It's a Small World
Working in Small Markets Requires Expertise, Flexibility, and Commitment.
"I'm lucky,” says Lynn Mitchell, CCIM. “I live in one of the most beautiful places on earth, and I still get to do business.
Mitchell owns Mitchell Realty Group in Ellijay, Ga., a town about an hour north of Atlanta that boasts a population of 1,700 and “five or six stoplights,” Mitchell says. It's also at the foothills of the Appalachian Mountains, close to the beginning of the Appalachian Trail and filled, she says, “with beautiful rivers and creeks and big-sky mountain views.”
Ellijay is an idyllic setting to live and work, but it's also a small market, which poses a particular set of challenges and advantages to commercial real estate professionals. While small-market brokers across the country operate under different conditions than their metropolitan colleagues, they also know that working in a small market doesn't necessarily guarantee a slow pace or a low profile.
Profiling Small Markets
“Small-market America has become more sophisticated in the last two decades,” says Bruce Waters, CCIM, a senior associate broker with McLaughry Commercial in West Lebanon, N.H., a town of about 12,000 people on the border with Vermont. Twenty years ago, he says, many commercial transactions may have been completed with a handshake in a coffee shop. “Now, more complicated requirements of environmental studies and disclosures and appraisal techniques and having to calculate rates of return are absolutely required in the marketplace,” he says.
Small markets can take a variety of forms, from Mitchell's rural paradise, to Sedona, Ariz., where Mark Belsanti, CCIM, handles commercial brokerage and investments for John D. Miller Real Estate Services. Some 5 million tourists travel to Sedona every year to marvel at the surrounding gorgeous red mountains. Together, the town and the neighboring Village of Oak Creek have about 18,000 people; Belsanti estimates his total market, which encompasses the Verde Valley, at around 50,000, but that includes other towns, some of which are at least a half-hour drive away.
The next town in Waters' neck of the woods isn't quite that far. West Lebanon is the center of an area studded with small villages. Individually, they might not pose an appealing prospect for many kinds of commercial clients. But, “One really has to be cognizant of looking at a much broader picture when looking at rural America, whether it's in the Northeast or in Montana or in Mississippi,” Waters says. “One has to look at how far out will people come to your core, because you can't have a Home Depot in every little hamlet. So based on my trade area, which is basically a 100 percent capture rate from 35 miles out from the core of West Lebanon, it's about 125,000. And that seems to be sufficient enough to attract most national and regional-type organizations, all situated in West Lebanon.” It also helps that neighboring Hanover is home to Dartmouth College.
are is the small-market broker who can afford to be a specialist. “Any time you get into a smaller market, you almost cannot survive if you are not a general broker,” says Mike McLean, CCIM, national director of business development for corporate real estate services for Prudential Commercial in Irvine, Calif. McLean works with more than 800 of Prudential's commercial brokers around the country, many of whom are in small markets. “There's just not enough business in, say, just retail or just office. Yes, it can be done, but for the most part, you still have the mentality of general brokerage. You can, perhaps, have a specialist within the same company, but you have to have someone to cover it all,” he says.
For instance, Belsanti says that when he first started in Sedona, “you had to deal with what you had because of the lack of supply that was out there.” As his business has grown, he's found that he can afford to specialize more, and he focuses on “commercial buildings with good cash flow.” But, he adds, “I still can't specialize completely; it's a small town. I go from retail to hospitality, because we're a tourist town, to offices to vacant land. You've got to do it all.”
But he points to the boundaries of what's available. “I have about 90 percent of the commercial market in Sedona,” he says, “but there are only so many buildings and so many things that you can list. So if you want to grow, you do have to think of outside markets.”
Roger Ball, CCIM, owner of Ball Realty in Tazewell, Tenn., agrees. “You have to be a generalist, and you have to be an expert in all these things, too.” Ball's market is about 45 miles from Knoxville, in northeastern Tennessee. Tazewell and New Tazewell each have about 1,800 people and across the mountains, some 16 miles away, is Kingsboro, Ky., a coal-mining town with about 20,000.
Indeed, Ball can reel off a diverse list of projects: developing and leasing some 30,000 square feet of office space in town; refurbishing an 80,000-square-foot strip mall whose owner went bankrupt; buying and reconfiguring a 340,000-sf shopping mall; and working with fast-food and auto-repair franchises.
On the other hand, John R. Reed, CCIM, a broker associate with Coldwell Banker Commercial Hospitality Group in Oakhurst, Calif., has broadened his market by sharpening his focus: He specializes in hospitality properties outside of his market area. Oakhurst, near Yosemite National Park, has about 13,000 people, with some 42,000 more within 25 miles. “If you go outside the market,” Reed says, “then you do have to specialize, because you're competing with the broker who has a thumb on the pulse of the local market.”
He decided to specialize after doing a few deals and realizing that hospitality was a specialty that could be handled by someone from out of the property's market. “A hospitality site has certain parameters, and it doesn't take long to figure out whether it's going to work,” he says.
The Residential Question
Ball also has ventured into residential development — apartments and subdivisions, though not single-family homes. Single-family brokering is “too time-consuming,” he says, “and I don't want to spend my day doing that.”
Others share Ball's avoidance of single-family brokerage. “If you're going to be considered the expert in your small market, you have to be just that. You have to be a commercial broker and let the single-family residential go, except perhaps, in cases of referral agreements with other brokers. You can't mix and match,” Waters says.
However, Mitchell begs to differ. “If you're not a full-service broker in the north Georgia mountains, chances are you're going to starve to death,” she says. “You can't just be a commercial broker in a tiny market.”
But Mitchell approaches residential selling as a gateway into additional business. “You have to look at everybody as an investor,” she says. “And every transaction, whether it's a home or a piece of land or an actual commercial entity, should be an investment transaction. You look at every transaction as an opportunity to teach, because if you're teaching people commercial real estate, then they're more likely to venture into commercial real estate.”
Technology often is touted as an enormous boon to small-town entrepreneurs in any field, whether it's used for marketing, communications, networking, or financial purposes. Ball, for example, says the Internet has made it easier for him for keep abreast of national chains' small-market expansion plans. Mitchell gives high marks to software that lets her run spreadsheets on properties.
But small-market practitioners caution that technological advances are just partially useful.
Belsanti, who believes his office operates at a fairly sophisticated technology level, says, “I haven't done more than a couple of deals off the Internet in the last few years. I think — and this is the disadvantage of a small area — most people aren't looking on the Internet to move to Sedona to buy a commercial piece of property. The people who buy property here are people who come out here, who love it, and want to live here, and so they want to move their investments here.”
Waters agrees. “Technology clearly has made a difference. There's a tremendous network of brokers within the region who can help you. But I would dare say that the majority of transactions still are created by the individual broker who's in the field in that small market as opposed to relying heavily on outside broker colleagues to make the deal happen.”
And in some technological areas, small markets still get shut out. “The biggest challenge for anyone right now, in any market, but especially in small markets, is market data,” McLean says. “Larger markets have data from companies such as CoStar Group, and a lot of appraisal information is available. Smaller markets tend not to have a central source for that information. So when you get into smaller markets, you as the broker-owner or as the agent must maintain your own database.”
Small markets can also be at a disadvantage in terms of Internet access. “High-speed access is a real blessing,” Mitchell says. “DSL is available here through our local phone company, but it wasn't until recently. Working off of modems is simply not good enough. The time saved with DSL, along with the ability to connect more than one computer to the same line has really been a big help.”
“High-speed data transmission is critical for the quality growth of rural markets,” Waters adds. “At a minimum, various technologies need to be available: DSL from 144k up to and beyond 1.2 megabytes per second; point-to-point T-1 and fractional T-1; and wireless up to and beyond 2 mbps. The typical problem for rural markets is a lack of competition for ISP and vendor services, and so there's a premium for these services.”
On the other hand, McLean says, in terms of small-market brokers marketing themselves, “technology has balanced the playing field. The big guys no longer have all of the advantages.”
Also, he says, “with technology, there's no reason not to have professional-looking packaging, whether you're in a town of 10,000 or 10 million.”
Selling the Small Market
Marketing approaches, particularly to outside markets, vary, depending on location. Generally, though, “the small commercial brokerages in small markets focus more on the growth of their markets within themselves, as opposed to trying to recruit from outside,” Waters says. His agency concentrates on the local market, he says, “because we simply can't compete against so many other markets and pretend to be the chamber of commerce telling the world that we're different than anyone else. So we market locally to people who already know the market well enough to be able to make a decision in a fairly efficient manner.”
Belsanti deals with an area that does not need a detailed sell. “I've got five million people a year looking at my signs, so if they do fall in love with the red rocks out here, then they're going to call me and buy some commercial property. I've got people putting the cart before the horse, who buy a commercial piece of property hoping to move out here in a couple of years.”
Sometimes, brokers do find themselves in a position of being promoters for their areas. “In a metropolitan area, you have people already looking at that market,” Ball says, but for outside businesses considering expansion into his area, “you kind of have to draw them into this market.”
Mitchell concurs. “Here, sometimes, I have to sell [potential investors] on the community. I have to tell them about the hiking trails and the kayaking so that they want to be here. They don't just buy the business here, they buy the lifestyle. ”
But there are ways in which small-market marketing should resemble that done in major cities, McLean says, in that practitioners should present themselves as the expert in their niche. This not only helps with the local market, he says, but also when national companies come into the area looking for assistance.
However, he adds, “what I have seen in small markets is that the brokers are so focused on making money and surviving, they tend not to toot their horn enough. They do deals, but then they don't tell anyone about them. No one's going to know about you, if you don't tell them about yourself.”
Creating a Presence
Small-market practitioners also have to deal with a more indirect form of marketing: their visibility in a small town. “You have to be visible,” Waters says. “Self-marketing is even more important in smaller markets, so people understand that they have this great resource available when they do need a commercial broker or consultant.”
Belsanti was a planning and zoning commissioner for the city of Sedona for three years and says the exposure has brought him a lot of business. “I'm in the paper a couple of times a week. My name's out there. It's great for business,” he says.
Mitchell faces the same situation in Ellijay. “I do a tremendous amount of business at the Waffle House,” she says. “Everybody in town does business at the Waffle House. When I eat breakfast there, people come up and talk to me about properties and opportunities. I learn a lot and they learn a lot.” But, she adds, “that's the nature of any small market. If you're going to do something that's very visible, and commercial real estate can be very visible, you're going to be on display.”
Such community involvement also burnishes a broker's network of financial professionals, since, as Waters says, “You have to know all the bankers in town, not just one.”
Although small-market financing tends to stay local, the ease of doing so varies. Waters says that West Lebanon is “a very aggressive commercial lending market,” thanks to the trust money deposited locally by Dartmouth alums who've retired in the area. Belsanti reports that Sedona financing isn't all that different from larger markets; for larger deals, he uses the same companies that the Phoenix market uses, and the rest of his deals he finances through local banks that often are branches of large regional banks. And Mitchell reports very little difficulty with financing. “If it's land, there may be some financing involved, but 85 to 90 percent of my business is in cash,” she says.
Looking Before Leaping
To an urban practitioner, a switch to a small market could look inviting: the opportunity to live where you like, the chance to work unique deals because you're the area expert, and the chance to create your own market.
Waters also urges a little caution. “A small market requires a lot of local knowledge,” he says. “Big-time brokers going into a small market because they think a country setting is a little less hectic need to put in their time, despite how much experience they might be bringing with them. You have to have a general knowledge of the tax situation of the municipalities and the politics of it all. You have to know about the planning board process and site plan review and the zoning board. It takes a lot of time and energy to learn about that scene.”
But, he adds, “I think if someone wants to be able to do it, I think they can make a comfortable living in a small market.”