Carving a Niche

Marketing Specialty Properties Gives Brokers a New Slice of Business.

Do you have a niche? Amid the commercial real estate industry consolidation that characterizes today’s brokerage environment, it can make sense for some brokers to specialize in a property type. Being considered an expert in a particular area can make you the one that people turn to when needs in your property segment arise, supplementing your overall business.

"Opportunities are available to those who wish to concentrate on an area they enjoy," says Steven S. Lampinstein, CCIM, broker/owner of the Lampinstein Company in Dallas. "Whatever you do, find out what makes your area of expertise unique—and what are the pitfalls."

The following examples of niche properties—churches, day-care centers, and former bank branches—won’t be appropriate or available to everyone. However, they may stimulate ideas for other niche opportunities in your market or offer tips to apply to other specialized property segments.

The Ministry of Church Sales
Church sales run in the family for Matthew D. Messier, CCIM, director of commercial/industrial sales for Trammell Crow Company in Orlando, Florida. "Marketing a church is similar to marketing any other commercial property from the standpoint of identifying what the possible uses are of the property and then marketing the property to users who fall into those categories," says Messier, who specializes in the segment and other special-use properties with his father, Richard, who has worked the niche for more than 30 years.

However, in other respects, it’s very different from the norm, he says. For one thing, interested brokers often must compete for business with brokers in a church’s congregation. "Often times, the brokers in the congregation plan to give their commission back to the church to help ‘save the Lord’s money’ and we have to show that by using a specialist who can truly create value, they will actually be saving the Lord even more money."

In addition, churches often have residential zoning or are special exceptions to zoning codes and have very limited uses. Marketing for or to a congregation also may be unique. "Instead of the president or comptroller of a company making a decision, you have 200, 300, 1,000 people in the decision process. Because of this, churches tend to move very slowly."

Messier finds his buyers locally and nationally. As noted, zoning dictates usage, but Messier has sold church buildings for a variety of uses, including other churches, schools, clubs, halls, funeral homes, offices, and nursing homes. "We have a detailed database and know of just about every church, school, club, etc., who owns property in the markets we are in." Marketing includes brochure mailings, targeted magazine advertising, and phone calls.

Church valuation may differ from other property types, too, Messier says. "If uses for the property are limited and the likely buyer is going to be a church, the income approach, cost approach, and often times, the market approach are of little help, he says. Instead, the value is determined by who the buyer is. For instance, the buyer of a 300-seat church likely will be a congregation of about 150 to 175 people. "It does not matter that the pews are padded, there are stained-glass windows, gold inlaid molding, etc.," he explains. "Those are nice, but a congregation of 150 to 175 people can only afford a certain amount of payment. The building could be valued at a million dollars using the cost approach." However, based on its size and the buyer’s financial means, a user only may be able to pay $350,000, he says.

On the other hand, if the property can be used for other purposes or razed to build new homes, the value would reflect those uses, he says.

Messier, most of whose church-related business is the resale of existing buildings, also handles land purchases for church groups, but says the non-profit genre offers little development potential, as "99 percent of churches are users, not investors."

Day-Care Deals
In Texas, Lampinstein has learned that the world of day-care center properties is not child’s play. As many brokers have found in the course of their work, when unfamiliar property types emerge, some education is required. "I was forced to become an expert" in marketing day-care centers, he says.

"The opportunities are there in the day-care field," he says. "It’s a growing market. Many of the national chains are going to larger units—10,000 square feet plus—leaving the smaller existing units in the 4,500-square-foot range for independent operators." Many start-up operations prefer to lease rather than to buy, he notes. However, once they have been in business for a few years, they may be candidates to buy. "There is plenty of money available to owner/occupants," he says, "especially through SBA [Small Business Administration] programs."

The valuation of day-care centers fluctuates greatly, he says. Those sold as operating businesses are sold on a per-student basis. But, as a real estate offering, they may be limited to relocations or start-ups if the former tenant/operator will not allow someone to open up immediately upon its departure.

"Some state licenses require that you occupy the property before they can do their inspections," Lampinstein explains. The outgoing tenant usually makes sure that the students relocate before a new operator opens. "Without students, you are looking at the land and improvement values only."

Day-care centers can be adapted into other uses, he says, including senior citizens centers, offices, and churches. "Day-cares are not always located in good retail areas, so office, educational, and religious uses should be considered," he advises.

Brokers also should be aware of any special requirements for day-care center properties in their area. "In working with day-care centers—as well as other special-use properties—there are many changes in the occupancy codes that you need to know," Lampinstein says. "In Dallas and surrounding areas, for example, grease traps are now needed, not small ones, but large ones, some the size of Volkswagens—not a cheap addition."

When Lampinstein recently needed buyers for day-care facilities in Lubbock and Houston, Texas, he says he found some interest from local brokers, but feeling a need for urgency, he turned to resources he knew of from leasing Head Start facilities. "I knew licenses were needed to operate day-cares and found out that the state of Texas had all the day-care centers in the state on computer disks—names, telephone numbers, number of students, date of license, etc. It was an instant database of prospects with many search options." He also mined the telephone book and CD-ROM telephone directories of the country, ultimately completing a lease in Lubbock, a sale in Houston—and a subsequent sale in Grand Prairie, Texas.

Bank Branch Brokerage
The recent wave of proposed bank mergers is likely to mean that more consolidating financial institutions will want to dispose of excess bank and thrift properties that overlap in their markets. "There is definite opportunity there," says Rhonda D. Nuxoll, a vice president at David Kaufman & Company in Chicago. "The banks are going to want to be selling off those assets."

Despite increased alternate methods to reach customers such as automated teller machines and Internet banking, the number of U.S. bank branches increased from 51,935 to 57,788 between 1992 and 1996, according to Federal Deposit Insurance Corporation (FDIC) information in a recent E&Y Kenneth Leventhal Real Estate Group report. But with the recent spate of bank mergers nationwide, many financial institutions will find their newly merged selves with overlapping branches in the same markets.

Disposition of such branches "is a good opportunity for [brokers] to tap into their investor database and market to those investors whom they know are creative with alternative uses and would go for that type of a property," says Nuxoll, who has marketed a number of bank properties nationwide for the Resolution Trust Corporation (RTC) and FDIC via auctions.

But the ability to sell the branch for any number of reuses makes the marketing process more involved. "Whereas we can just run an ad in the newspaper for houses [being auctioned for the government] and know that will attract buyers," marketing some bank branch properties requires more thought, she says. While she has used newspaper ads to announce the RTC and FDIC auctions, she also has purchased mailing lists and used databases of companies in different industries beyond other financial institutions in which she thought she could find buyers, such as office, retail, or restaurants.

Determining potential buyers to reuse bank branches "depends on where the bank branch is located," Nuxoll says. "We consider the surrounding properties and try to think about what other uses there might be a need for in the neighborhood. You have a little more room to be creative in your thinking regarding what the possible use is and where you can advertise."

In determining bank branch values, "It’s been our experience that buyers and their appraisers and lenders will project a reasonable rent for the space and apply a 12 to 15 percent cap rate, assuming the property is vacant," she says. "Banks make good sellers because they’re practical about these market forces," Nuxoll says. They’re looking to get the property sold and reduce holding costs and "they need brokers to get it done fairly quickly."

In Nuxoll’s case, the government agencies disposing of the properties didn’t want to hold onto them, so they chose to sell via auction, "which draws a great deal of attention to a property and can produce a sale in as little as 45 days," she says.

Another banking-related real estate possibility is a new trend recently reported in the New York Times of pairing bank branches with retail offerings—a new twist on branches locating in other retail establishments such as grocery stores. Wells Fargo Bank this year has added retail tenants such as Starbucks Coffee and dry cleaners to some of its lobbies in California.

Barbara Bronstien Stevenson

Barbara Bronstien Stevenson is associate editor of the Commercial Investment Real Estate Journal.Ethical PerceptionsHow do others perceive the ethics of real estate brokers?In a Gallup Organization poll released at the end of 1997 on the perceived honesty and ethical standards of various occupations, 56 percent of respondents rated "real estate agents" as average (though many respondents likely did not distinguish between residential and commercial agents); 3 percent rated them very high, 13 percent high, 20 percent low, and 4 percent very low.In comparison, pharmacists topped the list with 69 percent high or very high ratings, while car salespeople pulled up the rear with an 8 percent rating. Lawyers immediately followed real estate agents with marks of 15 percent high or very high.


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