After a few years in the business and having completed more than 400 apartment transactions, I became focused on how to get paid for what I knew versus what I could do. Having been through the ups and downs of economic cycles, I didn’t want all of my income generated from a source that had variables I couldn’t control, such as an economic meltdown and fluctuations in interest rates. You can work for years on a client relationship, precisely price a property through analysis, execute the perfect marketing plan, find a buyer, and put a property under contract, only to have the whole deal blow up because of forces outside your control. The commercial real estate industry has experienced this nationally during the 1980 Resolution Trust Corp. days and most recently in the current credit crunch.
Getting Started
To survive and thrive down markets, I generated a business plan focused on adding value to my clients while getting paid for what I knew. I set my hourly rate at $300 an hour with the typical assignment running $25,000 to $45,000, collecting 50 percent as a retainer fee. At the time in 1993, I was working for a national brokerage company and obtaining the CCIM designation. As part of developing this business plan, I took a mental sabbatical and reviewed the processes I learned in CI 102. I used the tools and my knowledge to analyze the market to determine where the greatest consulting need was. Since I was working in the multifamily sector, I created a “consulting spiel” that included how the consulting process would add value to my clients’ land.
To start the news services, it took two weeks to retool and another couple of months before I began landing clients. All of the costs were associated with research and marketing. The client’s research is paid for on each assignment. For marketing, I created a brochure and Web site explaining the process, offering case studies of former assignments.
Initially, the consulting services were offered under the umbrella of the large national firm I worked for, but after a few years, I left that firm and started my own, which caused my consulting income to triple. When I asked my clients about it, the most common comment was that when I worked with the national brokerage, they were always concerned that my bosses would encourage them to make a transaction decision. Learning my lesson, when I created my own company, I separated the brokerage and consulting companies in name, marketing, and branding.
To help me when I started, I recruited interns to do the apartment brokerage research and used them ad hoc for consulting. If they worked well, they became research managers and switched hats back and forth between my consulting business and the brokerage. I also brought in fellow consultants, former employees, other CCIMs, former clients, and other affiliated peers to create a virtual team for any given project.
For example, I recently completed an assignment on the historic El Vado Hotel in Albuquerque, N.M. One of the students from my CCIM class who is also in the Arizona State University master’s of real estate development program had a background and education that was well-suited to work on a historic hotel. Since she is not available to work in New Mexico, she became a part of the virtual team.
Calculating Your New Income
My first clients were a Colorado Springs, Colo., developer and a national landowner in Rio Rancho, Colo. The developer put an apartment site under contract with the landowner and hired me to determine the ideal unit mix, rent levels, occupancy, and concessions. I also did an income/expense analysis, analyzed financing alternatives, determined the most the client could pay for the land, and what kind of profit was involved. However, I was so happy to have my first assignment that I forgot to discuss price and a contract upfront. When I turned in my report, the developer said he questioned how I arrived at a $5,000 fee for the services.
Since I hadn’t yet earned the CCIM or MAI designations, I priced the work a bit under what I thought other consultants would charge. However, I was getting a commission on the sale, and I mostly wanted this first assignment on my resume for future business development. The developer informed me that I didn’t charge enough: If I wanted people to know that I had unique knowledge, experience, and market insight, I should charge more and recommended I charge $18,514.74. He also recommended that I continue to raise my fees to reflect the supply and demand for my time since a lot of people were entering into the consulting business.
To garner more steady income, my consulting firm, Cantera Consultants & Advisors, also does property tax protest work. In short, we protest the assessor’s value and if we win, we charge the client one-third of the savings. It’s a win-win situation for all parties involved. If we don’t win, the client pays nothing for our services. It is, however, a safe bet for us though, because in more than 1,000 property tax valuation cases, we have won 99 percent, with an average reduction of 24 percent.
The Outcome
Offering consulting services, getting paid for what you know, and adding value to your clients’ portfolios is a reliable long-term business strategy. If you do the work that leads up to the creation of projects and assist property owners on rents, expenses, and ways to keep the property taxes low, you can create trusted adviser relationships. And hopefully, they also will ask you to broker the deal.