Spinning Deals on the Web
Buy and sell property over the Internet? "Five years ago I scoffed at the possibility," says David Gilbert, CCIM, president of Pottstown, Pennsylvania-based Penn Realty Advisors (PRA), Inc. Today, Gilbert regularly scans eight property listing services and in March, on behalf of a client, bought a $3.6 million office building that he found listed in a broadcast e-mail.
Gilbert is no longer scoffing, and in fact, has embraced technology. So has Peter Herring, CCIM, of Addison-Herring, Inc., in Upper Marlboro, Maryland, who represented the seller in this cybertransaction. Both are committed to the use of technology to increase their business, and both serve as examples of how small-office practitioners can use technology effectively to compete in an increasingly borderless market.
Consider the Recent Past
Five short years ago, when Gilbert blithely dismissed the Internet, no one used e-mail or search engines, or directed you to a company’s Web site. There was no CCIMNet, no www.ccim.com; in fact there was barely Windows—a spring 1993 CIREJ article on computers was titled, "Beyond DOS: Graphical User Interfaces."
But it’s not just technology that’s changing at the speed of light: remember that five years is the difference between a slowly recovering market and one overflowing with capital. In 1993, RTC (Resolution Trust Corporation) was practically a household acronym; today, more people would recognize REIT (real estate investment trust).
Five years has made a world of difference in commercial real estate, and the influence of technology on the industry is unmistakable. But if five years ago, brokers were moving from DOS to Windows and today, they’re closing deals over the Internet—where does that put the industry five years down the road?
This is a particularly thought-provoking question for small-office practitioners like Gilbert and Herring. Their knowledge and use of technology will help them retain an advantage in a market that is no longer local, but national and even international in scope. In addition, it’s a market that will continue to move faster, as investors expose and are exposed to properties on a wider scale. While Gilbert and Herring are flush with the success of their first Internet deal, chances are in five years such deals will be commonplace to them, in part because of their commitment to grow the technology and share the resources.
While large firms have the resources to mount and maintain fancy Web sites, few are seeing immediate returns on the investments. The greatest benefactors of technology tend to be small firms that use electronic resources to market and find investment properties.
Addison-Herring is such a firm. Originally specializing in land brokerage in the Washington, D.C., metropolitan area and southern Maryland, it recently has branched out to include investment properties such as office buildings, shopping centers, and industrial buildings. "We have a small office of three partners, all three brokers. We have no secretary or staff. We do it all ourselves with the help of our computers, word processors, a fax machine, and the Internet," Herring says.
Gilbert’s PRA is a two-person operation. Although it does not list property, Gilbert "searches for investment-grade real estate opportunities" for local, regional, and national investor clients, usually net-leased industrial and office assets.
While both these brokers are located in small towns, they consider their market to be national in scope. "Technology has allowed me to enter the arena on a national basis," Gilbert says. "That is something I dreamed of doing back in 1980 when I was awarded my [CCIM] designation. Of course in those days, I thought I was going to be jumping on and off airplanes and visiting boardrooms across the country. Well, like a lot of other investment practitioners, I really never got out of my backyard. Now, enter the Internet, Web sites, e-mail, facsimile machines, voice-mail, and the like. You can do what you want from your virtual electronic office. Yes, in some cases we still have to travel to sites at the request of clients, but today, so much can be done sitting right at your desk."
Putting Together an On-Line Deal
One of the daily tasks Gilbert does at his desk is to check property listing services, such as CCIMNet (http://www.ccim.com/), LoopNet (http://www.loopnet.com/), the American Real Estate Exchange (http://www.amrex.com/), American Investment Property Exchange (http://www.americaninvestmentpex.com/) and Property Line Online (http://www.propertyline.com/), looking for properties that match his clients’ objectives. This, he says, is key to using the Internet effectively: "This [deal] was primarily a result of constant scanning for opportunities for my client list as well as knowing my clients’ requirements. That knowledge is all part of the necessary research."
Given that, how do Internet deals commence? In this case, Herring was attending a one-day Real Estate Cyberspace Society seminar sponsored by the Maryland/Washington, D.C., CCIM Chapter. Conducted by the society’s director, Jack Peckham, CCIM, the seminar included a demonstration of the Internet’s potential as a property mover.
"At about 10:15 in the morning, Jack sent out [a property for sale] e-mail to about three or four list serves and by midafternoon he had generated about 16 leads for us to follow," Herring says.
The property, a 45,000-sf one-story office building located in the suburbs of Richmond, Virginia, was triple net-leased to Signet Bank, with five years left on the initial term and one four-year extension option.
Sixteen responses on a triple net-leased property are "probably not unusual," he adds. "This type of property is in high demand right now for hands-off investors. The Internet works well for investment properties because investors come from all over the country."
When Peckham sent out the property e-mail at his seminar, he set his e-mail software to respond automatically to inquiries with a return e-mail listing the property contact.
Peckham’s message went to about 10,000 brokers and investors. One of them was Gilbert, who says the e-mail clicked with him because one of his REIT clients had "major holdings in the Richmond area and might want to add to that portfolio."
He e-mailed Herring to say he had a REIT that might be interested in the property. "I called him on the phone and we discussed the property and his prospect’s investment parameters," Herring says. "I sent him a package by fax and he produced a letter of intent within about a week." After the signed letter of intent, the negotiations continued by phone and fax. "The terms of the deal were simple: a 30-day feasibility study period and close 30 days thereafter, all cash. We went back and forth a few times on price because there was another purchaser who was trying desperately to buy this building, but we finally agreed on $3.6 million, which represented a 9.4 percent cap on the net income."
For Herring, the advantages to marketing a property on-line are obvious. "You’re able to reach a much larger geographic market area in a very immediate and less costly way. Once you are on-line, you really have no additional expenses to be able to send out e-mail marketing notes to literally thousands of people, both brokers and buyers."
Indeed, Peckham estimates that a conventional marketing promotion to reach that many people would cost around $6,000 and take about three weeks. On-line, it’s the cost of an Internet server connection, which runs about $20 a month.
As a broker representing corporate and private-investor clients on an on-demand basis, Gilbert finds the speed and accessibility of the Internet equally important. "Electronic communication allows practitioners like me to conduct business almost around the clock and, with time differences playing a bigger part as we get more global, it affords us that capability. Another consideration is that it’s very fast. That can make a big difference in a hot location." Gilbert currently is putting together three projects on-line.
Herring, whose office actively has been using the Internet to sell property for about a year, has initiated about 10 deals on-line so far; this is the first one to close. However, he foresees the same advantages as Gilbert: "Technology has made the availability of information much more immediate. It has made our market much larger since we can literally do business anywhere in the world."
Sharing the Wealth of Resources
Besides their personal investment in technology, Herring and Gilbert have donated a portion of their commission on this sale to the Maryland/Washington, D.C., CCIM Chapter "to fund a mid-Atlantic commercial real estate exchange. This [listing service] will enable more of us to have access to listings and purchasers through electronic marketing," Herring says. "[My partners and I] felt that if a sale occurred during the seminar, which the chapter made possible, we should give something back."
Gilbert agrees. "I believe it’s important to show others that this is going to become an important part of the real estate industry. It was a small concession to the total fee and a worthy project. I would like to see others follow our lead and do the same with other CCIM chapters."