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What Is The New Future Commercial Real Estate Brokerage Model? Hint: It Does Not Include A Broker.

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You may think we are already there.

[____________________] is a full service commercial and property management and advisory firm. Headquartered in [__________] and operating in all of the “Regional” states, [__________] represents private and institutional landlords in buying, selling, leasing, building, and managing their respective properties.

[___________] provides expert local knowledge, regional reach and a commitment to excellence in all facets of real estate management services. Founded in 2011, by, [__________], [_______] is an innovator in market strategies that ensure first class results.

[____________] delivers best-in-class property management services for a variety of properties and clients. Our superb staff and state-of-the-art support system allow us to focus on maximizing our clients’ cash flow while increasing the net value of their investments. From hands-on management and accounting to maintenance and construction issues, we develop and execute a unique management plan for each property.

All the same as?

I Googled four different generic names of commercial real estate brokerages and what you just read was copied and pasted directly from the front page of the third brokerage, obliviously I deleted the name of the company and the founder.

What does the front page of your website say?

What are you communicating to your potential clients?

Is there anything wrong with what this brokerage is stating to the world?

What are the expectations of those potential clients?

Full service, advisory, expert local knowledge, regional reach, commitment to excellence, innovator, first class, state of the art, maximizing, hands-on, execute a unique.

All incredibly impressive words.

They have a lot to offer.

There is obliviously no other firm a potential client should use.

Five years in and they have all bases covered from first point of contact to the complete and finished deal.

You can only imagine the layers of management and staff that it takes to “execute” this companies business model.

One quick look at the site and the pictures of the glowing founder with the trickle of upper management and the lengthy bios attached are indeed impressive. The same goes for the extensive “superb staff” and with not a hair out of place.

It must be a company running on all cylinders and why not? It’s working and working well. It has in the past and no reason to think it won’t continue in the future. But, what if?

What if ……?

What if there was a brokerage that thought about doing business differently?

Different in a way they see business being done in other industries.

Different out of necessity and survival.

How would (are) they doing it?

1. Capital expenditure. (Minimal)

Definition: An amount spent to acquire or upgrade productive assets in order to increase the capacity or efficiency of a company for more than on accounting period.

How much does it take to support a traditional brokerage today? What are the unproductive assets? How could the capacity or efficiency be increased? What does it take to compete? How many offices do you need? (The irony of that last statement may burn forever.) How many people do you need? WeWork is a 5-10 billion dollar company, and CrunchBase shows that they have a staff of 12. Yes, I am sure there are more actual employees but just twelve run the show. What technology are they using to manage a company with kind of growth and scale…..worldwide? How much money does it really take with the technology available today? WeWork is “The Platform for Creators.” They market connect and transact directly with users. You call them tenants. They created a transactional platform that leases space and the company is valued at how much again? You have what kind of platform again? NONE? A platform owned by someone else that you pay out the ass to access? [ A beautiful side. The DarkStar is sticking it to brokers and making bank. They sue and bully everyone they can. WeWork just popped a 10 billion dollar platform right in their face and they couldn’t do shit about it. If I see the CEO of WeWork again I’m going to kiss him on the lips in front of people!] Don’t concern yourself with the valuation of WeWork. How much money are they making every second “transacting” for space? Do that math!

2. Facilitate rapid scaling.

Tracking and measuring rapid growth. That is simple, measurable growth. To scale those numbers need to be 5 to 7% a week exponentially. You are smart, do the math. A company that grows 5% a week for let’s say four years is experiencing serious growth and that creates what we are all in this for $$$. How could you do that many deals? Are there even that many deals in your entire market? To facilitate that kind of growth, you must think in terms of transactions. Transactions that are SERVICES. Services that you provide to the user……..wait I mean tenant. This is not some strange radical thought for commercial real estate. This year that very statement came right out of the mouth of the President of CBRE in LA. I moderated that panel. I’m pretty sure he brought up laundry services. Laundry service? You don’t do laundry? CBRE seems to think it’s important. They are providing a service. Wait, or is that a transaction that creates $$$. Confused? I’m not. How many transactions are you creating to scale your business?

3. Address a large market.

The entire commercial real estate market. Ironically there are several companies already doing this. Who is that you say? How about CBRE, JLL, and DTZ for starters. They create business from the entire commercial real estate market. Transactional and the Built Environments. Transactional is creating and executing the transaction. Transactional is 30-35% of the real estate market. The Built Environment is everything else. Everything. So that’s 65-70% of all the rest of the $$$$ in commercial real estate. CBRE bought Johnson Controls this May for $1.475 billion. They did not buy another brokerage but instead they bought a company that “is a market-leading provider of Integrated Facilities Management solutions for major occupiers of commercial real estate and has significant operations around the world.”

But you don’t want to be in the Built Environment. You just want to do deals and get a split. Think about how a transaction is “triggered.” Something has to happen to for that transaction to occur. Growth, reduction, divorce, management change, etc. Who usually knows that first? You? Really. How? You won’t tell, that’s your secret sauce. Bullshit. The building owner or manager knows first. Almost always. Where do they “transact” business? In the Built Environment. That 65-70% of the market that makes who $$$ money again?

4. Create and support better margins.

Flat fee, “regional” fee, inter-market fee, company fee, negotiated split. You know what I am talking about. Whatever words or phrases needed to make the most bank. [ A side story. Yesterday as this post sat in draft. I was in Chicago having lunch. My phone beeped and it was a message from another broker trying to FUCK me out a piece of the split. My response. “Let’s lawyer up. You will spend more on your lawyer than the amount of money you think you can FUCK me out of.” Across from me was another broker. I mentioned a quick part of the text to him. He just nodded as if it was standard procedure and it happens to us all. And that is A SAD FUCKING STATEMENT for all of us.] Is it just greed? Is it just a standard business practice that we all expect? If we are not on “our game” we should expect to get FUCKED? Is this the only way to maximize “the bottom line?”

Why are we not more efficient at running our business? You think we are there? Let’s look at just one aspect of running your business. Database management. You got this right? No, you don’t. If for example your office has 50 people in it. Only 20 are using any database management system.( I’m pretty tight with the Top 5 CRE CRM companies and those are the real numbers.) I am not talking about G-Mail or Outlook. I am talking about a dedicated purpose built CRM (No, I am not trying to sell for them) for commercial real estate. Deal tracking, pipeline management, client touch, deal triggers, updated and spectacular marketing, time management, discovery, workflow, access to every building owner and potential tenant in your market. Did I mention transaction management or accountability? Probably not important then.

The hot chick that you hired to handle “administration” is worth it. Just look up. Yeah, that’s worth the price.( Don’t get pissed at me for bringing it up, you know what she knows, she knows that’s part of the job, oh yes she does.)

5. Be defensible against the competition.

We rely on our relationships to create our transactions. Everyone can create relationships. How can that be defensible? It’s not. We provide the same service. We can all provide in theory the same level of service. How can that be defensible? It’s not. You need deals and only have time to prospect. Without that pipeline, nothing else matters anyway. If you just do more deals that will solve all your problems. That’s your best defense. No, it’s not.

Go back to WeWork again. I’m not trying to piss you off, but they have at this point built a better new commercial real estate brokerage. Yet, they are not a commercial real estate brokerage company. How long before they get in to facilities and property management? I thought of it so they sure as hell have. They are more of a threat to the established commercial real estate brokerages than any other company out there now. Are you still worried about the DarkStar playing with your data?

WeWork has a “Platform for Creators.” A platform that directly faces the user….wait I mean tenant. They directly provide that user a dizzying array of services that that user can choose from. They allow that user to pay them directly ( the more I write about this the more pissed I get that I/me did not come up with this idea and I am “the cre tech shit” how?) and know exactly when where and how they are using “space” commercial real estate space. They have a relationship with that user. A relationship you do not have and may not ever have a chance to develop.

How do you compete against that? How do you defend against that? You don’t.

You are still doing business the way it needs to be and should be.done…according to commercial real estate today.

WeWork is doing the business of commercial real estate and doing it how it will be done in the future.

WeWork is doing future commercial real estate business NOW!

 

The New Future Commercial Real Estate Brokerage Model? Hint: It Does Not Include A Broker.

 

+1 How in the FUCK did I not come up with this?

+1+1 Think what this means to the DarkStar. Now that makes me fucking smile. Hard!

+1+1+1 What kind of platform would you want to own? One that finds apartments or one that leases commercial real estate?

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  • Lowell Peabody

    Great insights, this is one of your best! The signs are there for all of us to see, who can/will make a move from the current model? Your big three certainly are but how far into the brokerage will change happen?

  • abuchanan

    Thank you, friend! You just provided the epiphany for me to get a difficult building leased! Bravo.

  • rsky1

    Duke: I just read an article about WeWork in the WSJ and I agree with them…the real winner here is the owner of the buildings which WW leases large chunks of space from at a discount and then releases at higher rent. WW went from 5 Bil to 10 Bil yet has no assets…could it be another .com bust in a year or so? Hard to say. Their platform can easily be replicated by say landlords across the country in an association. When WW starts to own the real estate then they truly will have something. Now it seems they are on a bit of a tight rope…just my humble opinion. I do like the concept however and thanks for bringing it up as only the “Dukester” can.

    • Duke Long

      We shall see. Interesting concept and $$$$ to figure it out…maybe.

      • rsky1

        Like you……. anything that is Ninja, Gorilla or screams Entrepreneur trips my trigger and I love that.

  • Steve Garthwaite

    Come up with a solution for shared industrial space. There’s still time!

  • WeWork is the modern version of executive suites with more flexibility and a social component. They will certainly face competition, but do provide a value for solopreneurs and start-ups looking to remain nimble. If they can nurture those relationships over the long-term, the lifetime value of the customer could be very lucrative.

  • Steve & Allen, I think the possibility for a shared industrial space is real. It’s probably limited to light assembly, warehousing and shipping, but would certainly offer flexibility, cost savings and ability to scale a business that produces and ships a product.

  • Duke, thanks for this post. Again, more “Scotch, no ice” from you. Just my horribly novice opinion, yet I think there is ALWAYS a place for a trusted adviser for clients. Whether you’re a broker, attorney, doctor, CPA, mechanic, caddy, you name it, if you put you’re client’s best interest first, do you (expletive-deleted) homework and most important, are honest, people will hire you. Maybe it’s because I’m half-Irish and an optimist (until the facts force otherwise) but I see the challenges in this business as a good thing. It will push out those just looking for a commission check and leave on the field those who are there to compete. It’s like what Vince Lombardi said, “…But I firmly believe that any man’s finest hour-his greatest fulfillment to all he holds dear-is that moment when he has worked his heart out in a good cause and lies exhausted on the field of battle-victorious.”

    • Duke Long

      Jeno,
      Very well put. I’m cheering for you.

  • Dan

    Directly, as in now, I see this happening in tertiary industries next to commercial real estate. There is a widely maintained thought held firmly in place and also wholeheartedly being ditched by others. By hours worked near this industry, I’m a new born but what I see is the old school thought leaders politely backing down to newer ideas that make a company more money, doing so in less time and with less exposure to risk.

    Since day one of man, faster seemed better.
    Since money came around, less expensive feels better than costly.
    And since the first civil lawyer, less risk seems better too.

    “Included Laundry” is not the industry I see shaving days off closings or reducing dollars frugal buyers need to come out of pocket for on a commercial loan, but there small and nimble players shifting the trends that have worked since forever. Find a niche and fill it or educate those on a problem they don’t even have, and fill that one.

    Looking forward to more good reads challenging the status quo.

    • dukelong

      Dan,
      I like the way you are thinking and Thanks!

  • John Doe II

    Let’s see, we rent space at x on a long-term basis, and rent it out at y on a short-term basis. WeWork is not different than the new breed of ETFs which you can buy and sell 5 times a day, yet the underlying assets are illiquid. There is an asymmetric relationship at play which is working now, but as they say, in a tornado, even a turkey can fly. I’m not knocking the idea – it was smart of them to re-adapt the Regus model towards the new way tech workers work, but we’ll see what happens when the market turns and they are locked into long-term leases at high rates. That will be the real test.