Based in New York City, Paul Waters, CCIM, is chief operating officer for Integra Realty Resources, one of the largest independent appraisal firms in the country. His company deals mostly with lenders. And lenders don't have time for heart-to-hearts.
“Our clients want hard data, not empathy,” he says.
This sentiment will sound familiar to commercial real estate advisers with large firms in primary markets. Participants in sophisticated, institutional-level transactions often pride themselves on using only cold, calculated analyses of the facts to arrive at a go or no-go decision. In the era of big data and online sales platforms, this approach is easier than ever.
But for advisers to less experienced investors, the commercial real estate transaction remains all too human. It's their job to navigate through the emotions, the competing interests, and the miscommunication to get to that closing.
“You can't prevent conflict,” says Byron Smith Sr., CCIM, president of Metropolitan Realty Group in Vienna, Va., and a CCIM instructor. “But you can try to reduce it as much as possible.”
The problem isn't always as simple as disagreement over price.
“The underlying factors are always fear and greed,” says James A. Palmer, CCIM, broker with RE/MAX Hallmark Realty Group in Ottawa, Ontario. “They're always there subconsciously, in our clients, other brokers, and ourselves.”
When faced with such challenges, the commercial real estate adviser has the opportunity to step into the role of psychologist. “Like a therapist, the adviser is there to probe and examine to get to the solution,” Smith says.
Lydia Bennett, CCIM, CPM, owner of CRE West Coast in Bellingham, Wash., sees fear among an increasing segment of novice transaction parties: the families of aging owners and investors who have input on financial decisions. “This situation is probably becoming more common as commercial real estate continues to be owned by investors from afar, as well as family investment trusts,” Bennett says.
In a recent transaction, she represented the buyer of an 18,000-sf medical office building near Seattle. One of the elderly owners was involved, but some decisions fell to a real estate holdings trust, which was controlled by other family members.
“They were very suspicious that we were taking advantage of the family in this deal, for no other reason than we did not offer full price,” Bennett says. “They were emotionally invested.”
In other transactions, the factors that create challenges seem to be more straightforward. When identifying issues that generate conflicts, Ankur Patel, CCIM, vice president with Old Second National Bank in Chicago, mentions third-party appraisal or environmental reports with unexpected results; tenant lease clauses; and buyers' inability to qualify for financing.
But these factors alone often don't derail deals. Brian Elrod, CCIM, associate broker with Coldwell Banker Commercial Upchurch Realty in Athens, Ga., sees a lack of effective communication as the source of many of these challenges.
“It's possible for someone to be talking a lot but not really saying much,” he says. “Brokers who merely parrot what their client says are not servicing their client; they're just repeating.”
Facing the Fear
The first mistake that transaction parties make is failing to recognize that each commercial real estate deal has its own set of challenges. “Never trust your assumptions,” says Joseph Larkin, CCIM, SIOR, CEO of First Realty in Denver. “Treat every transaction as new, even if you're negotiating with someone you've negotiated with before.”
Larkin, who also teaches CCIM Institute's Commercial Real Estate Negotiations course, recommends starting with a mnemonic device to develop open-ended questions: NUMERAL - needs, urgency, motivation, expectations, resources, authority, and loyalty.
“Once all of the stakeholders' interests have been uncovered, we then construct a stakeholders' chart and plan the negotiations,” Larkin explains. “A good transaction manager gets as much information as needed to solve the problem.”
He adds that the prisoner's dilemma - the choice of whether to cooperate or compete - can cause conflict. “To have a win-win transaction, you need to make the pie bigger with the sharing of information,” Larkin says.
And what of the calculations that illustrate value and opportunity, such as internal rate of return? Through its designation program, CCIM Institute equips commercial real estate professionals to analyze and interpret complex financial and market data. But when the fear is palpable, this probably isn't the best place to start.
“While we often say commercial real estate is all about the numbers, there is always more than the numbers,” says Edward Craine, CCIM, CEO of Smith-Craine Real Estate Financing in San Francisco.
He often works with individual and small-group investors whose decisions may be affected by multiple nonanalytical factors, including risk tolerance, desire for security, holding strategy, estate planning, or even pride and other emotions.
Once a commercial real estate adviser has identified the needs and interests of the stakeholders, the pathway to empathy is open.
Overcoming the Fear
In a commercial real estate deal, empathy means “making every effort to truly understand the goals, objectives, interests, and perhaps even the passions of the parties to the transaction,” according to Smith.
So what tactics can commercial real estate advisers employ to increase empathy and move the transaction to a more rational place?
Perhaps the best way to empathize with those involved in transactions is to become actively engaged in the buying and selling of commercial real estate.
“We should all go through the buy side or the sell side ourselves to experience firsthand what our clients go through,” says Linda Gerchick, CCIM, designated broker with Gerchick Real Estate in Scottsdale, Ariz. “As an active investor myself, I know the frustrations that can come.”
Now, Gerchick approaches every deal as if she were the buyer.
In some cases, empathy may show advisers that their own biases could be hindering a deal. Patel suggests bringing in neutral third parties, such as CPAs, attorneys, or other consultants, who specialize in an area that's presenting a challenge.
Bennett used this tactic in her difficult medical office building deal. “We had the escrow company sit down with the family and explain every cost and why these costs were typical,” she says. “The sellers came away feeling much better, and they were grateful to us for taking that extra step.”
Clear and effective communication also is key.
“It's all about full disclosure, including the data,” says Waters, who spent 26 years on the transaction side, including stints at CBRE and Cushman & Wakefield. “You're best served by an educated consumer, and full transparency provides both sides with the same information to interpret.”
After in-person negotiations, this could take the form of a follow-up email or a formal documentation of the process to create a paper trail.
Context may contribute to effective communications as well. “It sounds crazy, but sometimes things change for the good when people talk to each other face-to-face, without text, email, or Skype,” Elrod says.
This idea isn't crazy. In a 2014 paper, researchers from the University of Chicago and Harvard Business School found that handshaking promotes more cooperation and influences negotiation outcomes. Other studies indicate that in-person meetings can have similarly positive effects.
Palmer strongly believes in not only meeting face-to-face, but also meeting at the property in question. “Issues are physical and can be brought to the fore,” he explains.
Additionally, Palmer provides micro-solutions that can help to build trust with prospective clients. “During the first meeting or telephone call, I always give them something,” he says. For example, if they're looking for office space, he'll direct them to the space calculator on his website, so they can determine roughly how much space they'll need.
It can also be useful for advisers to create guidelines to keep themselves focused.
“I don't calculate my commission until after the deal is done,” says Terri Dean, CCIM, broker and owner of Dean Commercial Real Estate in Huntsville, Ala. “Money can't be my top priority when negotiating for my client. I ensure that my commission is there if I have the buyer or lessor, and then I work on a win-win situation for the parties involved.”
Some combination of the tactics above, along with plenty of patience, should help to keep difficult, emotionally fraught deals on track.
No matter how prepared they might be, advisers can't always make a deal work. As Bennett notes, however, “they can always try to make it work with respect and empathy for everybody involved.”
Conflict and Personal Brand
by Tom Silva
The concept of a personal brand is still emerging within the
commercial real estate industry, but it has enormous implications for dealing
with conflict during the transaction process.
As a concept, branding is fairly new. It really only took
hold in the late 1980s when companies like Kraft and Rowntree were sold for
upwards of 500 percent of their book value — causing Wall Street analysts to
realize that the strength of a brand had real financial value.
In the same way, a strong personal brand has cash value
because it allows commercial real estate professionals to do three things:
command a premium in the marketplace; raise the barrier of entry to new
competitors; and innovate new services and products. During the commercial real
estate transaction process, this translates into better client service.
A personal brand engenders fiduciary-level trust in
commercial real estate professionals’ counsel, resulting in confidence in
their products and services.
Defining Personal Brand
Simply put, defining a personal brand reformulates your
resume from a static laundry list of roles and responsibilities and projects
into a narrative informed by the commercial real estate professional’s
vision, mission, values, and promise, delivered through an authentic voice.
That personal brand is then radiated through a suite of touchpoints, such as a
LinkedIn profile, a company website, correspondence, feature stories in the
media, and speaking engagements. Even small interactions are touchpoints, and
every touchpoint authenticates the meaning of a commercial real estate
professional’s personal brand.
In moments of conflict, this personal brand becomes
activated in powerful ways. Whether it’s a tense lease negotiation around
early-exit provisions, arguing basis points in a disposition, or even a legal
challenge because of a zoning variance, it is incumbent on commercial real
estate professionals to move up the value chain. They need to listen deeply and
counsel customers, seeing the process through their clients’ eyes.
This encompasses understanding the equities that exist in a
commercial real estate professional’s personal brand, so he can grasp
what’s expected of him during times of conflict. If commercial
real estate professionals are tenant reps, for example, their clients trust
them for advice on a buy/hold decision or a sale/leaseback, which may have
enormous implications for their financial ratios and even the viability of
their business going forward.
A personal brand should demonstrate creativity, deep sector
knowledge, and respect for all parties. Throughout, a commercial real estate
professional’s brand should be positive and angled toward the future,
as well as on a quest toward progress.
The brand also has a halo effect on the people that
commercial real estate professionals recommend — value-added partners such as
lenders, CPAs, attorneys, or environmental consultants. This is why a
practitioner with a strong personal brand is a source of comfort and security
to customers during contentious times. It removes risk and minimizes the
contingencies of the commercial real estate process.
Tom Silva is founder of Silva Brand, a brand consultancy and
marketing agency focused on the commercial real estate industry. Visit