Commercial classroom: Commercial brokerage opportunities - by Edward Smith, Jr.

This column is offered to help educate agents new to commercial and investment brokerage and serve as a review of basics for existing practitioners.

This month marks my 240^th monthly article for the New York Real Estate Journal. It seems appropriate to reprint the first article I wrote for them twenty years ago. Some things about commercial real estate never seem to change.

To understand opportunities for commercial brokerage business one must examine the different types of customers we serve.

Users – customers who purchase or lease space to conduct their own business in. The primary concern of users is location, location, and location! These customers are known as being space driven. In addition to location, they are specific as to their size and budget requirements; they will not occupy more or less space than they need. Another concern is “people”, is there sufficient work force available at the pay scale that the businesses budget requires?

Investors – are considered to be profit driven. They seek a return on their investment through positive cash flows and appreciation of value. In addition, real estate investments provide significant tax benefits. Having a good bottom line annual profit (positive cash flow) is predicated on the property being rented; investors examine the stability, strength, and history of current tenants. What is the probability of keeping the property fully leased? Considerations include competitive space available, area trends and new construction. Some investors employ an exit strategy where they calculate the future sales value of the property after a predetermined holding period –the length of time they expect to own the building for.

User-Investors – user customers may purchase a building larger than they need and rent the excess space to other tenants. The “profit” created by the tenants can effectively reduce the costs that the user would have to pay if they leased equal space.

Principals of Redundancy

What makes commercial real estate unique is that we may serve our customers over and over again. It is said that commercial customers are customers for life.

The business cycle dictates that something happens to most businesses every three to five years. The business needs more space (growth or expansion), less space (downsizing) or it is gone (out of business or bankrupt). All three events are commercial brokerage opportunities. Also, when leases expire customers can be serviced again. What happens if a business needs more space in the middle of a lease term? Agents may help their customer find new space and sub-lease the space they currently occupy.

Many investors buy and sell properties constantly, creating opportunities for repetitive brokerage business. One may also help the investor lease space in the properties they buy.

Consistent communication is the key to establishing “lifelong” relationships with your customers. Speak with them at least every six-month to see how their business is doing and if you can be of any service to them, or anyone they know. Always conclude a conversation with a customer by asking for a referral.

Edward Smith, Jr., CREI, ITI, CIC, GREEN, MICP, CNE, e-PRO and CIREC program developer, is a commercial and investment real estate instructor, author, broker, speaker and a consultant to the trade.