the highest degree of ethical conduct. Brokers cannot let their egos interfere with accomplishing the No. 1 priority: meeting their clients' needs."
Scott A. Bazoian
Colliers Turley Martin Tucker
"I believe a great broker today is someone who can create flexibility for his or her client. Given the fast-paced growth many firms are experiencing, the flexibility to expand within a property or to a new premises while not leaving a string of obligations behind is vital."
senior executive vice president
NAI Capital Commercial
"Great brokers in any market have a desire to make a tremendous amount of money and only work with good clients that have the funds to make deals. It's that simple."
Lee & Associates Commercial Real Estate Services
"My advice to those who want to become great brokers is to remain flexible. Flexibility is the most important trait you can have in this industry. Strong courage, persistence and the ability to act quickly also are extremely important. Don't give up or be discouraged by stiff competition. It just may be you who wins the deal."
Julien J. Studley Inc.
"While all brokers need technical skills today, what sets the best brokers apart is their integrity. It's a commitment to do only what's best for your client. That includes the willingness to walk away from a deal rather than force it, if that's in your client's best interest."
president of North American brokerage
"A great broker must truly understand both the tenant and the landlord's needs and be able to closely manage his/her client's expectations within local market constraints so that all parties' objectives are met."
Richard G. Schaller
executive vice president and COO
CMD Realty Investors Inc.
What is the biggest challenge brokers face in today's market?
"The biggest challenge facing brokers in today's market is the same one it's always been: staying ahead of the competition. In today's era of instant information with the advent of the Internet, multiple commercial property databases, Websites and e-mail, a good broker must genuinely add value to any real estate transaction. Local market knowledge, experience, negotiating skills and the 'art of brokering' are invaluable assets that the best brokers bring to the table. The market is a blur. The best brokers bring it into focus for their clients."
Peter E. Kepic
"Corporations are looking to Europe and Asia to tap into expanding markets, and today's brokers must have a no-fail way to conduct business internationally. In addition to having an established process to complete assignments in global markets, a broker also needs to expand his or her role into that of client manager - an expert who can facilitate and deliver a broad range of services."
Richard B. Kimball
senior vice president of corporate services
"To be truly indispensable to their clients, brokers must be skilled at quickly accessing and analyzing relevant information from multiple sources, capable of establishing strong working relationships with all parties or their representatives and persistent in coordinating all aspects of the transaction."
Elizabeth E. Solender
"One is the exponential growth demands experienced by the emerging e-commerce industry. The second is landlords' thresholds with respect to securitization. In both cases, new frontiers in lease design are being created in lease clauses pertaining to expansion/contraction options, assignment and subletting options, as well as creative new ways to securitize the leasehold."
Cushman & Wakefield