Investing in New Business

Just as real estate brokers have a fiduciary duty to clients in many cases, trusts also often enlist the help of a representative to act in their best interests. Considering the complexity involved in financial assets of all kinds, the value held by these fiduciaries is difficult to ascertain exactly. But looking at some of the largest corporate entities, the total assets under management quickly climbs into the astronomical. The three largest firms — Morgan Stanley Wealth Management ($1.24 trillion), Bank of America GWIM ($1.2 trillion), and J.P. Morgan Private Bank ($677 billion) — account for more than $3 trillion. The top 10 firms account for $5.2 trillion of value held by fiduciaries. Within that massive amount of holdings, real estate — and specifically commercial real estate — will be a significant category of wealth assets. The types of commercial real estate assets are similar to the average investor, including shopping centers, office, industrial, multifamily, and land. Leasehold/lease fee and subsurface rights (such as mineral and gas rights) are also common targets.

A simple way to define a fiduciary is a person or entity that acts on behalf of another person or entity, putting those interests ahead of the fiduciary’s. These representatives have a duty to preserve good faith and trust, meaning fiduciaries are bound both legally and ethically to act in the other’s best interests at all times.

Fiduciaries cannot be experts in everything, so they will need assistance in maintaining their commercial investment real estate portfolio. Here is where opportunities arise for knowledgeable, professional commercial real estate experts in helping with:

• Acquisitions: Real estate holdings can play a key role in diversifying a portfolio, so acquiring new investment-grade real estate is a major part of large trusts.
• Dispositions: Fiduciaries will also be looking to move on from properties that may have run through their life cycles. Trusts also may decide to go in different directions for long-term investment goals, leading to the disposition of some real estate assets.
• Exchanges: 1031 exchanges have been a popular option for trusts, so identifying opportunities and facilitating these exchanges are skills commercial real estate professionals can offer. 

Fiduciaries cannot be experts in everything, so they will need assistance in maintaining their commercial investment real estate portfolio.

• Portfolio Asset Management: Many large trusts are established with real estate as part of the overall holdings, which requires professionals who can handle the asset management of exiting real estate, including periodic value and holding analysis. 
• Refinancing: Owning any real estate for a period of time means that refinancing may be advantageous.
• Leasing: For assets currently in a holding, leasing services are required, so commercial real estate professionals who know local markets and can connect owners with tenants are valuable. 

While the types of fiduciaries include individual trustees, corporate trustees, agents for the trustee, and executors, they may need to network with related professionals like attorneys, accountants, and financial advisers. But those in commercial real estate holdings can provide essential services to the asset managers and property managers. The asset manager and property manager will work together to maximize value for their client. While these relationships will vary for each specific case, primary duties of the asset manager include:

• Overseeing due diligence during property acquisition process.
• Securing appropriate financing as needed.
• Creating and implementing a marketing strategy.
• Establishing each real estate asset’s investment strategy.
• Managing the buildup of management of financial reserves.
• Regularly reviewing each asset’s performance within the entire portfolio and making recommendations on retention, disposition, or repurposing. 

The property manager, meanwhile, handles these responsibilities:

• Initial enforcement of lease terms between tenant and landlord.
• Renting and leasing.
• Maintaining and repairing the property and facilities.
• Collecting rents and paying operational expenses.
• Overseeing physical risk management of the property.
• Addressing and correcting tenant issues.
• Informing the asset manager of any property issues that may impact overall performance.

Considering the duties for each role, the asset and property managers are indispensable to another. A strong working partnership is key to being successful in optimizing the real estate investment for a fiduciary account.

Adding Value as a Commercial Real Estate Professional

With fiduciaries of all shapes and sizes in need of expertise within the commercial real estate space, savvy professionals can offer a robust value-add proposition. CCIMs, in particular, are well positioned to reach these potential clients, because they have:

Image

• Sterling reputations as knowledgeable, ethical commercial real estate professionals.
• Access and fluency in financial tools and real estate investment criteria.
• Networks of diverse investment real estate opportunities in markets across the U.S.
• Potential to work with other real estate professionals who understand fiduciary laws in different states.
• The ability to support the fiduciary with experience in estate transactions and asset management, which will help the fiduciary fulfill its “higher standard of care” obligations.
• Knowledge and awareness of pertinent real estate trends and market conditions.

When it comes to best practices dealing with fiduciaries, a lot of the discussion flows from fulfilling the bullet points of your value proposition to potential clients. It’s vital to be well-informed and able to apply the knowledge of the fiduciary world and its important concepts. By understanding what role investment real estate plays in the overall fiduciary account, you can speak to the goals and objectives of your potential client. It’s imperative to know how to speak the language of fiduciaries. While you can’t be expected to know every concept — you’re the expert in commercial real estate after all — a fluency in this dialect of investment will help improve the impression you make on the fiduciary.

Teamwork is another exceptionally important consideration when it comes to fiduciaries. With attorneys, accountants, co-trustees, and countless other key players, integrate yourself into that team. Cooperation is vital, even though it may sound simple. Learning to work with others in a productive manner is a skill that is especially important in this arena. Meanwhile, within this team, show the commercial real estate skills and knowledge that you’ve gained in your career. Without being pedantic or abrasive, show your team that you know how it’s done in your area of expertise. In the end, it’s key to be a pleasant, essential, and valuable member of the team.

By understanding what role investment real estate plays in the overall fiduciary account, you can speak to the goals and objectives of your potential client.

Diversifying your services will also generate more demand. If you are an expert in acquisition, that’s great — but as a general rule when introducing yourself to fiduciary clients, have a working knowledge of different types of transactions. If you truly are qualified in other roles, such as liquidation or refinancing, make yourself available. Conversely, if you are not confident in a specific area, honesty is important. Your fiduciary client will appreciate your straightforward approach of outlining where you can be the most helpful, while a referral or introduction to an expert in that area could be a way to provide value.

Relationships with fiduciaries can be valuable over the long term. Be sure to maintain periodic communication with your fiduciary clients, even if no transaction is in process of upcoming. Stay on their radar with quarterly market updates or even something as simple as holiday cards every winter. You never know when a previous client may have a new opportunity for you.

One final best practice is discretion, discretion, and — unless you’ve been advised otherwise — more discretion. Ultra-high-net-worth families and major players in trust accounts are not looking for noisy advertisements or big announcements. This approach may be different from other commercial real estate markets, but nine out of 10 clients in this space appreciate erring on the side of a discreet approach to business.

In the end, it’s vital for commercial real estate professionals looking to enter the fiduciary space to be as prepared as possible when approaching a potential fiduciary client. The work can be complex and difficult, but the rewards are significant, as is the possibility for repeat business. If you can establish your reputation within the world of fiduciaries, they will start recommending you to one another. Taking it one job at a time and one relationship at a time, you can build a robust portfolio of work.

This article was based on The CCIM Institute’s course, “Working with Fiduciaries,” which is available in an online format. Click here for more information.

Carmela Ma, CCIM

President and CEO of CJM Associates Inc.

Peter Lawson, CCIM

Retired commercial real estate asset and property management professional.