The “third rail” has been in the news for the last few days and that made Ruminations think about posting this piece having to do with the role of brokers in commercial lease transactions. At the risk of needing to purchase a bespoke Nomex suit crafted to protect against possible flaming, we proceed.
Brokers make the marketplace work. They connect parties who might not have known of each other’s interests in the absence of the broker’s efforts. Certainly, the internet and the information age have made information readily available that historically had been in the “secret” files of the brokerage community. If, however, that were the only grip a broker had over prospective buyers, sellers, tenants or landlords, the show would have been over a long time ago – the curtain would have fallen.
Experience shows that brokers provide more than knowledge of available inventory. Think about the role of an interior decorator. A homeowner has always had access to enough information about what is available in the marketplace when it comes to decorating a home. Yes, just like in the real estate market, there are “secret” or “unlisted” providers, but, for the most part, in 2015, almost all of that information is publicly available. [When it comes to decorating, there are suppliers known only to the trade; in the real estate market there are properties that have not yet come to the public market.]
So, exactly what does a broker bring to the table in 2015? To Ruminations, in addition to an interior decorator having the experience to understand just what the homeowner wants to achieve, the decorator has the skill and experience to separate the wheat from the chaff when it comes to selecting only those decorating items that fit the homeowner’s expressed desires. And, our writing the expression, “expressed desires,” may be shortchanging those decorators who have the ability to redefine what has been expressed into what the homeowner really wants. It can be a daunting task for a homeowner to do her or his own decorating. Likewise, it can be a daunting task for a prospective buyer or tenant to find the “right” property.
This might be a good place to point out that not every broker is a qualified broker, just as not every decorator is a qualified decorator, and just as not every attorney is a qualified attorney. Being “in the business” is not the same as being qualified to be in the business. All license holders are not alike.
Just like there are lawyers who take on every assignment that comes their way, there are brokers who do the same. In a lot of cases, it really doesn’t make a difference. But, in some it does. For the most part, real estate brokers who deal, even extraordinarily well, in the residential market should stay out of the commercial market. That’s not to say there aren’t exceptions, but get your training elsewhere. Team up with a broker familiar with the “project.” And, for some projects, being a generalist in the commercial market isn’t enough. There are brokers who specialize in warehouses or data centers or even furniture stores. They know the “lingo.” They appreciate the special needs of their customers. They can target suitable spaces, owners, tenants or buyers much more efficiently than can someone who doesn’t yet have an appreciation for “special needs.”
In the retail market, nowhere is this more evident than the fairly common use of an “exclusive” broker, most often on the tenant side. There are retailers who rely, area by area, on brokers who really, really have gotten to know the retailer’s needs. They know how NOT to waste the retailer’s time or waste the time of those who own unsuitable properties. Not only do they have marketplace information, they have the skill and experience to find where there is a “fit.”
But, where the rubber really hits the road comes once a buyer and a seller find interest in one another (or a tenant and a landlord do the same). At this point, what happens to the broker who made the match – the shadchan? Some disappear, go missing. There may be some sellers, buyers, tenants or landlords who welcome the silence, but they are few in number.
This is where we should have placed our initial question – “So, exactly what does a broker bring to the table in 2015?” The answer, to us, would remove “2015.” Brokers are the market makers. They should know the market better than the internet knows it. They need to be agents of reality to all players in a transaction. They need to mediate between negotiating parties. Yes, there is the role of a “mediator.” It isn’t an easy role. To fulfill their role of making the marketplace work, they need to learn the marketplace and need to advise whoever they represent about that marketplace. They need to know each party’s specific needs. Merely knowing a tenant’s generic needs doesn’t cut it in 2015. Excelling at golf or tennis does really serve the real estate market’s needs. Relationships get the clients, but sitting back to watch a deal unfold isn’t the follow-up.
Now, we are donning that Nomex. The broker model grew up on dual representation. That might still be an appropriate economic compromise in the residential market, but in today’s complex commercial real estate market, it seems to put the broker’s interests above those of the parties to the actual transaction. It is tough, probably impossible, to give unfettered advice to one’s principal when such advice is contrary to the interest of the principals on the other side of the transaction. There may have been more support for the compromise when “knowing what properties and what interested parties were in the marketplace” was a much more dominant role of a broker, but there aren’t many of those days left in 2015.
Yes, brokers, like all professionals, need to tailor their approach to the needs and requests of their clients, but sometimes those requests are “silent” ones. The best of professionals can hear what their customer or client is asking even if no sounds are made.
So, to the many, many brokers who read Ruminations each week, what saith thou? Exactly what SHOULD a broker bring to the table in 2015?