June 24, 2016 Comments (0) Views: 2907 Opinion, Real Estate, Short Stories, Summer 2016

3 Ways the Commercial Real Estate Industry Needs to Change

Changing the way the game is played can revolutionize an industry

A Wall Street Journal article last month authored by Ben Cohen about the Golden State Warriors struck a chord with me. The premise was that the data-driven team owners felt there was an opportunity to exploit the 3-point line as a market inefficiency. Then they built a team around doing just that.

Mr. Cohen states that, historically, only 22 percent of the shots put up in the NBA had been 3-pointers. But the new owners, with limited basketball experience, decided to rewrite the rules for how to run a team. The data showed that players attempted nearly the same number of shots from inside the 3-point line as they did from outside it, but that one step back over the line showed a 43-percent higher success rate.

The Warriors are breaking records and anticipated to win the championship again this year, thanks in part to three-point phenom Stephen Curry. How was it that executives, with no expertise in professional basketball, could see an opportunity when so many industry veterans had missed it?

For those of us without the benefit of seeing statistical analysis play out shot by shot, how do we apply the same thinking to rewrite the rules of our antiquated industries?
Take the commercial real estate industry, which has done business nearly the same way for over 100 years.

First: It was, and continues to be, set up to service landlords. Brokers help landlords buy their buildings, lease them, manage them, and ultimately sell them. They do the same dance over and over, generating significant cash flow and profits from their clients, the landlords.

Second: Most brokerage companies have found that it’s cheaper to hire independent contractors—real estate agents, salespeople, and brokers—and then split the revenue stream. It eliminates the employer risk. These companies look for agents with a sink-or-swim mentality who can figure out how to do everything. They then provide as little operational support to their agents as possible, since that costs a lot of money. They’ve found that resourceful agents have a way of servicing clients with nominal overhead—typical support is one admin per eight-to-12 agents.

Third: Most of these brokerage companies have found that being a landlord themselves is the most profitable business of all. Most public real estate brokerage companies have vast ownership holdings in buildings that they can buy, lease, manage, and sell with no competition, so their fees are protected, and their landlords always get the better end of the deal. Not a bad gig at all!

“What if you take one step back and reevaluate your entire strategy? What if you challenge the foundational assumption of who the ultimate client is?”

But what if, like the Warriors, you take one step back and reevaluate your entire strategy? What if you challenge the foundational assumption of who the ultimate client is?

Nearly 25 years ago, Hughes Marino did just that. We determined that the industry should center on corporate tenants—the ones paying the rent—not landlords. Our industry has been slower to adapt.

If commercial real estate were the NBA, then customer service would be our three-point line. Our company has prioritized the level of service we provide to our clients, which in turn has paid huge dividends. We hire seasoned professionals in all disciplines—actual employees, not just independent contractors—and provide deep operational support with a 2-to-1 admin to broker ratio.

Our belief is that, as a high-performing team of experts in total alignment with our clients, we can provide better service than our competitors. We also avoid conflicts of interest by never representing landlords (or worse, by being one). While we will continue to look for ways to improve our model, I am proud to say that, when it comes to office space brokerage, we’re changing the game.