Going for Brokers

Learn what to look for and what you should know when selecting a commercial real estate broker.

By Eric C. Peterson, Contributing Writer On Oct 10, 2014

“In the old days, someone would be looking for 10,000 or 15,000 square feet of space, a broker would put them in a car, show them a bunch of spaces, and they would pick one – sort of like buying a house. The business has changed so dramatically over the past few years – what the client really needs and is asking for is a full-service approach.”

The speaker is Robert Kossar, executive managing director for JLL in East Rutherford, and he sums up the radical changes that have occurred in the client/broker relationship in commercial real estate. And that goes for the occupier, the investor and the landlord in the commercial real estate equation.

“Firms are looking for a broader and more defined relationship, and it’s no longer confined to just brokerage services,” says Jeff Babikian, executive vice president of CBRE in Saddle Brook. “It involves consulting, multi-market advisory services, and the ability to provide in-depth analysis of risk or risk mitigation.”

And the point of contact is no longer just the client company’s real estate director. “The client has now become the procurement department and finance – the CFO,” says Babikian. “It’s no longer just focusing on lease expirations – the focus becomes: ‘Is this the right decision?’ It’s now a matter of questioning all aspects of the planning process.”

Procurement comes into the picture in terms of possible conflicts of interest, according to Chris Marx, senior managing director for Savills Studley in Hackensack. “We challenge the procurement professionals to evaluate the possible conflicts. There are two sides to any transaction, and we view representing both sides as a conflict.”

What should a company in search of real estate, a potential client, look for in a broker? For Jeff Kolodkin, managing director of Newmark Grubb Knight Frank in Rutherford, it’s all about information. “You’re looking for someone with experience in a couple of different ways,” he says. “First, do they understand the client’s business? Do they have experience with similar companies, whether it’s insurance, law, a school or any particular type?”

“A company hiring a real estate company should look for full-service capabilities,” says Kim Brennan, New Jersey market leader for Cushman & Wakefield, East Rutherford. “They should look for someone who can structure a deal from beginning to end, soup to nuts.”

Another factor to look at: Exclusivity. The benefit of that, according to Brennan, is confidentiality between client and broker.

In terms of confidentiality, “we’ve had some instances in which financial institutions were making some tough decisions based on headcount reduction or relocation, and a number of my assignments have what we call ‘project names,’” Babikian says. “It highlights the confidentiality and concerns we have about things not getting out into the public – or even into the company itself.”

“There’s a leap of faith that a lot of our clients take in trusting that we’re going to keep it confidential,” he says.

And part of the full-service capability extends to who a broker can bring to the table as part of the full-service team, according to Brennan. That includes everything from helping with the financials, to “working with architects to develop the space program and the workplace strategy, to being the go-between with attorneys, furniture vendors and more,” she says. The broker’s role today is “almost like a general manager.”

Other questions arise. If, for example, a lease is coming due, depending on the length, “what’s the value of the lease to the landlord?” says Marx. “What’s the debt on the building? How strong is the credit of the company we’re representing? So much of this is key to determining our negotiating leverage.”

The requirements vary from type of tenant (office, industrial, etc.), and from type of transaction, i.e., lease or sale, and that can shape the brokerage “team.” On the office side, the leasing equation can include “workplace solutions people, labor and analytics and more,” Kossar says. “The process is invested in technology and people behind the scenes. The business has completely changed, and it’s happened so quickly.”

On the industrial side, the transaction can include a project manager, a supply chain/logistics consultant, an incentives expert and a project and development services specialist – “someone to look at the TI, all of the building’s technical systems to understand and assess it,” Kossar says.

Ultimately, whether office or industrial, the lease transaction creates an ongoing relationship. “Some might say a broker does the deal, leaves town, and then landlord and tenant are stuck with each other,” Kolodkin says. “It’s important to realize that tenants and landlords are in a symbiotic relationship and have to live together going forward.

“When it’s all spelled out, there’s as good comfort level – and the broker’s job is to create that,” he says.

What happens when the lines aren’t precisely drawn? “The quintessential example is when the client hasn’t done the homework,” Kossar says. For instance, one company looking for space hadn’t done its homework internally to determine what it really needed. As a result “the broker was spinning their wheels, and six or seven months later, when the process got down to the nitty-gritty, the search area was completely wrong.

“The client should be prepared, basically, to bring forward their honesty, business plan, financials – everything we would need to help them get the best deal,” she says.

“The good, smart clients will recognize internally what they need – or at least have a good handle on it, then sit down and interview multiple brokers before making a decision,” Kossar says. “A client that spends the time doing proper due diligence, interviews and hires the right broker, can then put his faith in that broker, take his or her advice and work with the broker as a partner to come to a solution.

“This is a people business, and there also has to be chemistry,” Kossar says. “As the business relationship between the client and broker develops and the client uses that same brokerage firm over and over again, it becomes easier and easier.”

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