In a recent transaction I had the opportunity to meet a man who at one time was the biggest owner of housing in the United States. This person, whom unfortunately I cannot name (due to a confidentiality agreement I signed), taught me a way of selling commercial real estate that I previously never used.
As an agent since 2003, selling multifamily in Los Angeles, I was often trained by peers to talk about deals that were highly competitive (multiple bid situations) as achievements. When speaking to brokers (my peers), I would often hear about these stories and think "that agent is good, he/she marketed the property well and was able to achieve a high level of interest." Well, this client, after spending 2 months with him and his family (his company) selling a trophy parcel of real estate, has taught me an alternative - and it is this alternative measure that I will champion for the remainder of my career. I call it the "Top-Down Listing Strategy" and the old way, I will refer to as "Bottom Up."
In my opinion, the bottom-up strategy is good for agents, and makes properties easier to sell, and therefore is part of the broker's repertoire to consistently taut it as the "way to sell real estate." It is the top-down approach that means an agent will have to work hard, might need to cooperate fee with another agent, and is truly the best strategy for the Seller.
Here are the two strategies in comparison:
As a tech savvy broker and programmer, my methods include marketing in ways that other agents can't follow. To this effect I learn about new technology, write code for my company and stay up to date on SEO. And I love building websites that speak to new learnings to house the data I am amassing. Here are 3 websites that I will be working on and/or improving in 2017. These new websites I am launching, which will be totally free to use.
The first website is called THCRE, The Hub for Cannabis Real Estate (www.thcre.com) and is devoted to investors looking to cash in on the cannabis revolution sweeping America. The site is in it's infancy currently and spawned the need for the second site below. This website, when launched, will detail the opportunities in this field of Cannabis Investment Real Estate, namely the types of properties which can be bought, the risks involved, the key players such as lenders and brokers who specialize in the industry and the different state laws and zoning to watch out for. For the most part, Cannabis is first either legalized for medical or recreational use and then it's governed by county. Purchasing a property on speculation in a county that has banned the cultivation could be very problematic so the site is designed to help Investors research such things.
The second website which is now 95% complete, is called Real Estate Brokr, Interstate Real Estate made Simple (www.realestatebrokr.com). This site is designed for Agents looking to acquire a real estate license in another state (via reciprocity) or cooperate in States that allow cooperation with other Agents. The site came to me as I needed to understand reciprocity laws in order to do business in other States, and instead of holding on to that research, I decided to share it.
Lastly is a website that I created years ago for the purpose of aggregating commercial real estate news, called CREInsider (www.creinsider.com). While this site is still up, I am considering a change to the format. CREInsider to me, used to be about news - but with curbed and the Real Deal handling more news that can be aggregated, the new site will take a different tack on the insiders guide to commercial real estate investing. Look for it in 2017.
If you have been watching the news, or reading articles, you might have seen something akin to "the real estate market is about to collapse..." If you are even mildly fearful about an event like this, this post may be for you.
Before we get to whether there's any truth in these declarations, there's a few things to do first.
1. Identify what property type is being discussed...because it's probably not Commercial (Multifamily). The residential market is not doing as well as it did the last time commercial real estate experienced a "run-up." There are many reasons for this; a) commercial loan interest rates b) the amount of investor cash on the sidelines due to low CAP Rates c) the "new philosophy" of millennials (renting = good, owning = not necessary) d) a rush to investment real estate in a volatile stock market... the list goes on and on. But in any conversation where "the market as a whole" is being discussed, chances are that it's residential (single family homes).
2. Identify what market the article is talking about...because it's probably not Los Angeles. The national real estate market is currently all over the place. Many secondary and tertiary markets are in the gutter right now, whereas the top 5 markets in the US (namely New York, San Francisco, Los Angeles, Miami, and DC) are way up.
3. Identify who's declaring this prophecy... guys like Sam Zell has a lot to gain by frightening the market, he's selling right now - so he needs to buy, and he doesn't want to buy in an upward trending market. If it's an economist talking, is he pushing his new book? My father used to say the cliche saying, "even a broken clock is right twice per day."
Once it's been determined that their talking about Los Angeles, commercial real estate, and there's no hidden agenda, maybe they have a point... so let's look at what might be Los Angeles biggest hindrances in the future.
A list of California's Scariest future events for commercial real estate...
1. The Big One (earthquake) is just around the corner.
2. Water dries up in Southern California - returning LA to the pre-mulholland days.
3. The rest of the sub-prime loans hit and liquidity dries up.
4. Interest rates dramatically rise, turning off the proverbial "tap" of buying.
5. China has a melt-down and the "crazy Chinese buyers" go elsewhere.
The Big One
While this is the probably the only future event that will definitely happen, I am not sure it's just around the corner. If it does happen, the market will probably fall down as well, especially with the amount of soft story retrofit properties in the Los Angeles market. If I am still alive after it, I will report on it then...
Water Dries Up
A few months ago there were major headlines all over the place about how there was only 1 foot of water in all the reservoirs. And while the water issue is bleak, it's not that bleak. Many reports I have read say that those were only the "above ground" reservoirs and that most of LA's water is either imported OR comes from the aquifers deep below ground, so water drying up is probably not going to happen in the next 50 years. Besides with the amount of money that Los Angeles produces, the city will take an Israeli approach to desalination before the place goes back to desert.
The rest of the Sub Prime Loans return
Honestly, I am not sure this one counts in Los Angeles. Even if there were a lot of defaults at the moment, I think Investors would be there to gobble them up. As a commercial broker I talk to principal investors everyday and at least 50% of buyers are waiting for this event, as though it will be the "second coming."
Interest Rates Dramatically Rise
Now this unlikely event goes back to the realization that the national market is not the same as Los Angeles. The Fed can't rates interest rates too much or too fast when the majority of US real estate markets are still suffering. Los Angeles is just one of the markets that is benefiting from the low rates. But even if they went up 200 basis points in the next 5 years, putting the prime rate around 5% - CAP rates would rise, but we would probably go back to the 2002-2003 days when negative leverage was "just the way it goes."
China has a Meltdown.
Whether you realize it or not, the crazy Chinese buyers are a myth. Yep I said it. In commercial real estate, they're not crazy, they are just ridiculously shrewd. Sure they might pay more than others on some deals - but mostly, they pay less. The sad part is if China has a meltdown (instead of slowing down as it has been), there would probably be more Chinese buyers then there are now - and the market would probably be helped.
I have been wanting to write about this topic for a long time, but I was hesitant, I will explain why soon.
Fluff. It seems to be everywhere in commercial real estate. It's like there's the buildings, and then theres a layer of fluff that surrounds them. I am not talking about expertise - it takes a while for a person to get comfortable with transactions and the ins and outs of commercial brokerage, and there is a lot of skills necessary to be good at this business. I don't want to take anything away from Agents, every one of them has to work hard, take risks and responsibility and endure in this business.
The fluff I am talking about is the stuff brokers use to a) make themselves look more important than they are and b) compete with other agents. I guess it's natural, I mean we all have insecurities and in this business where agents face 99-100% rejections per day, I guess we all need something to hold onto. But sometimes it gets nasty and downright ridiculous when dealing with the many brokerage firms out there that sound big and important; so and so & so and so, so and so capital, and so and so and associates, not to forget, so and so van something or other. But, I guess, this is to be expected.
The real fluff I see in this business is the deception that gets played out as a false positive to the clients... and this is what makes me sick. Now I could get into the shiny new expensive car, the gold watch and the $15,000 suits, but I think that is a matter of preference. I simply don't wear that stuff because I get more pleasure seeing a kid who doesn't have anything get a new bike. You need to wear a $5,000 watch so you can tell people you made $5,000 at some point in your life, go ahead.
"List with us, we have the most Agents."
The really disgusting stuff that I am talking about is the stuff they try to convince people of. The bullshit like: "List with us; we have access to this many agents across the US...." Big Whoop! Why don't Sellers see what a scam this is? Why don't they understand that THE NUMBER OF INTERNAL AGENTS HAS NO BEARING ON GETTING THE HIGHEST PRICE? I am a CCIM, I have an internal messaging system to 15,000 agents in multiple brokerages across the country and around the world - do I think that really sells deals? No. Why not? Because most deals sell to people looking in the area. Besides, any broker who says this is really saying: "We don't share with outside brokers." And why share when you don't have to? Afterall it's not like you have a fiduciary duty to get your client the highest price for him or her.
Confidentiality Agreements with hidden Clauses.
Have you ever seen a deal on Loopnet and requested more information - only to be sent to the website for the firm representing it asking you to sign a confidentiality agreement? I have. I have learned to read these in depth because often times there is a clause inserted into the agreement which says any agent agrees that no fee will be paid to them. While I am okay with this practice - it should be a disclosure to the Seller but sadly, most Sellers have no idea that this is the case.
"Highest Price, Least Hassle, Shortest Amount of time."
I love it when I hear that a brokerage promised the Seller "we'll get you the highest price, with the least amount of hassle in the shortest amount of time." Excuse me but... "Duh." A monkey could tell me that. I mean why would anyone hire a broker if not for that reason. The little problem is that most of the time with these big firms - it's not for the Seller. Most of the time, the highest price means the "highest price we could get while keeping all the fee" and the least hassle means "the least hassle for the broker." The shortest amount of time is usually the guy who sees the deal as being so great that he will close ALL CASH in 7 days - and then it's the shortest amount of time until the broker gets paid.
Now I may be a broker - but I will never compromise my ethics for a deal. At the end of The Rainmaker (the movie), theres a line that sums it up:
"Every [broker], at least once in every case, feels himself crossing a line that he doesn't really mean to cross... it just happens... And if you cross it enough times it disappears forever. And then you're nothin but another joke. Just another shark in the dirty water"
These big firms are not made up of bad people - but sometimes the policies and tactics they use seem like they are meant to decieve people out of their hard earned money. Brokers cross the lines because it's accepted (and sometimes expected) and soon they don't even see the lines anymore. Any firm that doesn't list a property on Loopnet or the MLS immediately or only offers 1% out on a 5% fee or higher - is not providing open competition. They are crossing a line that will eventually dissappear. Sometimes I feel sad about the "sharks" that hold the same license I do.