Shawn Massey, CCIM, SCLS

How do you choose a commercial real estate broker? Who, What, Where and Why?

Avoid the “Two Show” broker who shows up to show the property and shows up to collect their commission.  When choosing the right commercial real estate broker for you the process can be time consuming but the worth it in the long run.  What you are looking for is a broker or advisor is to add value to the transaction.  Going forward I will use the term advisor which can also be referred to as a broker or agent.  I look at my chosen profession not as a transaction oriented broker, but rather a trusted CRE advisor to both my landlord and tenant clients.

 You would not go to court without an attorney! You would not face an IRS officer without your accountant!  Then why would you lease or buy a commercial property worth hundreds of thousands or millions of dollars without a qualified real estate professional representing your best interest?  Hiring a qualified commercial real estate advisor just makes simple economic sense.   The cost of making a mistake in a commercial real estate transaction is very high and in addition to the opportunities a good advisor can bring to you many deals that may not be listed or on the market which makes their input invaluable.  So making the right choice of in selecting your real estate advisor should be paramount and the first step in venturing into the world of commercial real estate.  This is sound advice for the first time participant or even if you have been a seasoned real estate investor or user who has been going it alone.  

You need to view the relationship with your commercial real estate advisor as a partnership not only through the closing of a lease or purchase deal, but for ongoing concerns in regards to the asset.  The role of the advisor goes well beyond just finding the right property and negotiating the best price for you.  A good commercial advisor will also assist you whenever you have a dispute with your landlord and in reviewing what a lease clause means, audit invoices from your landlord for issues like annual operating expenses, and so many other areas that usually arise over the course of a lease or after a purchase.   If your advisor cannot perform these added value services or does not choose to assist you then maybe it is time to look elsewhere.  Over the past three years I have worked with numerous clients who needed to do a workout on a lease or in some cases renegotiate with their lender on their deal.  I fully believe it is these services that make a customer a true client.

First do not choose a residential agent to handle your commercial transaction!

I work in second tier markets and many of my annual transactions are relatively small leases, acquisitions or dispositions relative to major markets.  I find myself competing not only with the other commercial agents in market, but also a bevy of residential agents who feel they can venture in and out of the commercial field as an opportunity presents itself.  Not all real estate agents are created equal and I wish our State and the whole country would distinguish the real estate license between a residential and commercial agent.  Residential real estate agents are qualified to sell houses and other small multi residential dwellings but are not usually experienced enough to give quality advice regarding commercial property despite the actual cost of the property.  I know the best and number one residential agent sales agent in our Memphis market frequently refers business to qualified commercial brokers she knows will service her clients in the best way possible.  She doesn’t want to endanger her relationship with a repeat client by helping them sell a commercial building or lease a commercial space for their business and potentially costing them time and money.  You do not want a commercial broker to help you buy a house.  I will refer all my residential transactions to the top agent mentioned above and few other quality agents depending on the area of town and size of the house.

Do not choose a commercial broker who will not show you the entire market of possibilities!

I will start with the first part of the talk with your broker.  You need to know what your broker expects to be paid.  The commercial real estate commission is typically paid by the Landlord and/or Seller in a transaction.  Unlike residential real estate, the commission in a commercial transaction may vary and it is highly negotiable.  You want to fully understand what your advisor is requesting in terms of his fee and the services that he will offer to you.  Once this is established you will need to support your broker in achieving their fee request and in some rare cases it might be in the best interest for you to pay their fee directly.  You need to avoid a broker who;

  1. Only shows properties to you listed by them or their firm
  2. Only shows those properties that will pay the highest commissions

Note:  In larger markets many advisors will specialize in representing a buyer/tenant only versus working on property listings.  In smaller markets many agents, due to economics, may work both sides of the fence.  This is not say that you should not work with an advisor who does both, just understand that he should fully disclose to his client properties that are controlled either by the agent or his firm.  Disclosure is the key and there really isn’t a conflict if he or she is representing both in most circumstances!

A good commercial real estate advisor should be a valuable source for other professionals in the industry you will need to work with.

These referrals could include the following professionals that you may need for your property lease and/or sales transaction such as real estate lawyers, appraisers, property inspectors, environmental firms, accountants, architects, general contractors, loan officers and many others.  In addition, a quality commercial advisor should be tied into a national network within their own company or through an organization like CCIM or SIOR and can assist you on finding a representative in other geographical markets as necessary for your commercial real estate needs.

What factors should you consider when interviewing potential broker/advisor candidates?

  1. Consider both the depth and the volume of experience.  A young broker who has achieved a volume of experience may be a better choice than an older broker who may have been in industry a long time. 
  2. You want to choose a broker who specializes in your type of property.  Our company specializes in retail only!  If you are looking to lease, buy or sell an industrial and/or office property then we are not right firm for you.  Although, I can recommend someone who I trust will service your business in a professional manner.
  3. An advisor is a facilitator.  Some clients like to control the negotiation process while others want their CRE partner to handle everything.  I have a very good client who likes to be in the last negotiation that takes place.  My job as his advisor is to facilitate that opportunity.
  4. Never hire a real estate advisor without first checking his credentials and qualifications.  This really is where you determine if the broker/advisor adds real value.  By doing your due diligence you can determine in the advisor really cares for your real estate deal or are they just in it for the commission.
  5. The name of the game is access to product, access to properties and access to buyers or tenants.  It is critical that advisor is active and well known in the CRE community and aware of all opportunities. 

How do I find the right commercial real estate advisor?

You may think that finding an agent is as easy as searching some real estate magazines, real estate banners and other advertising materials that publicize names of potential real estate brokers or advisors. Nothing could be further from the truth.  Doing your homework is important!

  1. Nothing is better than a referral from someone who has used their services in the past.
  2. Do some online research – If you would like to hire a respectable, dependable, and trusted real estate advisor then use the power of the internet? Search potential brokers or advisors online but get the one that has been in the industry for a very long time that is a dealmaker and maintains a stellar reputation.
  3. Good reputation and ethics are a must – Talk to people in the industry such as lawyers, appraisers etc. An advisors true character will be represented.
  4. Hire an agent that gives practical advice – This goes beyond just their experience, but the ability to provide solid recommendations.
  5. Find out whom their other clients are and if they have used the advisor on multiple occasions.  Repetition is a good sign of reliability and good service.
  6. If they blog then read some of their blogs to see if they are the right fit for you or that they are tapped into the CRE marketplace.

Are there any questions I should ask an advisor when interviewing them or things to look for?

  1.  See if they ask you any questions first.  If an advisor does not understand your needs and objectives first then it may not be the right fit.  If they do not like to ask a lot of questions they are not opening the line of communications.
  2. Ask about their local knowledge.  The CRE market is ever changing and your CRE partner needs to be knowledgeable.
  3. What type of experience and training do they have?  CRE education is a lifelong endeavor and not something that stops once you get a designation or license.  Ask them what they do to keep abreast of the CRE marketplace and current trends.
    1. How long have they had their license and worked in the industry?
    2. Ask about their recent activity. 
    3. What type of deals have they worked in the past year?

       4.    See if they have the ability to listen!  See #1 in this section

       5.     Ask them about their ability to represent you in negotiations – When I think of     this statement I see think of the movie “A Few Good Men.”  In the movie the lawyer character played by Tom Cruise is chosen not because of his ability in the courtroom to argue a case since he has never done so, but because he always plea bargains out. You want a tough but fair negotiator on your side!

        6.Ask about connections in the local and national CRE marketplace. In real estate, it’s all about who you know.  There are lots of brokers in our city that never venture out to national and regional shows to meet with the global marketplace.  If you want maximum exposure than ask your advisor what shows, events and conventions do they attend on a regular basis?

          7.     Ask the advisor to explain his process for your transaction from start to finish and how he plans to handle it? He should be able tonavigate you through the process and the transaction with confidence and ease. They will be your partner throughout the transaction and beyond the close.

  1.  What are their marketing strategies?
  2. What are their strategies for getting the best price possible?
  3. What type of market data do they use?
  4. What type of technology do they employ?
  5. Ask your advisor what type of customer service he will provide.  An advisor is like any other service professional.  You should expect them to represent your interests.  It is also important to have realistic expectations.  As much as we try with all our customers that they feel they are the only clients in reality we may have several clients we are trying to please.  You and your advisor will form the partnership we discussed earlier and you want to employ an advisor who exceeds your expectations.
    1.   How will the advisor navigate through dual agency if the need arises?
    2. Ask your advisor about a creative transaction they have completed in the past? You want to seek an agent that is both creative and can offer up suggestions.
      1.  How did their client receive an advantage in a deal?

        8. Ask questions to see if they are passionate about their career.  An advisor who   likes what he does for a living will do a better job for his client.

The bottom line is to choose an advisor who you feel comfortable with; who you can ask questions and who will work with you beyond the closing.   This is where the most value can be added.

I hope you will check out future weekly commentary at

www.RetailRocksintheMidsouth.com.   If you enjoy the commentary please subscribe online.

Cheers,

Shawn

Shawn Massey, CCIM, SCLS is a partner with The Shopping Center Group a 3rd party retail real estate advisory firm in their Memphis office, an adjunct professor in the graduate real estate program at The University of Memphis and a co-founder and Chairman of the Board for the Memphis Business Academy charter schools (K-12th grade) in the Frayser area of Memphis.  

For all your retail real estate needs (tenant representation, landlord representation and property, investment & land sales) I hope that you will choose The Shopping Center Group and me to represent you and your business.  We understand that representation is a privilege and that you have a choice!

The opinions expressed in this post are entirely my own.  They should not be considered the opinion of The Shopping Center Group, LLC in which I am associated.

 

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2 comments

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