For years the corporate real estate world comprised a close-knit community of executives and their staffs. But as today's shrinking budgets force layoffs in real estate departments, corporations increasingly look to local service providers for assistance with their brokerage activities.
Commercial Investment Real Estate asked four corporate real estate executives to comment on how brokers can take advantage of this outsourcing trend. The participants included Robert C. Clay, CCIM, director of real estate operations for Pharr Yarns and Belmont Land and Investment Co. in McAdenville, N.C.; Mark Delph, CCIM, director of real estate for Fortune Brands in Lincolnshire, Ill.; Jeffery L. Elie, vice president of real estate and facilities for Kaplan in New York; and John F. Igoe, vice president of real estate and site services for Palm in Santa Clara, Calif.
CIRE: What can local service providers do to maintain long-term relationships with corporate clients?
Clay:
Communicate! Whether in a brokerage or development relationship, good news or bad, we should never have to chase down a provider or partner. I expect an unsolicited call from brokers on a weekly basis with an update on a listing or acquisition target.
Additionally, brokers must be accountable for their statements and actions. Long-term relationships are based on trust and that only is developed through positive experiences. Most corporations have a long memory and covet positive experiences.
Elie:
Communication also, but there must be an understanding of how much the corporate real estate executive wants and needs. In the course of developing those relationships, service providers should figure out what type of communication a real estate executive needs. But service providers should never hesitate to contact the corporate real estate director if something new develops in the local market that might have an effect on the client's business.
Igoe:
Great performance builds long-term relationships. I am still working with local service providers that I used 14 years ago. You may not be in the market for four or five years, but you maintain the relationship through occasional phone calls or e-mails.
CIRE: What strategies can local real estate providers use to market their services to corporations?
Clay:
Once again, I think corporations are looking for experience and track record on projects similar to those currently on the table. Oftentimes the real estate professionals are too quick to assume that their particular expertise fills all criteria. They need to spend more time asking questions that will help them understand the corporation's mentality and pertinent needs.
Elie:
The service provider that catches the eye of a corporate real estate executive is the one that has knowledge before he or she picks up the phone to call us. It is amazing to me how many service providers cold call and then want me to spend time on the phone educating them on Kaplan. I won't do it! In addition, my group will not open e-mail attachments from folks we don't know, including service providers.
Igoe:
Local service providers need to differentiate themselves because of their better knowledge of the local market, as well as their knowledge of local designers, contractors, and city officials that may enable them to get results quicker and for less money.
Delph:
They should describe how they ensure that they consistently use best practices relative to the industry and their competition, including their process for reporting on active assignments, provide references we can contact to discuss their experience, discuss their competitive advantage in the industry, demonstrate their service delivery system to handle our transactions, and discuss their internal controls to protect our proprietary information and shield us against dual-agency conflicts of interest.
Brokers also should explain their systems technology innovation, including the data management system that they recommend, how the reports and data will be disseminated globally, and how our current and future data will be input and maintained. They should provide an organization chart with names — not just titles or positions — and locations of people who will be involved, including each person's biography and how they are compensated. Also discuss each person's professional affiliations and designations, offices held, or committee memberships. Finally, brokers should describe their experience with multiple, diverse operating companies, specify how they have improved service cycle times and processes or reduced management time, and discuss their economic incentive negotiation track record.
CIRE: What are the benefits and challenges of working with local real estate providers?
Delph:
The benefits are the competitive advantage in market knowledge and relationships, a comprehensive database of available properties and market rental rates, and connections to local political leaders useful in incentive negotiations. The challenges include frequent lack of internal controls to protect our proprietary information and shield us against dual-agency conflicts of interest.
Clay:
We do business with people we trust and like. Obviously, that trust is formed through understanding their work experience, successes, and failures. They need to bring more to the table than a listing agreement and a promise to put a sign on the property. Generally, we don't consider a pure brokerage relationship in a development activity because we are looking for a higher level of commitment in those situations. Our challenge is finding the company that shares our objectives and has similar corporate goals.
Elie:
Local real estate providers' knowledge of their surrounding market conditions is critical and invaluable to an operation like Kaplan. Value-added knowledge of the real estate market is important, but that is not the end-all. One challenge when using a local service provider and not a global partnership is the time it takes to train the person on who we are, what we need, and what our real estate process is. Additionally, at times we don't get the same level of service as we are viewed as a one-time transaction by the local broker. Basically, we might not get the attention needed to complete a project by only utilizing a local source.
Igoe:
Local real estate providers usually have the best knowledge of the market and may know of opportunities that others would not. The challenges mainly are the additional work for the corporate real estate executive in having to work with a different broker or company in each market segment.
CIRE: How do you initiate contact with local real estate providers?
Clay:
We are always looking to our local market to network and establish relationships. It is very difficult to have a long-distance relationship with brokers or development partners. We try to attend regional brokerage gatherings and stay active with the Charlotte District Council of the Urban Land Institute to maintain a presence in the market.
Elie:
In the cases where we work directly with a local real estate provider, I reach out to my real estate executive counterparts and ask for referrals, look to service providers I've met at conferences over the years, or ask the local office manager for a couple of references.
Igoe:
If we have no knowledge of a particular market, we contact fellow CoreNet Global members to determine if they have had any positive experiences in a particular market.
CIRE: How do you evaluate local real estate providers? What resources and experience are you looking for?
Delph:
Based on best practices: how they research markets, the scope of their completed transactions, how they handle small transactions in their markets, how they refer transactions, how the person handling the transaction is compensated. We also investigate the training program, supervision, and quality assurance program in place to audit the work product.
Clay:
We try to do our homework, networking with the development community and landowners, by discussing relationships they have had with local providers. A lot of insight can be obtained from conversations with the provider's references. We also evaluate our experiences with providers at the end of a specific project to determine future working relationships. In a straight disposition or targeted acquisition we look to the experienced brokerage firms. In a development project, we are looking for a partner with expertise and equity.
Elie:
National and local real estate providers are evaluated on the same basis: the success or failure of the last assignment. In addition, communication between the service provider and the real estate executive is key. There is a fine balance and understanding of the level of communication that the real estate executive wants and needs. That has to be understood and respected by the service provider.
The biggest relationship challenge is that in most cases both parties are in it for the long haul. Not every marriage of real estate service provider and executive works out. If a divorce of that relationship happens, it is important to keep in mind that both parties will be in the industry for a while and their paths will cross again.
Igoe:
Primarily we look for detailed knowledge of the local market. Who are their clients and what projects have they worked on? What were the results? Also, we look primarily for someone who is honest and reliable and has experience dealing with other corporate real estate executives.
CIRE: How do you structure service agreements with local real estate providers?
Elie:
I am not a fan of structured service agreements with the real estate brokerage community. As such, we do not have any. In some cases, the broker requires an engagement letter to present to landlords, and we cooperate and provide this when needed. We ensure that the broker is protected in the final lease document and both landlord and tenant mutually indemnify each other accordingly. With other real estate service providers, we utilize standard American Institute of Architects' agreements with Kaplan's standard rider provisions included.
Igoe:
Normally we ask them to provide their standard service agreement. We then provide them with Palm's master service agreement, determine the gaps or conflicts between the two, and work them out. We also confer with fellow CoreNet members to assure that the fees are in line.