Why startups will disrupt commercial real estate…eventually

I have never been a fan of waiting. It makes me feel anxious. I like things to be figured out and taken care of quickly. As a broker at a major CRE company I feel like I am always waiting for corporate to introduce the latest technology that is supposed to make my job easier, but it never seems to happen. It makes me, well, anxious. I have written about this here and here, and WSJ has written about it here.

In fact, I am not alone in this line of thinking. Recently I attended a talk here in Boston with industry execs and discussed, among other topics, was how advancements in technology may eventually disintermediate brokers from the deal process (or at least begin to erode the fee structure). Comparisons were drawn to the travel, residential real estate, and financial services industries to support the contention that unless the CRE industry begins to adopt new technology, it will be marginalized by the technology itself. To be clear, when I refer to CRE Technology, I mean software solutions that utilize the internet to increase efficiency in a process or transaction within the commercial real estate industry.

But who really cares? As long as brokers can still make huge commissions from time to time, why waste your time looking for ways to do your job better. A CEO is required to care because he has to, but for the everyday broker, is technology really that big of a threat or differentiator? I believe that the answer is yes, and I would also argue that there are two categories of CRE technology that will eventually disrupt the CRE industry, or more specifically disrupt how brokers get paid and/or add value.

Category 1 – Listing/Marketing platforms

It is no secret that any startup that is entering this space is looking to chip away at CoStar’s market share, or create a new model for how space is marketed and found. If I were CoStar, I would be very afraid. Their product is cumbersome, the UI is terrible, and their data (outside of availability listings) is rarely accurate. The only reliable service CoStar provides is the ability to market available space within the brokerage community. But the problem is, everybody uses it and nothing else. In my mind, this is a huge opportunity for startups. Think about it, if there was a way to register interest in office space on the internet without having to speak with a broker, who (or what) would be the procuring cause of the interest in space? The listing broker or the website on which the interest was registered? The brokerage companies that partner with the new listing services first will be the ones that benefit from the eventual wave of internet tenant demand from tenants directly and brokers looking on behalf of tenants. After all, the brokers are the experts, but they might not be the best or most efficient source of demand.  Here are a couple of startups that I think are on the right track in this space:

42Floors - “The best place to find office space.”

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Good tagline. Now only operating in SF and NY, this service with a new $12.3m funding round, will only spread further. The site is beautiful and the concept is obvious: someone looking for office space gets on the internet and conducts a search. While 42Floors does not currently charge brokers to list space, they plan to make money in the future through  “the sale of premium services and products for listings.” Bottom line is that they market of transaction fees is too large not take a piece. Who takes the eventual hit? The broker, whether in the form of a referral fee or payment for premium listing services. Maybe the landlord takes the hit, but if they were smart they would pass that cost onto their brokers.The only thing that seems obviously deficient is their SEO. I Googled “office space San Francisco” and 42Floors was nowhere to be found on the first page. Excited to see more things to come.

Rofo - “Connects you with responsive and qualified landlords who have the ideal commercial space and location to support your business needs.”

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Same concept a 42Floors but taking the disintermediation concept once step further with a database of tenants looking for space. When I searched for space on this page, I mostly came across Regus listings and subleases, so I am guessing that its audience is smaller tenants and landlords. I think the concept of tenant demand database is far ahead of its time, but I don’t know how reliable the information is and how they vet it. Imagine being a property owner and browsing through a vetted list of tenant space requirements?

Storefront – “Storefront is the online marketplace for short-term retail space”

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Very niche, but very direct. There is no apparent process of dealing with a listing agent or trying to find a tenant rep that will actually work with you. You log on, look for or list space, and they do the rest, including a standardized lease format.  Storefront basically does what the highly paid broker is supposed to do, for probably a fraction of the cost. This seems like a good concept for a short-term deal, but might be too light for more complicated commercial leases that require build outs, lawyers, big commissions, etc. If you are a tenant with absolutely no experience leasing space, how do you know if you aren’t making a really bad decision? You cannot replace the value of a broker in that case.

SpaceList.ca – “Search office, retail & warehouse space for lease.”

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A couple remarkable things here. One, they are focusing solely in Canada where CoStar does not operate fully, or at least in British Columbia, and two, their elegant UI and clean site works well for both brokers and tenants looking for space. These guys have been signing on brokers and landlords at a very quick pace, which means that brokers get it. They understand that if there is demand for space on the internet, why not utilize a service that can help them fill the pipeline?

View The Space – “Lease space Faster.”

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Someone had to eventually pioneer video tours of space. VTS has done this and added all sorts of features around their core offering. At first glance it appears to be a marketing platform for space, but they also offer brokers and landlords the ability to analyze their marketing efforts using data compiled through site usage and “views.” As far as disintermediation goes, it is still confusing to me who pays for the service.

Category 2 – Data platforms

Brokers are in the information business. The bricks and mortar are secondary. Brokers exist to provide tenants and landlords the proper information to help them make a decision. The level of accuracy and reliability of this information is up to the client to decide. Imagine if the data that brokers used as leverage to get hired or advise clients was public? Imagine if lease comps or tenants currently looking for space were searchable on the internet? Eventually this will happen because of companies like these:

Compstak - “Trade your comps for comps you need.”

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Fresh out of the latest batch of 500Startups, Compstak is appears to be aggregating lease comps on the internet for brokers to buy. FYI – lease comps are the deal terms of newly signed leases between tenants and landlords. Brokers trade comps as currency, and use the information to look more informed for their prospects and clients. While not quite a public database, the information that is shared on the site is invaluable to real estate investors, brokers, and investment managers. Typically, this info is carefully protected in brokerage company proprietary databases, only to be shared or used when beneficial to the brokers that own it. This will eventually change. Most publicly traded companies file major lease deals anyway, so what is everyone else waiting for? The only trouble I see these guys running into is who exactly owns the data. Landlords, tenants, brokers? By the time this concept reaches mainstream, it won’t really matter anyway.

TenEightApp – “TenEight has developed the first ever virtual and interactive tour booklet app.”

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Patrick and his team have tackled the issues of building standardization and tenant ratings by developing a mobile platform for sharing building info. While the platform provides a much easier way for brokers to share tour information with tenants, the underlying play is aggregating the building ratings data and serving that up to landlords and corporations as business intelligence. Wouldn’t it be cool to have a bona fide ratings system for buildings like there is for restaurants or movies?

Leasability – “Lease more space in less time.”

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Shameless plug – this is a project that I have been hacking on for a while. The concept is that brokers and landlords should have a web-based platform on which they can manage deal information. The data collected through the deal pipeline will allow landlords to measure the performance of their property portfolios. Brokers are able to spend less time communicating deal progress and more time finding deals. Asset managers log on and see what is going on in each of their buildings in real-time. Brokers can log showings, upload proposals, move deals through the pipeline from their phone or computer. Eventually landlords and brokers can use the data that is gathered through the deal process as business intelligence to optimize portfolio performance and make better leasing and marketing decisions.

I think that CRE brokerage companies should be trying out these new platforms to see where value lies. The big question is how long will it take for the disintermediation to become reality.

Thoughts on the startup world in Boston

Aside

Although not officially full time on a startup in Boston, I have been working with my co-founder, John Kelleher, on a project called Leasability for the better part of the past year. As a full time commercial real estate broker who has always been interested in tech, I encountered a problem in the office space leasing process that I felt could be solved with technology. I found myself spending way too much time managing several different listings with different client reporting tools and formats, and thought I could save time by centralizing client reporting into a real time, mobile-enabled application, built specifically for the space leasing process. Through using Leasability, brokers can keep their clients and teammates up to date on deal pipeline and market activity in real time from anywhere, rather than the industry norm of weekly conference calls reviewing boring spreadsheets. Everyone wins! Thus, I dove into the Boston startup scene and began building Leasability.

(Note: this post is not all about my journey building a startup, but my observations about the Boston startup community, so if you want to learn more about Leasability, just email me. Trust me, I am not an expert in building a startup)

In no particular order, here is what I have observed:

People genuinely want to help you – not that corporate America is full of people working against you, but the pressure that comes along with climbing a corporate ladder sometimes creates, well, headwinds when dealing with others. I noticed in the startup world, that even when people may be providing resistance, they are usually doing it to challenge your thought process on your start up, which is actually a good thing. This goes for investors, entrepreneurs, attorneys, etc. The bottom line is that people want to see you succeed, and you need that because it is not easy to do so. 

Good developers are really hard to find – the startup scene in Boston is so strong right now, that even developers that are not fully employed by a startup or big tech firm are contracting on their own, and making good money. So to convince a top notch developer to join your team pre-revenue or pre-customers, you need to be able to tell a really good story (or have a lot of money in the bank). 

You can always find a free meal – startup events are so rampant that you are never more than a couple of hours away from your next slice of semi warm pizza. 

The door is always open – there is no hierarchical or “what’s in it for me” attitude in the startup scene in Boston. Sure, some people might be difficult to get ahold of, but people are genuinely interested in listening to your thoughts. Even if someone cannot give you what you need like money, time, or expertise, they are usually willing to grab coffee and listen.

People are really young – coming from the corporate world where you are usually engaged with decision makers with silver hair, the startup world in Boston has an unbelievably young vibe, which is awesome. I have been really impressed with some of the college students I have met, and recent grads for that matter. The only knock is that I believe that until life or the business world smacks you in the face, life can seem way too blissful, so it is not all roses out there for the youngsters.

Beware the time waster – while there are tons of good events, and tons of good people to meet, you can really get bogged down in the “scene” while your competition is sharpening its saw. When you start noticing the same people at all the events, its time to get back to getting shit done. Relationships are key, and events are where you meet people, but don’t spend all your time being “of” the startup community, be “in” it.

Its not all about Boston – I don’t have any experience working in any other startup heavy ecosystem, but the more you stay in the Boston bubble, the longer it will take for you to succeed. Customers are everywhere, so go find them. Investors are everywhere, so go find them. Be proud to be from Boston, but don’t limit yourself.

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Hidden Competition

Tenant representation is perhaps the most competitive arena within the commercial real estate brokerage industry. Brokerage companies large and small are all chasing the same group of space occupiers through cold calling, relationship building, networking, entertaining, etc. There is only so much business to go around, and to tenants, brokers tend to all look and sound the same. Even tenant rep only firms need to compete with the traditional brokerages that represent landlords. No matter what you call yourself as a broker, you have competition coming from every angle. Not to mention, tenants are exceedingly demanding of their service providers to deliver more solutions for lower costs. It’s really a battle out there.

What’s worse is there is a hidden layer of competition for tenant rep brokers – Landlords. Yes, that is right, landlords actually compete for tenant rep business. Not in the sense that they actually represent tenants, but in the sense that they absorb commissions that are otherwise to be earned by brokers who advise tenants on renewals, and sometimes new deals. Now I am not suggesting that this is at all wrong or unethical (in full disclosure, I represent landlords as well as tenants), but it is simply the nature of the business. If a landlord can negotiate a favorable deal without having to pay a broker, then it is in their best interest to do so, and they should. But as a tenant rep broker, you should be aware that the sales path may actually take you through the landlord.

To the tenant, a landlord is the guy that comes around and asks if everything is OK, sends you tickets to the game, offers you space when you don’t need it. To the tenant rep broker the landlord is the guy that says, “bring your tenant to my building, we love paying brokers,” or “we treat our tenants well, they will be in good hands.”  What landlords don’t necessarily broadcast is that they will do anything in their power to keep rents high and deal costs low. Again, that is their business and that is completely fair.

But from the tenant rep perspective, it presents a serious challenge – explaining to a tenant why they need a broker. That is a topic for another blog post, but the basic argument from the tenant rep is that if a landlord offers a tenant a “market deal,” there should be a commission imputed into the rent. And because “market deals” typically involve brokers, landlords expect to pay a commission on every deal. That is how they underwrite their investments. So when a landlord does not pay a commission and the tenant gets a “market deal,” the commission is left on the table for the landlord, and the landlord wins. It is not stripped out of the rent or disclosed that it exists. Therefore tenants may end up paying a premium when dealing directly with their landlord.

I am not suggesting that tenants should never deal directly with their landlords in negotiation, because it is their choice to do so, I am however suggesting that this element makes it more difficult to win tenant rep business. So my message to tenant rep brokers is – stay on top of your existing relationships and learn how to sell your value proposition like Don Draper.

Am I wrong?

What’s missing in CRE Tech?

The following is a guest post from Bill MacEwen, Founder of SpaceList.ca in Vancouver, British Columbia. SpaceList is using simple design and nimble technology to create a faster and easier way for people to find and market space, with the ultimate goal of improving the way Businesses, Brokerages and Landlords share information. Stay tuned for more great things from Bill and his team!

In case you haven’t noticed, innovation is moving remarkably fast all of a sudden.  New companies are popping up and making huge impacts on otherwise stable industries.  In the last decade alone we’ve seen photography, publishingmusicmoviescoupons and travel agencies (too name a few) all dramatically transformed.  The world is moving so fast that it’s becoming tough to keep up.  And what about commercial real estate?  Is our business changing too?  You’d better believe it.

It’s not about you.

There are a crop of young startups who are  going to change this business by asking a fundamental and selfless question: How can we make people’s lives better?  This new cohort understands that everything begins with the consumer and their demand for space.  The industry exists to serve that need, by whatever means available.  What’s changed in the last few years is that there are a new set of tools available to solve consumer’s problems, and our customers expect that we will use them.  There is a huge gap in our business right now between the tools that are available to us and the tools that we are using.  Opportunistic startups see the potential to solve problems using these new tools.  The gap is so big and so glaring that we are going to see a mad rush to fill the void.  You might call this new movement CRE2.  

The technology is already here

Often disruptive innovations come along not as a result of brand new technology, but through an insightful reapplication of an existing one.  I believe that will be the case in commercial real estate.  There are some fancy wiz bang augmented reality, QR Code applications, and 3D rendering tools, and they’re neat.  They’re fun toys and they might prove useful sometimes.  But if I’m looking to find a space for my business, do they make that process dramatically better?

The problems that need to be solved are actually quite simple.  Business and the brokers representing them need accurate and complete information presented in a way that makes it easy to understand and analyze.  The revolution in this industry is going to come from people applying existing technology to solve tough problems that maybe aren’t fancy, but that can help people access better information, make better decisions, and form better relationships.  The deals are big and important and they require deep amount of trust, skill and knowledge to execute effectively.  Technology can help with that.  

The Realtor’s Dilemma

Clayton Christensen’s model for mapping disruptive technologies is a great way of looking at how things will change.  Firms who are married to their revenue models will be hampered by their inability to subvert their own profits.  CRE2 companies are not tied down in this way.  Startups, by definition, have no old models to defend.  The only legs they have to stand on are better answers to the fundamental question:  How do we make people’s lives better?  But I suppose that’s true for every firm.  Here are a few you should keep an eye on:

42Floors.com

Compstak.com

Leasability.com

Officespace.com

SpaceList.ca

TenEightApp.com

Stay tuned for some more insight into the problems that we need to solve in order to make the CRE world a better place.
 
 

How CRE brokers are paid

I recently read a post by Jo Tango of Kepha Partners about how VCs are paid, and thought it was a good way to understand how one of the more mythical industries actually pays its players. Similar to most incentive-based compensation models, the real money is in the big deal, but how a firm operates behind the scenes with regard to fees and partnership can have a significant impact on the end-user. In the case of CRE, the end-user is typically an occupier or owner of real estate, and as we know, deals are facilitated by intermediaries (brokers) almost 100% of the time. Given the preponderance of brokers in the commercial leasing and owning process, I thought it would be valuable to provide an explanation of how brokers are paid for their services. Two key areas of focus for tenants or landlords that are hiring brokers are firm structure and transaction type.

Firm structure

It is first important to understand the structure of the firm that is representing you. Is it a global, publicly traded player, a boutique local firm or an affiliate of a loose network of mid-sized firms across the country? Do brokers at this firm get paid on a 100% commission basis, salary and bonus, or some other model? Is the firm owned by public stockholders, a small group of partners, or a sole proprietor? It is important to ask these questions because you need to understand what factors influence your broker’s advice, and how those that advice impacts the huge real estate decision you are making.

In a pure commission based firm, there can be both positive and negative influences on the outcome of a transaction. Commissioned brokers are incentivized to bring in as much money as early in the calendar year because they typically have to pay back a draw or salary before they begin to collect commissions. The sooner this happens, the sooner the money begins to pile up, and a commission first mentality may develop. A nuanced part of broker compensation that is typically invisible to the client is the internal fee split. Often times the fee split between brokers can dictate the team on the field for the deal, and even jeopardize the project’s objective. For example, a senior broker may need transaction support on a rather complicated deal, so he might enlist a young associate knowing that he will not command as large a split on the commission. Thus, the client gets a greenhorn broker who cannot manage their expectations or the transaction. On the flip side, a commission-based firm has distinct advantages for a clients. When working properly, a commission firm is a well oiled machine of interconnected parts. Because the money is not going into a central pot, there tends to be more focus on a particular assignment given the individual broker’s direct line of sight to the revenue created by the deal. Clients benefit from this in that they typically get an expert on their account, rather than the best salesperson.

The boutique firm that pays brokers on a salary and bonus basis works a little differently. In a worst case scenario, you may be wooed in your pitch by the silver-haired partner representing the top-level of responsibility at the firm, only to find that once the deal gets going, he is nowhere to be found. He is most likely out pitching other business, managing the day-to-day operations of his firm, or on his boat. For him, this is ok. The business has been secured, the grunts are doing the dirty work, and the partner pile grows. For the client, this might suck. It may be difficult to determine the single point of contact on the deal resulting in delays in negotiations, missing information, and poor decisions. In the best case scenario, the senior partner and junior associate work hand in hand, with the senior partner always stepping in when he is needed and overseeing or sometimes spearheading the deal. After all, the fee is going in one big pot, so collaboration should be at a maximum at this type of firm.

Transaction type

Brokerage commission come in all shapes and sizes. It is important to consider the type of deal you are executing in order to understand how your broker is being paid.

Leasing fees – in a basic lease transaction, both the tenant rep broker and landlord rep broker are paid a fee by the landlord. The fee amount is usually tied to a market based commission structure that is tied to a percentage of the overall rent considered, or a per square foot per year fixed amount. For example in Boston, tenant rep commissions can range from $1.00 – $1.50  per SF per year for office deals depending on location and building quality.  The landlord rep typically receives half of the tenant rep fee or, $.50 – $.75 per SF per year. An example tenant rep fee calculation for a 10,000 SF 5 year deal in downtown Boston is as follows:

$1.50 x 10,000 SF x 5 years = $75,000

This may seem like a big pay-day for a broker, but when you consider the splits with the house (50%), splits with partner broker on the deal (50%), and maybe a draw pay down, the money shrinks awfully fast. Needless to say, the larger the space, the longer the term, the bigger the fee.

Sale fees – brokers also make money by selling buildings. Sale fees are almost always a percentage of the sale price. Typically, the higher the sale price, the lower the fee. This is because, regardless of the building size, there is a ton of work involved with selling a building. Brokers don’t just list the property, throw up a sign, have an open house and collect offers. Sales fees can range from 1% – 5% depending on the size of the sale. A 1M SF downtown skyscraper that sells for $600/SF will yield a fee closer to 1%. Unlike leasing deals, in a sale process there is typically only one broker, the selling broker. Investors are approached directly, and a buyer’s broker is only involved when the buyer happens to be a user or company that hires a representative.

I would advise any tenant or landlord who is considering hiring a broker  to ask how they are paid. Don’t even be afraid to ask how brokers are splitting up a commission with the house or with their partners. In the name of transparency, shouldn’t brokers be willing to tell you this? It is not a sin to make money, after all, it’s just good to know that money is not made at the expense of trust.

3 Reasons CRE doesn’t do social media

I recently returned from Scottsdale, Arizona where I spoke to hundreds of my colleagues about using social media for sales. By far, the most overwhelming theme of our conference was the use of technology to accelerate sales efforts and contribute to the success of clients. I was excited about this, as the CRE industry needs to start embracing new media and tech, just like every other industry already has. But I am not convinced people really understand the most obvious sales tool for our business – social media marketing. Candidly, I think that most commercial real estate brokers hide behind the industry to avoid embracing social media. They say things like “isn’t twitter for kids and celebrities,” or “doesn’t it take a lot of time,” or “can you honestly tell me one meeting you have gotten from tweeting?” These are all short for, “I’m really, really afraid of change, and I don’t want people to think I am stupid, and I don’t like being uncomfortable, and I just want things to happen how they are supposed to happen, and I want to rely on my senior partners for business, or I like finding business at my club.”

Ok, that’s a little harsh, but its true for a large portion of the CRE population. I do believe however, that there are CRE people out there that see the value in social media tools, and understand that the ROI is not always calculated by leases and commissions but by awareness, social proof and thought leadership. You cannot have a great brand, personal or corporate, without these things. Long and short, I think CRE brokers have a lot to learn about effective use of social media tools for sales. We are just scratching the surface.

I use the presentation above to give CRE brokers a little of the why social media is relevant, as well as the how I use social media. I have my own guidelines, use my own set of rules and tools, and do what feels right to me. So don’t feel like I am giving you a lecture, use my presentation as a reference point for your own social media strategy.

So here are the three reasons why CRE brokers won’t embrace social media:

1) CRE sales channels are old school – cold calling, canvassing, leasing signs, mailers, email blasts, “networking,” hunting, playing golf. You name it, we do it. Don’t get me wrong, these are all good things, and arguably necessary. It’s just that, they are all becoming less important. The internet, especially search engines, are where things are found these days. I was speaking with an entrepreneur today who just leased 6,000 SF of space in Boston off of Craigslist. The broker that put his listing on Craigslist won because he benefited from inbound marketing. There are over 2 billion people on the internet. Lots of them are on twitter, facebook, linkedin, blogs. So…do all the things that are arguably necessary, add social media to the mix, and dominate.

2) $$$ – leasing commissions are too high. Yes, I realize that’s how I make a living, but sometimes you can trip over a deal and make enough to buy that house in the burbs. Or, you can work really, really hard and get the same result. It’s difficult to measure a real estate broker’s ROI in terms of time spent working. So the mentality for too many brokers becomes hang around the net long enough, work hard here and there, maybe get lucky, and you will be rewarded. Social media is too bleeding edge for this way of thinking. It involves being yourself, testing the limits of what’s acceptable in business, and showing vulnerability – not being a company man. Far be it for me to suggest this might aid in your path to success, and in the process make you feel like more of an individual.

3) You don’t know what you don’t know – remember that time you first got behind the wheel of a car? You knew that what you were doing was something that you were going to have to learn, but it was really, really uncomfortable. That’s embracing social media. Until you take a few spins around the neighborhood, you will never know how cool it feels to cruise by and pick up some friends for the ride. Every instance of growth in life entails getting outside your comfort zone. Until you do, you will not see any benefit.

Let me know what you think of my post. Seriously. Do it. Also, let me know if you need help getting off the ground with social media for CRE.

Coworking isn’t just for startups

I think coworking is awesome. I also think that it’s the most natural working environment that exists. If you think about it, we as Americans begin coworking as soon as we are put into a classroom environment – usually preschool or kindergarten. We report to a classroom, sit at a desk, participate in experiments, projects, and games with our peers. We compete, we collaborate, and we discover new things via our interactions with others. It seems so obvious that we would do this as adults.

But the only population in the business world that seems to embrace this concept of work is the startup world. Why is this? Perhaps it’s because entrepreneurs feed off each other, perhaps it’s because they dislike the traditional notion of the office, perhaps its because they rely heavily on the advice of others, or perhaps it’s hype. Whatever it is, I think they have it right.

That’s why I think more businesses should invest in coworking as a growth strategy. In the commercial real estate world, it is easy to fall into the pattern of reporting to the office, checking in with a few teammates and heading to your cubicle to knock a few things off the to-do list or make cold calls. My belief is that true growth in business is the result of new ideas, going against the grain, or stepping into the unknown. How are you going to do this if you are a consultant and hang out with other consultants all day? Or if you are a copier salesman and you follow the same trail through your territory every day. Don’t you want ask yourself what else you can be doing, or ask others what they do differently than you? This happens all the time in coworking space. That’s why it fosters innovation.

If I ran a professional service business like a real estate firm, or a financial advisory firm, or a law practice, I would clear out my extra office space, fill it with desks, and invite other businesses to use it as coworking space. There would be no strings attached, no expectations, but there would be a huge payoff. Relationships would grow, ideas would be exchanged, and business would happen. It doesn’t have to be just for startups.

Do you know of any big companies using their space for coworking? Do you cowork at another company’s office?

Customer validation for CRE brokers

It is widely believed that real estate is a “relationship business.” While I am a believer that relationships are the cornerstone of success in any business endeavor, it is shortsighted to subscribe to the notion that if you simply “cultivate” relationships, you will reach a level of success that is the admiration of your peers. Sure, commercial real estate decision makers are not constantly thinking about their next move, and it takes some wooing to get their attention, but in order to truly identify where a relationship can start, one must qualify leads like any other salesperson.

My esteemed colleague Brooks Murphy bestowed on me the idea of the six boxes of love. The concept is quite simple: is there an opportunity right now to help a company with it’s real estate decision? This should be the first thing any broker should ask herself when qualifying a prospective client. Too often I find myself looking for reasons to keep a prospect in my hit list, only to have wasted valuable time in justifying my pursuit. The six boxes of love are loosely as follows:

1) Is the potential commission large enough to justify your time spent pursuing and executing the deal?

2) Does the company need to make a real estate decision within the next 18 months?

3) Do you have the resources and market knowledge to provide top notch service?

4) Are they going to hire a broker?

5) If they hire a broker, will it be on an exclusive basis?

6) Will you be protected by the landlord or your client if they decide to renew their lease?

If the answer is no for any of the boxes of love, take it off the list. Rinse, repeat.

Is the CRE industry emerging from the stone age?

My brokerage colleagues from our Jones Lang LaSalle Philadelphia office were kind enough to invite me down to their office last week to talk about the use of social media and technology as sales tools for brokers. I have discussed this topic on several occasions, in front of several different groups, but this discussion was the most thought-provoking because the audience was a group of people just like me – brokers. I am fascinated by marketing strategy, and I think that the internet is beginning to move the marketing needle in the commercial real estate industry towards a targeted analytical approach, much like it has for so many other industries. While I was planning to use the nice, shiny Powerpoint presentation I prepared, the talk turned into a healthy discussion by the second slide, and we went right into discussing the benefits of the tools that I use. And because brokers like to talk so much, I didn’t even have to finish my own sentences. A few takeaways:

1) Commercial real estate services companies need to stop thinking about marketing as an excuse to create glossy brochures, but rather as a way to target prospects and turn them into customers – Twitter, Facebook, LinkedIn, YouTube, blogs, blog comments, property websites with calls to action. These are all tools that will help salespeople, marketers, brokers, etc fill the top of their sales funnel. In order to effectively manage all of these media, you need to be a marketing machine. You need to have a strategy. If your company has a marketing team, they should be designing this strategy and helping you implement it. Marketing is no longer about brochures, it’s about getting found online.

2) It’s not that hard to create a web presence  – A common question that I was asked during the discussion was, “How long did it take you to set this up?” or “How much time do you spend a day on social media?” The process is front-end loaded but it’s worth it. Get home from work on a Friday evening, pour yourself a stiff drink and create a Twitter profile. Once you do this, and you get rolling with other applications, you will find that there is a universe of tools out there that help you manage all of your content. The set up might seem daunting, but if it was so difficult, why would everyone be doing it?

3) Social media lives in a 24 hour work day – One of my favorite aspects of on-line marketing is that the internet does not shut off at 5:30 when your prospects leave the office for their evening commute. This means that you can spend the 9-5 portion of the day making your cold calls, stopping in on clients, executing deals and holding internal meetings. All the while your web presence persists on-line and should be working for you 24 hours a day. If you ever find yourself waking up with 7 new Twitter followers you know what I mean.

Comments? Questions? Hit me up.

Butts in Seats

The most fascinating aspect of a commercial lease deal, in my mind, is that there is very rarely a situation when the tenant and the landlord’s interests are truly aligned. The tenant’s main goals are to minimize rent, maximize cash concessions from the landlord, and create flexibility through renewal, expansion and termination options. Conversely, landlords want to maximize rent, limit transactions costs, and maintain control over their space so they can adapt to hopefully improving market conditions.  This is an obvious misalignment of interests in one of the most fundamental business relationships in our economy.  I fear that the current shifts in the economy, and society in general, are only going to widen the gap between landlord and tenant interests. 

As one senior leader in my company told me recently, we need “butts in seats” in order for the brokerage industry to survive as a thriving service.  That means job growth.  Uhh, where is it going to come from?  Who knows?  But here are a few reasons why I think it is going to be even more difficult to get butts in seats going forward:

1) The Internet – If it weren’t for the occasional instances when you actually need to talk to a human to do your job, how often would you go to the office? While it is difficult to imagine a business without face to face interaction, tools like interactive CRM, cloud enabled project management and document sharing tools, and live video chat are diminishing the need for conference rooms, data centers and even offices. How many sales people actually sit in an office all day? How many clients actually have the time to hold conference calls and in person meetings in order to take action on a project? I am at my peak productivity when I am mobile, and utilizing software tools that minimize my in person interactions. As the baby boomers move from the corner office to the retirement community, more people like me (Gen Y) will be running the world and we will no longer need to meet in white shirts and ties to get business done.  Translate – offices will shrink, and the butts will be in seats at home, in a coffee shop with wifi, or on a plane.

2) Co-working space – I have had the pleasure to sit and work in places like the Cambridge Innovation Center or MassChallenge where teams of lean start ups are scrapping away on great ideas without taking up massive footprints of office space. It would be contradictory of the Lean Start Up movement if companies suddenly filled up floors of downtown office towers at high rents once they made it. These companies that are driving the innovation economy, and represent the only flicker of job growth, are too smart to spend money on real estate.  They will find a co-working space that provides all the amenities of a dedicated office as well as the intangible amenity of collaboration with other innovators.  Or, they will find a cheap sublease like Gemvara did and backfill the seats that have been vacated by other butts.

3) Urbanization of America – Suburban office parks are in trouble. According to the Urban Land Institute’s 2010 report on emerging trends in Real Estate, “the prospects for investment are much stronger for smart growth than they are for sprawl.” This means cities are going to benefit from the little job growth that we will see in the coming future. Even the VCs that helped shape the suburban Boston office market are moving back into the city. Efforts such as redeveloping urban locations for transit oriented development, spending fewer natural resources on commuting, reducing residential footprints and providing 24 hour living environments will attract the largest generation of American workers since the Baby Boomers. One need not look any further than Biogen Idec’s move back into Cambridge after less than three years in their gleaming, yet sterile Weston campus to find out that people don’t want to work in the suburbs any more.  As more and more suburban buildings are vacated for urban locations, hopefully there will be more butts in seats in the city to offset the emptiness left behind.