The biggest problem with CRE is the false belief that it’s all about the lease. It’s a natural position for both clients and service providers to take because that’s where the money is. Commissions and brokerage rules are set out in regulations and laws making them something that can’t be touched. It’s sad because the value to the industry is in just about everything outside that single lease event.
In the life of any given lease:
- Most of the controllable costs go toward operations and workforce. Lease costs are fixed and go into the drawer to be looked at as the expiration approaches.
- Most of the risk is unknown at the time of lease signing. You literally can’t address most risk during the lease process.
- The hardest part of a renewal is not doing the deal, it’s presenting a believable position that you could move.
Where is the value in the CRE industry you ask?
- Someone fix the data and technology problems. This isn’t going to happen as long as most of the revenue is trapped in limited value-added broker commissions.
- Better facilities services tools and capabilities. Landlords have money and demand making property management sexy. Tenant operations are considered low value. No one really does it well as a service provider.
- Focus on portfolio strategies. Planning the next few years is the hardest part of most organizations. It’s doubly difficult when they can’t find quality brokers to help execute smaller, low commission deals that actually move the portfolio forward.
Brokers are a necessary part of the CRE world. That will never change. Their cost to value ratio can often be strongly skewed.
With all that said, some brokers are phenomenal and care about a client’s long-term needs over that broker’s in-year revenue maximization. In my experience, this group is a big minority.