Up until the late 1980s, commercial real estate brokers identified available space in the market either (1) through listing work that they were performing for their landlord clients or (2) cold calling to other brokers and landlords. While residential brokers could search the Multiple Listing Service to find out what houses were for sale, no such database existed for commercial space. As a result, when an office tenant came to ABC Brokerage firm looking for space, the easiest thing to do was show them the space ABC was marketing for its landlord clients. The more listing work ABC did for landlords, the more product it had to offer the tenant. If none of those spaces fit the bill, ABC would turn to its market analysts who spent their days calling other brokerage firms and landlords for information about vacancies and compiling an ever-changing book of market availabilities. Because no firm’s database was ever complete or up to date, tenants sometimes felt insecure committing their search to a single broker or brokerage firm. It was reasonable to conclude that the more brokers who were calling with opportunities, the more likely it was the tenant would ultimately find the right space. Today, the non-exclusive model is not only obsolete, it actually works against tenants’ interests in four important ways.
Everything changed in 1987 with the founding of CoStar, a national database of commercial real estate availabilities. Suddenly, market information became a commodity because every broker had access to the same vacancy and “for sale” information. Big brokerage shops who had the most landlord listings and the largest research departments were now on the same footing as small boutique firms who did no listing work at all. There was no longer any magic or risk in space finding and this no longer represented the greatest value that brokers provided tenants.
CoStar, who now has a virtual monopoly on market availabilities after the liquidation of its only real competitor, Xceligent, is what every broker uses to find space for tenants. While some brokers (especially in New York) will claim they have access to “secret listings” that no one else knows about, these assertions are rarely true and are, more often than not, just selling ploys to get a tenant’s business. If a landlord or sublandlord is truly interested in marketing its space, it will insist that its broker include the availability on CoStar to maximize visibility and increase the likelihood of prospects. Only in extremely rare and sensitive cases will a company tell its broker not to advertise its space.
Despite the fact that market information is now a commodity available to all brokers, some tenants still believe that they are best served by working with multiple brokers rather than committing to one. Here is why this approach actually hurts the tenant:
- To the Child with a Hammer, Everything is a Nail. Typically, when a tenant opens its requirement to all brokers, the only calls it will receive are from listing brokers who are marketing a specific asset. Their allegiance is to the landlord, not the tenant. Their job is to lease or sell the asset, so they spend their days calling lots of tenants and trying to convince them that the property is perfect for them. Thus, when a tenant is contacted by a broker about a particular property, it is not because that property is the answer to the tenant’s prayers; rather, it’s the broker is hoping that the tenant is the answer to the landlord’s (and broker’s) prayers. While the tenant will certainly be exposed to some opportunities using this approach, it will not be exposed to all opportunities in the market, nor will it necessarily be shown the best options for its specific needs.
By using a single broker who isn’t representing a landlord, the tenant will be made aware of all market availabilities. Further, the broker can help identify the best options given the tenant’s specific needs.
- A Competition of One is No Competition at All. It’s Negotiation 101 that, to get the best deal, you need to create competition. Unfortunately, when tenants work with multiple brokers, they often end up focusing in on one option at a time as opportunities are brought to their attention. Because there is no structured search process and schedule, options are not vetted and competed against each other. Deals struck in a vacuum and without context will result in poor outcomes for the tenant. The true value of a broker today is no longer finding space, but rather, getting the tenant the best deal terms among the viable options that exist.
- If the Broker is Not Outcome Neutral, Their Advice Isn’t Neutral Either. Suppose a tenant is working with three different brokerage firms and each has identified a different property to the tenant. Because each broker only gets paid if the tenant chooses their particular property, it is unrealistic to think that these brokers will be doing anything other than promoting their property and telling the tenant how wonderful it is. Who then will help the tenant objectively assess the pros and cons of the different options and compete them against each other? Whose advice can be trusted or relied upon when none of it is objective? If, however, the tenant is working with a single broker who gets compensated regardless of which property is chosen and who has no allegiances to any of the landlords, the tenant will receive objective guidance and a committed advocate for its interests. The best outcomes come when there is competition among the landlords, not among the tenant’s brokers.
- Commitment is a Two-Sided Coin. If a real estate requirement is important to a tenant’s business, the tenant deserves to know that every day, someone is waking up thinking about that need and making it a priority. Today, most good brokers work on an exclusive basis with their clients because they have limited resources and want to know that, at the end of the day, their efforts will be rewarded. Very few brokers will spend the time and effort to search for the best solution to a tenant’s problem knowing there they may not be compensated in the end. Again, there is no magic to finding space any more. 20,000sf office vacancies and 100,000sf warehouses aren’t hiding any place. The question a tenant needs answered is not “what is out there”—that is easy–, but rather, “what is the best solution to my problem”? In the end, it’s going to be hard to solve the tenant’s real estate problem if no one is waking up every day and making it a top priority.
Three decades ago, tenants had good reasons for not wanting to commit to exclusive arrangements with their brokers. As no one had complete market information, the more brokers they worked with, the more likely it was that the tenant would find the right space. Today, however, information about availabilities is a commodity and every firm is working from the same database. Now, the most important thing a broker can provide is objectivity, advocacy and a daily commitment to solving the tenant’s real estate problem. That mix can only occur when the tenant is willing to pick a single advisor and let them run the process.
For more information contact Glenn Blumenfeld http://www.tactix.com/team.php#Glenn