How the little guy gets duped in commercial real estate deals

2010-04-26 19.25.44There is a very specific kind of client who gets duped in commercial real estate deals. And it’s not Bank of America or any other large corporation.  Any company that’s big enough to have its own in-house real estate department is generally savvy enough and commands enough business to dictate its own terms to the brokers.

It’s the mature, small and mid-sized company with very specific real estate needs, where a single CFO or COO is tasked with figuring out the space problem (often in addition to staying on top of the books or coming up with an operational efficiency strategy). It’s a family office or family-owned business. It’s the growth-stage business that thinks it might needs to increase office space by 10x over the next three years, but with some flexibility to ramp up or down, depending on what the company’s growth looks like.

These are companies with complicated needs and executives who want a real estate solution but don’t have time to become experts in the field.  Facility costs often are the largest or second largest asset on the books, but (perhaps because it is everywhere) real estate is easy to take for granted. And managing a real estate transaction can be a nightmare, with a multitude of stakeholders, including employees, customers, investors, regulators and neighbors.

These companies — probably your company, if you’ve read this far — need brokers who will:

  • Clearly define expectations: The best of the new breed of brokers work with their clients at the outset of a process to define goals, then adjust as the objectives inevitably shift.
  • Agree to be “partners”: The client has to agree to share key information about facilities, business strategy and functions, and IT. The agent-advocate’s focus must be not just on fees, but also on long-term goals like facility flexibility, cost reductions and employee satisfaction.
  • Structure a tailored process: Like you, I hate checklists. They run entirely against my intuitive DNA. However, the reality is that a good checklist keeps you from making common, stupid mistakes. They free you from the worry that you might be forgetting something, allowing you to think creatively and make decisions with confidence.
  • Define key criteria and analytics: These become the basis for making a final decision in a transaction.
  • Manage the transaction: A well-run process will hit all key transactional benchmarks on the way to a streamlined, efficient close.
  • Behave like an agent-advocate: The solution to the traditional agency problem lies in linking the agent’s fee to the long-term success of the transaction. Long-term is the key word here: Do you want to hire a broker who is looking for short-term gains? Or do you want to find the agent-advocate who is focused on long-term relationships?

Today’s best brokers thrive on working with people to provide clarity to complex real estate transactions. These brokers put money where our mouth is and use innovative consulting tools to provide an experience to our clients that they say they actually enjoy. You will be comfortable having them report to someone in the company’s C suite. These men and women are trusted advisors and the transactions they thrive in are almost always complex and involve some element of consulting. Rarely is there demand for the broker for an off-the-shelf, “just get it closed in a hurry” deal.

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