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I Own A Building. You Are A Broker. I Don’t Need You Anymore.

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Are we really just friends?

So let’s imagine I own a portfolio of Class A buildings in a major U.S. city.

All the big hitter brokerage firms tickle my email and take me to lunch. I get little hand written cards and neat little golf (I am a Pro V1 man) gifts from them. Which is nice because I like to tee it high and let it fly with the best of them.

I am always cordial and friendly. I make an effort to spend an equal amount of time with all the major players. I have always treated each relationship and deal with equal professionalism.

Interesting to me though is that I have noticed something lately. Myself and my team are doing most of the heavy lifting. We actively and aggressively seek tenants. We are looking at any and all avenues to put our properties in front of those potential tenants. We are as up to date on the latest marketing analytic demographic and tech trends as anyone in our industry and we are damn proud of it.

I am finding it harder and harder to understand my broker friends value proposition.

What are they doing that we ourselves are not doing?

We know the product better than they do.

We know the data better than they do.

We know our potential users better than they do.

We can negotiate directly.

How many deals did we do ourselves this year again?

Now don’t get pissed…….

and go on a  “you can’t hate on brokers rant.”

A Challenge.

In the comments section below state your value proposition.

I can absolutely guarantee thousand and thousands of views all for free.

Here is your chance to clearly define what it is that we brokers value add.

Go ahead. Don’t be shy.

Go Ahead. All the world will see.

I own a building. You are a broker. Prove to me that I really do need you.

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  • rnschmidt

    I don’t think the question is why would a building owner need a broker. Obviously there is a need, otherwise you would be out of a job. Building owners hire brokers for the same reason business owners hire employees. Even if they can do it themselves it’s about opportunity cost. The right question to ask is what sets you, as a broker, apart from the other dozen brokers calling on me. As a building owner I can choose to hire any broker I want….why should I pick you over the other guy?

  • Chris

    Did the owner sign a commission agreement with all the brokers? If so, the brokers are jerks. If not, the owner is expecting too much. But commission aside, rnschmidt has it right – using a CRE agent is outsourcing – paying someone else to do a job for which you don’t have the time or expertise.

  • CRE is an imperfect market. There is not a national commercial MLS. Brokers don’t share and cooperate – as a rule. The system is imperfect and broken. The value proposition of a broker is that he/she can get the property in front of the largest buyer pool possible – as quickly as possible – with the most powerful marketing. Any seller who sells without full market exposure leaves money on the table.

    So the question then, is how will you, Mr. Broker, expose my property to biggest buyer pool possible? Will you tell me that you want to save me from unqualified buyers that will waste my time by using confidentiality agreements? Will you tell me about the awesome size of your database and that you know all the buyers (impossible)? Are you going to pocket my property for 4 months while you try to double-end the fee? Will you then frantically expose is on Loopnet and through the broker network so you can generate some offers before the listing runs out?

    Transparency and proactive cooperation – brokers offering up half their fee to engage the rest of the brokerage community to participate in their deals – is the only way to achieve maximum value for the property owner. It is not in the best interest of the broker because he/she is more likely to split their fee. Brokers are lazy and greedy, though. This is why we know the vast majority will act in their best interest instead of their client’s. It is the way the system is set up.

    And it needs to be changed.

  • Ryan

    Say you have a 100,000 sf building with $50/sf rents and all tenants sign a 10 year lease. 3% commission for a landlord rep equals $1.5 million. That’s pretty expensive outsourcing, if that’s the position of why a landlord should hire a third party broker….

    • @JohnOrrCCIM

      Ryan, that’s interesting perspective. if it’s my building and I pay you $1.5 MM to earn me $50 MM in rent, and likely $10MM in profit I and buy a couple more buildings then rent those on the same terms it sounds like a great value and fantastic leverage.

      • Ryan

        But if you can hire an employee for $100,000 and as a result get an additional $1.4MM from your investment instead of engaging a third party broker, would you? What are the value drivers of a third party broker that equal $1.4MM? The $100,000 employee can list/advertise the space, answer inquiries, schedule and run tours, and if it gets to RFP stage, an executive can take over and negotiate terms. The time commitment for negotiating an LOI is not much. Then its onto the attorneys and then lease execution.

        • @JohnOrrCCIM

          Nope, it’s not much to it at all…heck that one employee could probably generate 3 or 4 Times that $1.4, just call it a round number of say $6MM in leasing fees from that $100K employee who has a mimimal time commitment after all (probably could pickup your dry-cleaning too). And it gets better, after a year you’re all leased up for the next 9 years – at least – so you fire the kid and go to ‘Vegas on your winnings!
          But seriously, once you’ve operated properties you know that it’s not simply that easy.

          • @JohnOrrCCIM

            Ok, now back to reality. Your 100K SF building isn’t leasing for $50NNN anyway. In a great suburban market it’s leasing for $12, maybe $15NNN and its a more realistic $/SF of say $1.00 or $1.50/SF to your 3rd party broker ONLY IF and WHEN he brings a lease you sign.

            Your employee you have to pay for the whole year for $100K, but actually when you factor in Office space, parking, telephones, ObamaCare, payroll, FICA, your time (or someone you pay) to teach the employee where the restrooms are, what your name is, what the working hours and company holidays are, and of course you have to hold meetings because you want to see progress your protege is making each week with all these “overpaid” brokers who are demanding $3.00/SF before they show your building.

            So, best case your leasing guru pops a Tenant in after 6 months – then what for the next 114 Months? Fire ’em until the next leasing cycle begins?

          • Jesse Weber

            Quite frankly, if your in house leasing team was any good,
            they would already be on the 1099 Broker Train.

            The reason I am not on your in house leading team is because I would be disincentivized to work my typical 80 hour work week.

            In what other business could you have an expert work 80 hours per week on your behalf, with a pay day only if you are completely satisfied?

            Would a landlord ever make this type of payment arrangement with their tenants?

      • Rosman@PA

        John Orr : using your term “…earn me $50MM in rent…”, you have said ” the present value of $500MM”

  • Doug Molyneaux, CCIM

    As a developer of STNL investment properties I can tell you that a good value proposition is absolutely necessary to start the conversation. And Bo is 100% correct. I want as many buyers at the dance as possible and if a broker does not cooperate with other brokers and split fees, he will not ever represent me. No broker can know all the potential buyers.

    With that said, today’s top brokers also add value prior to being hired on an exclusive basis. And the brokers who add the most value will get hired first. There is a small percentage of brokers in the STNL world that I actually look forward to speaking with when they call because I learn something almost every time I speak with them. They add value to what I am doing constantly and I am way more likely to hire them at some point in the future.

    Not necessarily because they can do it better than me or cheaper than me – but because I am indebted to them.

  • Macbeans

    “Your a broker” should read “you are a broker” . Annoyingly incorrect. Otherwise an thought provoking article.

  • I am a tenant rep only and never have represented a building, but I do know that if the property is institutionally owned or caliber the owners will want a broker involved, probably more as a CYA. In fact, when I bring a tenant to a building they want to go into and the owner really wants them I try and get tenant and broker to discuss in person and us brokers and work on protecting our clients’ interests after. The bottom line is that many owners really don’t need a broker to represent them, if the owner is going to spend 100% of his/her time on the properties they own. If you own one building as an investment but it is not supporting you then you should focus on your job that is supporting you and hire a broker to lease your property.

  • Michael Lieberman

    Good question and I believe that there is broker value-add in a number of situations. This all pertains to leasing:

    1. At a certain entity size a property owner has the capacity to have full time in-house leasing staff. That staff may be well informed about the users that may call in on the owner’s signs, and if they have a really good (and well paid – over $200k per year is not untypical)
    employee they will also directly market to tenants. However, they are only marketing their own inventory and users typically want to see alternatives – and usually don’t want to research all of the alternatives and contact every owner. Having a broker represent the property addresses this dynamic. Yes, it means that the broker may not do all of the deals at the property, but it means more entry to the tenant (and brokerage) community and more prospects, which more than offsets the possible loss of a transaction.

    2. Even the best of in-house owner representatives, and most self-represented owners are less than the best, will typically not be the best negotiators/deal makers. They start out from the disadvantages of having to negotiate principal to principal, and generally are too locked into the owners positions. In all but the largest organizations they also don’t have the
    experience or number of transactions a broker will have. This translates to the inability to find solutions to anything other than cookie-cutter situations or ways to bridge owner and user needs. In-house leasing tends to be order-taking, which works for simple transactions – increasingly rare in a complicated economy and world.

    3. In-house leasing has no third party to give involved, honest perspective and feedback on the whole range of ownership and leasing issues. This would include tenant improvement standards, lease terms and language, project positioning, etc. Yes, an owner’s rep can talk to all of the brokers but brokers also know that they are just being used – even if it is in
    the nicest of ways. Plus there is a difference in the thoughtfulness and quality of advice given on something with a fiduciary connection and just being one of the herd.

    I think there are more examples of value-add, and different ones for sale properties, but this post is overly long already 🙂

    Mike

  • Shar

    My wilderness troop taught me how to splint a sprained ankle; however, I’ll be a monkey’s auntie before I employ that skill instead of going to see my physician. The physician is the specialist, and I am a lay person with a few general skills (in that situation).

    How about another example? My mother makes a mean lasagna, but I do not bring my clients to her table to dig in. I take my clients to Bottega Louie, because that’s what they do: day in and day out there is someone there making lasagna, and I want my clients to have the benefit of that expertise.

    With that said, there are other pieces to the puzzle that a specialist (such as myself) considers rather than just the owner. There are the current tenants, the adjacent owners, the adjacent tenants, the community’s general plan, so on and so forth and they deserve the benefit of the owner hiring a specialist who will take all of that into consideration when filling vacancies. When the owner may allow any use (i.e. $1 Discount Barn) so long as rents are being paid, a specialist will qualify the “highest and best use” (i.e. Cost Plus World Market) because the adjacent lot(s) house neighboring tenants like Stein Mart who require a certain demographic.

    Being a broker is a learned skill set, and many of us have honed these skills over years to ensure the effectiveness of them and that is a value unto itself. Everyone has a lane to drive in for the direction they’re headed in, and it would behoove them to stay in it.

  • Scott Rosenberg

    Technology is changing the game, making the value proposition for many brokers harder to justify. However, not every owner is in a position to be able to comfortably navigate the sale or leasing process, and like Bo states below, marketing is more than just using loopnet. The act of reaching out to clients, brokers, new buyers and the like simply requires a lot of work and a lot of information that is not easily assembled. For now, this is best done with a qualified broker.

  • Daniel

    Dont be surprised. I envisioned this marketplace 7 years ago when real estate search engine technology was lobbied against by National Real Estate Associations and local boards representing brokers and agents. The ever changing age of technology and CRE/ residential brokers (whether they are tuned in or not) need to realize it. Brokers and brokerage listing services will not be able to keep up with the applications that will assist FSBO consumers in the future but they can segue and incorporate into building property management handling the day to day issues that investors and tenants do not want to experience. This may not apply to small portfolios encompassing free standing buildings that are easily maintained for the lessee. Its very possible that brokerage services may become salaried opportunities with small commission based incentives and sales quotas to ensure that web fees for lead marketing and SEO technology is within budget. Its a clear method to budget costs when marketing to a client and obviously now the priority in capturing the most clicks, views, and interest from one continent to another.

  • Pingback: commercial real estate,duke long | Duke Long | RE/MAX RESULTS COMMERCIAL()

  • When I read this article the first thing that came to mind was Hines, one the world’s most successful and respected developers. For years Hines employed their own in-house leasing professionals in their home state of Texas. I can tell you from experience, they were some of the best and brightest in the industry with a healthy marketing budget and the best resources at their disposal. They recently outsourced the leasing of their entire Texas portfolio. They obviously perceived some value in the brokerage community. http://www.bizjournals.com/houston/news/2012/11/27/hines-hires-colvill-office-properties.html

  • Alan

    Mr Owner,

    Hire me and you will see deals. I list 2 other properties in town that compete with yours. I can tell you why they win and why they lose. I can tell you about every deal your competitors see. Here are the last 5 deals I did and why they made. Here are the 5 deals that didn’t make. Here’s why. I know you have all the comps. You know there’s actually a good story behind those. Yes, you know your property better than anyone else. I know your competitors properties better than you. The risk of doing this yourself is that you won’t see all the deals. Given the value of this asset, that’s a risk I wouldn’t want to take.

    Oh, and did I mention that I work for free and that I’m only successful if you’re successful. I’m highly motivated. Hard to find an employee who will take those terms.

    Broker

  • H. Silver

    Pick me because I’m broke.

  • Marginaliz

    Good challenge. I wanted to say, “thanks for the opportunity to present my business.

    While it is nice to be courted with lunches from the big hitter, type A suits. What you really need is someone who will communicate with you, entertain honest and accurate transactions, knowledge about marketing venues to attract tenants, confidence in their vendors to properly manage your building without running up unnecessary costs, and that they have an innate foresight, coupled with knowledge in this field to avoid future problematic areas. My partner and I have such qualities. We can also walk on water (when it’s frozen).

    Additionally, we are both well educated. My partner has a JD from Gonzaga & I have an M.A. in Business Management. No lack of smarts in this group, no lack of courtesy or work ethic either.

    We should talk…

  • Martin Kemeny

    Why should an owner hire you? Because nobody knows everyone or everything, or has the time to do everything themselves. It’s not about whether the owner CAN do what you are doing, it’s about whether you can add value to what the owner is doing by lending them your time and experience.

    But there is one thing about adding value that seems never to come up in these articles. All brokers have relationships and all brokers have market knowledge. But not all brokers inspire (or should inspire) trust.

    There’s a lot of money involved in CRE and there are lots of ways in which an owner’s and broker’s interests are not aligned – the broker may represent the competition as well as the owner, the broker wins on any deal whereas the owner wins only on a market-or-better deal, the owner wants time to be spent marketing their property whereas the broker wants to spend their time where they make the most money, etc.

    The ONLY way to bridge that divide is trust. The broker needs to be able to convince the owner that even though we’re conflicted in all of these different ways, I’m going to do what is right for you. And I’m going to do it every time. A broker that can do that can have my business any day of the week.

  • Brianna

    Formerly, in a world of small businesses and geographic barriers traders and brokers offered a great value add for assimilating buyers and sellers. Now, larger corporations attract end users and are achieving better margins managing their affairs directly.

    There are a few caveats:
    – If your real estate portfolio is international it may be less expensive to pay a brokerage fee in each region rather than to hire staff to keep abreast of all markets and legalities.
    – If the owner of the portfolio is not a person, but an organization in a different domain (ie: hedgefund, charity, PERS, etc)
    – Complex transactions, such as separation of surface rights, mining leases, etc in which legal counsel is helpful.

    I’ve worked with companies in the positions listed above and felt that brokers created genuine value for the owners.

    Hope this helps color your view of brokers in a more positive light!

  • matt C

    My Great Grandfather once said “the cheapest thing you can do is hire an expensive broker”. After years of managing owning and marketing my families own properties, I can attest to the value of that statement. Benefits: 1) having a go-between to position the issues for both sides, 2) having a dedicated professional with best practices resources and economies of scale, 3) opportunity costs of trying to be all things to all people. I usually hire a great broker, and almost always get great results. When I don’t get results, I fire the firm and get another. It’s hard to fire yourself before a lot of damage is done.

  • Duke Long
  • Tony Tiefenbach

    Ha! If you want to spend your day chasing every little tire kicker in
    town, grovelling for showings, killing DAYS driving back and forth to
    show the property to people who will never rent, writing hundreds of
    proposals a month, chasing and tracking activity to run after, instead
    of finding the next property that is going to build YOUR
    empire…..KNOCK YOURSELF OUT!!

    “Oh, I’ll just hire someone to do
    it in house” Once again, KNOCK YOURSELF OUT.

    As a former broker at a major
    firm we laugh at the “in house” guys because they are clueless. Most
    hot-shot tenant rep brokers eat your “in house” guy for lunch because he
    is not in the market on a daily basis doing the majority of the deals.
    He knows what WE tell him and he believes everything we “prove” to him
    and convinces you of the same, and that alone is costing YOU AND YOUR
    COMPANY far more in value than any 3-6% fee….PERIOD!

    Because, here’s the thing… if the “in
    house guy” was worth a salt, he’d be a broker doing high six figures/low
    seven figures instead of the chump change his is getting to be your
    lackey.

    Now don’t get pissed…but its the truth

  • This discussion changes a bit in markets where the outside broker is paid a full commission and the property broker then is paid one-half of a commission. Now the property broker is costing the owner more than a simple commission. I have to say that after reading many of the responses, I continue to see that we brokers are quite dillusional. To suggest that hiring a broker is a time honored tradition passed down through generations totally overlooks the vast changes in information technology and access to it. It is rare that I meet an owner who doesn’t know about the details of every deal in the market. many times the source of such info is brokers, but not only, who want to be in the good graces of the landlord and possibly get a listing… How about reaching the largest market possible, quickly? Say hello to the Internet and all the listing services with which a landlord can freely list the property. It harder and harder to justify hiring a property broker. Is there a good answer to Duke’s proposition?

  • cyrille

    Wow I have been through the 24 comments before posting my answer to your basic question. Most of them are out of the mark (sorry guys, the market is competitive) as it seems you hit a nerve with your dilemma. They went on to defend the corporation, the system as a whole..etc. I assume that before buying the property you’re now requiring a broker for you have done your DD on the market and that you pretty muck know as much as any broker in town about it. You also had surveyed the building and you have an in house team of seasoned professional.

    So why would you need me and in the first place with such talented persons and such knowledge why do you waste your time wondering if an outside broker might fit in ?

    Answer

    – Owner complacency : broker is not supposed to be emotional about the building,

    – Cost effectiveness : free your team for other projects especially if lengthy sale

    – Expertise : prerequisite

    – Thinking out of the box : may come up with an unexpected solution that increase value

    – Ready to align interest to owner’s with a success fee surcharge on reduced normal fees

    – Personal connection : if we don’t click on personal level then there is no need to hire me as I ll have to defend your interest and point of view with prospective buyers.

    I apologise for my English, am French.

  • Adam

    This is a great post!! I love it.