A long time ago, in a galaxy far, far away (way back in the 1970s), CRE investors’ ability to expand to new markets was hampered by a horribly inefficient industry. A west coast property owner could not easily explore east coast markets, see inventory and build relationships with local players there. In the 1980s, large regional and national commercial real estate brokerage firms formed to fulfill the need based on a theory that offices/agents in multiple markets could share information, listings, clients and transactions to move capital across markets through a physical network of related people. Agents at these firms touted their ability to bring in out-of-area capital. Most large listings began going to the big national company instead of a local business. Access to “out of area” capital became part of the pitch for every listing, even smaller properties that would never attract outside capital. I know because I was trained at one of those big national companies to use this tactic.
Since the late 2000s and especially today, this concept is obsolete. Outside capital no longer needs a national brokerage company with numerous offices and scores of brokers to expand and find new opportunities. Here are a few reasons why:
When I was at the national firm, we needed a research manager, weekly printouts of all new listings, systems to distribute all our listings to the other offices and a budget for advertising at the company, office and broker levels. Advances in technology make all these services available to and affordable for smaller local companies, usually through an online subscription.
Evolution Of Internet Search Engines
If you are an investor considering a new locale, what’s the first thing you do? You go online and start searching (i.e., “multifamily,” “Chicago,” “commercial real estate,” “broker”). What appears? The first thing will be all the national companies at the top of the page that paid to be there with a little “Ad” icon next to them. Scroll past that, and you’ll see websites for companies specializing in your search criteria. Every local company worth its salt a) shows up here and b) has a database system sophisticated enough to track all the hits and add investors to its system.
In addition, online marketing platforms like CoStar and LoopNet have become commonplace for investors to visit, and almost every CRE brokerage shop subscribes to and puts its listings there. Sophisticated local brokerage firms have regional, national and international clients – and the more business they conduct, the more these client lists grow. For the past 15 years, a large network of national offices to market to out-of-area investors has been obsolete for a firm with subscriptions to the right resources and online listing platforms.
Granted each of these first three topics are not mutually exclusive, but each one deserves its own focus. The digital footprint of a company determines how easily it can be found by anyone using the internet. You’ve probably heard of search engine optimization (SEO), but this is no good without both content and a website and email system that are dynamic enough to (pardon the redundancy) optimize the SEO. You have to think of SEO as the vehicle and content/website/email as the gasoline. Effective content and platforms boost a company’s position in online searches, driving even more traffic — none of which has geographic limitations. The sophistication and capital required to pull this off used to be found only at the big firms. Today, this can be achieved by any company, no matter the size.
A Big Company Doesn’t Equal More Brokers
Each office at a national firm still focuses on its local market, and those offices are made up of individual brokers who each have a specialization in property type (multifamily, industrial, retail, office, etc.) and/or geography. Count the number of brokers at a big firm who specialize in your product type and location. You will likely see no more brokers there than at a local brokerage firm. When you’re pitched on the ability to bring outside capital, the question isn’t “How many offices do you have?” The question should be “How many transactions have you closed with a buyer who was the client of a broker at one of your other offices outside the local area?” Here’s a preview of the likely answer: none. The out-of-area buyer found the broker at the national company the same way it found the broker at the smaller local company.
The national company pitch is antiquated; however, there is still one valid reason to pick a large national company to list a property when it’s time to sell: politics. Another sad-but-truism is that when an available property is actively pursued by multiple buyers and is represented by a national firm, favoritism is shown to buyers who are sellers in other markets and have listed their property with the same national company. We recently lost a large listing in Chicago for this reason (the client was honest enough to explain why). Sure enough, I saw the press on this client’s recent acquisition in Ohio brokered by the same firm to whom he’d given the listing in Chicago. Unfortunate, but part of the game.
There was indeed a time when owners of larger properties required the services of a large national or regional brokerage firm, but that time has passed. A local brokerage firm with a specialty niche, the right resources and the ability to create a digital footprint can bring the same out-of-area investor capital to a listing as any large company. And frankly, any belief otherwise is as antiquated as the pitch from a broker from one of those companies. My advice? Don’t buy the magic beans from a broker pitching you national reach only because they work at a national firm.