Choose the Best Commercial Real Estate Broker

Are all Commercial Real Estate brokers or agents the same? Do I really need a broker or can I do it myself? These are all very important questions that must be answered for every type of business as one chooses a commercial real estate broker at various stages of a company’s lifecycle.

How to pick the best commercial real estate broker whether you are a Fortune 100 Company or a start-up, whether you seek new warehouse space in an industrial park, a sleek downtown office or a fun loft for your millennials, is a decision that must be made wisely. Are all brokers the same? Does it matter who you select to represent your firm? Yes, yes it does! Very much so.

Making this decision can set the stage for real estate being an asset that either helps propel your business forward or becomes a noose around your neck.

A space that reflects your culture and becomes a place where employees enjoy spending their time can be an irreplaceable source of collaboration and creativity. An office space that lacks flexibility may hinder your ability to attract talent. Or a space may simply cost too much money and then simply it is a drag on the bottom line.

A Commercial Real Estate Broker is not a “one size fits all” commodity. I can assure you that brokers are quite different from each other in terms of the level of service they offer, the resources they bring to your project, and the advice they provide to get you to the point of decision on your space.

After spending over two decades in the industry as a broker, consultant, and service provider, in my professional opinion, there are 5 key factors to consider when you are ready to select a commercial real estate broker to represent your interests and find you the ideal home for your new office, industrial or retail space for your operations.

The first and most important factor in my opinion is somewhat intangible…this factor is chemistry. Do you trust the commercial real estate broker or agent and their team? Do your instincts tell you that they have your best interests at heart as their driving force? The reason why chemistry is so critical is primarily due to the lack of alignment in the way in that brokers are compensated for their services. This is an area of commercial real estate where there is a lack of transparency.

A Commercial Real Estate Broker is paid a commission by the Landlord or Seller of the property your company ultimately selects and often the fee is a percentage that is tied to how much space you occupy and the length of the term of your contract. To illustrate, a very common lease commission calculation would be calculated using this formula: 4% x 5,000 square feet x 3 years x $25 per square foot in rent. In this example the fee paid by the Landlord to your broker would equal $15,000. In some markets the calculation is simply a set amount multiplied by the number of square feet. For example, in Chicago, it is $1.25 per square feet x 5 years x 5,000 square feet for a total commission paid of $31,250. As you can see, the commission owed to the broker who represents your interests is often tied to how much your space costs you or how many square feet you occupy. To further complicate this, some properties offer a “bonus” commission for your contract (which not all brokers disclose). I believe this bonus should be disclosed by the broker to its client but that is left to the broker’s discretion. You want to work with a broker who is transparent with you and of course, who would not be swayed by any bonus. Most brokers are ethical and will provide this information but it never hurts to ask.

Commissions for both the tenants representative and the landlords representative are expected by most commercial properties and therefore, built into the pricing of the property. If you don’t use a commercial real estate broker, you are likely leaving money on the table and foregoing valuable expertise that could provide you with a better space solution with more flexible terms at a lower cost.

Commercial real estate is one of the few remaining industries where you can’t easily shop prices or availability online to see what is being offered and then make a strategic decision with open information. You are relying, almost solely, on the information provided to you by your broker.

Lisa McClung, CEO of Coda Signature added what is fundamental to her, “The broker taking the time to understand my goals and business strategy…that the transaction is a means to an end. Less sophisticated brokers are focused on the timing of the transaction and fees – because that is how they are compensated. Brokers who understand my business and align with my timing are the ones that become long term partners and are always my first call for any future transactions.”

 The second key factor is the broker’s overall qualifications and references. Do they have happy and satisfied customers? Brokers often specialize in the type of building you seek (office, industrial, retail). Each of these asset groups are very different in terms of market knowledge and specifics. For example a strong retail broker will understand the demographics and traffic patterns, a strong industrial broker will be knowledgeable in terms of rail access, value of various ceiling heights, and cross-dock buildings whereas an office broker would be able to advise on where and what type of space will help you attract the right employees and retain them and what term to commit to for your company. For example, if you are making a leasing decision for a fast-growing startup, a short-term lease might make sense even if there is a premium cost. Brokers that specialize in start-ups can be instrumental in helping you think through various options tied to flexibility that will have a long term impact on your company .It is critical that your broker have deep experience with completing successful transactions for like-type companies. “Market knowledge AND the willingness to understand that every deal is the most important deal to THAT client,” is crucial criteria as summed up by Duke Long, Owner of Duke Long Agency, EIR Second Century REACH.

Third, is the broker a good listener who truly understands your needs? Listening skills are important for any consultant however, with your broker this is critical as you can waste significant time looking at properties that do not meet your needs. While much of the commercial real estate process can be done in advance through virtual viewing often, it is important to physically visit a number of spaces before you commit. Many brokers will view this as “time with their client” while you will likely view it as valuable time away from growing your core business. Therefore, an expert broker who listens and understands that you value your precious time is a key factor.

Resources of the firm is the fourth key factor. In addition to having a great broker, does the firm also provide construction and project management services to assist you with your construction budget and to manage the buildout of the space? Perhaps you want to consider locating in the suburbs versus a downtown location. Having a firm that has strong representation in both areas would be critical so that you get complete information. Furthermore, a firm that has a labor and demographic expert, and even an incentives expert (often municipalities will provide tax incentives to companies that provide new jobs or even retain jobs that would otherwise move elsewhere) might be even more significant in determining the best solution for your company.

The fifth and final factor to consider has to do with the reputation of a broker’s firm. What type and size of firm should you consider? Do you need a global, well-known marquee brand such as JLL or CBRE Global, a mid-sized player or a niche, boutique firm? Is their brand value important to you? These firms all have quality advisors. However, doing research on the firm, their focus, and resources, can be another factor to help determine who and what firm is the right fit to meet your objectives. Some firms are full service and provide all imaginable real estate services from property management, project and construction management, leasing and investment sales while others are niche firms only providing services that serve the tenant OR the Landlord. Regardless, it is important to make sure the brokerage firm has all the services that you will need from the search to the build out of your space to and post lease services you may require such as operating expense and tax audits. There really is no place to go and compare firms so it’s critical that you consider all these factors and do your own homework.

If you get the right broker on your team working hand in hand and as a partner with you, you will be fully informed on the market dynamics and will likely get much improved economic terms than you would on your own or with an unqualified broker. You could even be out touring properties that meet your needs in a matter of days from this decision being made. The full leasing process can be as short as 3 months, or if you want to take more time to design custom space, the process could take a full year or more. Additionally, as commercial real estate is now adapting to the digital world, more information is becoming available to companies that includes virtual tours and 3D imaging, which all can assist to accelerate the process. Therefore, this process with the help of a savvy broker should become much more customer friendly and open.

My recommendation is to meet with and consider a minimum of 3 and a maximum of 6 firms. While some larger firms will include up to a dozen firms, this is not necessary and is a waste of your precious and valuable time. By applying these 5 key factors to select the right broker for YOU, your company will be set up for success.

Securing the confidence that your broker is partnering with you to further the success of your company does not have to be intimidating and does not need to happen in a black box. Selecting the broker that best meets your needs will result in identifying space that is aligned with your firm’s personality and culture and will positively impact your firm for years to come.

Written by: Sheila Samii Matuscak, CEO & Founder, CoeoSpace

http://coeospace.com

2020 Industrial Space for Lease Review & Outlook for 2021

Industrial Space for Lease Remains in Hot Demand

Despite the extraordinary challenges of 2020 including the global pandemic, the election and the economic uncertainty that came from both, industrial property sector fundamentals are encouraging. According to Statistca Research Department the national vacancy is at near historic lows and the lowest of the commercial asset classes with a 10% vacancy rate. E-commerce continues to be the most significant driver of demand. This demand has surged since the beginning of the pandemic.

Even on smaller industrial assets tracked by the National Association of Realtors (NAR/REALTORS®), as reported in their Commercial Real Estate Trends & Outlook, July 2020 Report, the industrial market is the strongest of the commercial real estate sectors given the expected continued and constant growth in e-commerce based on consumers continued trend toward online shopping and delivery.

Why is Industrial so solid now?

The “Amazon effect” is often credited for the strength of industrial real estate and has become well known terminology. What is the Amazon Effect?Investopedia definesThe “Amazon effect” as the impact created by the online, e-commerce or digital marketplace on the traditional brick and mortar business model due to the change in shopping patterns, customer expectations, and a new competitive landscape. Amazon delivery has become a new normal for a significant portion of American households. The Amazon effect has fundamentally and permanently changed how consumers buy product and their expectations for delivery which is “why wait?”.

The pandemic has also led online grocery to explode as many households who had never before ordered online, now use it regularly. This trend is expected to continue post-pandemic.  CBRE estimates that cold storage facilities alone are likely to grow by as much as 100 million square feet by 2025 which is a 47% increase from the current 214 million square feet (NAIOP, The Cold Storage Market is Heating Up, Spring 2020 Issue).

In addition to e-commerce, the pandemic has led to a burst of BOPIS (buy online, pick up in-store) which is also likely to become a well-known acronym as consumers become more familiar with the ease and convenience of this delivery method.

Through our own CoeoSpace database, we have seen significant industrial product get leased in the past 6 months in strong industrial markets including Chicago, Houston & Dallas. The largest industrial markets including Inland Empire, California and Eastern Pennsylvania/Southern New Jersey continue to grow and are completing record new constructions projects.

2020 Year End Projection

2020 year-end absorption is likely to be 200 million square feet with new product delivery at an anticipated all time high and likely to reach just over 100 million square feet based on most major industry players’ research. There is plenty of new construction underway and the demand for well-located, well-built industrial space is currently almost keeping up with this supply. This balance will be important to watch.

2021 Outlook and Beyond

It seems clear that we will continue to see the growth of e-commerce and direct-to-consumer delivery channels for the foreseeable future. As depicted below, JLL projects growth of over 1 billion square feet of industrial space by 2025 as developers and investors are ready and eager to meet the continued demand.

These new construction projects will be state of the art, high tech industrial space that will allow occupants to leverage artificial intelligence, machine learning, robotics, and drones which will allow them to maximize all links in the supply chain.

Industrial commercial real estate is clearly the asset class to watch…

Sources: JLL, CBRE Global, Cushman & Wakefield, NAIOP, Statistca, National Association of Realtors (NAR)

Written By: Sheila Samii Matuscak

CRE in a Post-Pandemic World

When Rip Van Winkle falls asleep in the Catskill Mountains just before the Revolutionary War, he doesn’t wake until twenty years later—beard grown a foot and a rotting, rusty musket by his side—to a post-war world that’s very different from the one he remembers.
While it’s a bit much to suggest that we will emerge from our current isolation to find a world as altered as the one Washington Irving presents in “Rip Van Winkle” (although self-isolation beards do seem to be a thing), there will certainly be changes, from how we greet colleagues (no handshakes, please) to what we require from our office space.
Change, even positive change, like a promotion or a new office, can be hard—and the reasons behind today’s workplace changes are anything but positive. After all the worry and loss, we look forward to the return of normalcy. Yet we may find that the workplace we’ve been so eager to return to differs considerably from the one we left behind.

Personal safety, always a top priority for employers, has a new look—one that requires keeping people at a safe distance to help limit the spread of disease. The productivity benefits related to open floor plans and desk sharing are taking a necessary back seat to the need for individual workspaces and agile work-from-home options. To return workers to the office safely, companies are having to make significant adjustments.
Your company’s return-to-work plan may begin with your schedule—possibly alternating two weeks at home with two in the office, in an effort to decrease office population density. When it’s your day to return, give yourself a little extra time to actually make it to your desk—there may be a wait at your now voice-activated elevator, due to the limited number of people permitted inside. Arriving at your floor, you take a circuitous route down designated one-way hallways intended to limit your interaction with colleagues. You get to your usual desk in the open office plan only to discover that it has been moved six feet away from your coworkers’ desks, and “sneeze guard” partitions have been installed. The on-site gym has been shuttered, and in the office cafeteria, seating is limited to a single person per table.
While this degree of change may seem daunting, it’s likely coming. Cushman & Wakefield, a commercial real estate firm, has already created “the six foot office,” which uses design tools such as some of those described above to keep coworkers at least six feet apart, thus mitigating the risks inherent in returning to work.
Businesses in the U.S. are also taking cues from those with offices in parts of the world where employees have begun their return to work. As Jena McGregor of the Washington Post reports:
“IBM, which has begun adding back workers in several locations in China and South Korea, has developed global standards for returning to the office. They include bringing back those who need access to on-site equipment or labs first, staggering arrival times so elevators don’t become too crowded, eliminating buffets and shared serving tools in cafeterias, and taking out furniture in other spaces to ease social distancing concerns in conference rooms.”
Other companies, like Intel, have also implemented strategies to limit the spread of disease, such as requiring more frequent and visible office cleaning, distributing masks, providing disposable plastic covers for shared keyboards, and screening for symptoms.
As Uri Berliner of NPR points out, some protective measures require making judgment calls, such as deciding whether to mandate temperature checks and contact tracing. Along these same lines, sensors used to monitor desk usage, once touted as a way to maximize utilization, are now being investigated as a way to ensure that those same desks are not being used too much, and are being cleaned at appropriate times.
At this early juncture, much is still unknown, including whether companies will, as some people posit, ultimately require less office space. As Rani Molla reported for Recode:
“In short, it is too early to tell if companies will lease less space,” Julie Whelan, Americas head of occupier research at commercial real estate services company CBRE, told Recode. “While they may need less space because some people may conduct some of their work remotely, they may also need more space to provide the social distancing that employees may feel they need to be comfortable.”
It’s also too soon to tell how many of the changes now being implemented will remain in place even after we have a COVID-19 vaccine or effective treatment. It seems likely, however, that the ones most apt to stick around will be those that provide benefits beyond mere social distancing. When Coeo Space made the decision to offer live remote tours of commercial real estate properties, for example, its short term goal was to allow landlords and tenants to continue to safely find and visit commercial real estate spaces while social distancing, but long term, these remote tours will offer the continued benefit of cost and time savings to those attempting to locate and secure property from distant locations.

Returning to old Rip Van Winkle and the new world he found himself in, let me assure you that everything worked out just fine. His grown daughter took him in, and although it was some time before he could fully comprehend all that had changed while he slept, he eventually resumed his old habits and did very well for himself indeed.
We hope it will be the same for all of us, in time.
 
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by: Kim Pierson
for Coeo Space