Commercial Real Estate, A Career – How Do You Get Into It?

1. WHAT IS IT AND HOW DO YOU GET INTO IT?

Several years ago, I was attending a Society of Industrial Realtors Annual Spring Conference in Maui. My wife had accompanied me on the trip so that we could also do a lot of sightseeing. Colliers International, a 241 office worldwide firm, sponsored its own company cocktail party the night before the Conference officially began and my wife and I attended the party.

A short while into introductions, a fellow came in from the golf course and he sat down at our table. Andrew Friedlander introduced himself an we discussed our home in Philadelphia, his original home in Brooklyn and his new home in Honolulu. As to how he ended up in Hawaii, Andrew told us that on R&R during his tours in the Army in Vietnam, he decided to take a break in Hawaii after he was finished his last duty tour. He rented an apartment, waited tables, washed cars, etc. to have some extra cash. He said that he paid his apartment rent to an older man who came around once a month and he finally asked the man whether that was his business. Andrew said that he never thought about property management as a business, but the more he spoke to the man the more that he realized how diverse a business commercial real estate could be, particularly in Hawaii. The rental agent began to show Andrew the basics of the business and Andrew decided not to return to Brooklyn.

Forty years later, Andrew is the manager of approximately six Colliers International offices in Hawaii with over 40 brokers and salespeople as his responsibility. Aside from selling and leasing commercial real estate and traditional brokerage transactions through the islands, Andrew’s team is involved in all of the other aspects of commercial and industrial real estate.

As one concierge person told my wife and I while we were touring there, “Yes, it is a great place, now where would you ever think of moving to once you are here.”

In the past year, a young Army Captain and friend called me from Hawaii. He and his wife were taking in some R&R after his last duty tour and he called to ask me for some advice on commercial real estate firms. I gave him Andrews phone number after I checked with Andrew on his availability. Andrew treated my friend to lunch and introduced him to Colliers’ business in the islands. As it turned out, my friend and his wife decided later to relocate to Florida to be closer to their parents. Our Colliers office in Ft. Lauderdale was anxious to interview him and did so. He found a better fit for a concentration in office brokerage with another firm, but I think that it is clear that opportunities do exist with major firms for someone who has an interest, who can demonstrate that they are self motivated and whose comportment (manners, speech, personal grooming, business attire) are all positive. A long time friend told me one night after we and our wives checked in, very late, at a hotel owned by a well known hotel group, “That desk clerk is the person representing this hotel company to its customers and I know the CEO. That clerk’s slight rudeness toward us does not at all represent what their CEO wants his company to be known for in their business. He will need to learn that if he is going to be more than the late night clerk.”

I mention this because a company such as Colliers or any of its competitors must ensure that a salesperson or broker first meeting a potential customer properly represents the company’s image. So much money is spent defining that image to the business community that each person, including all staff, must reflect that effort. Otherwise, a potential customer will choose to hire a competitor whose act is together. My understanding is that customer relation training at Wal-Mart is quite strong for all personnel. I would think that any major restaurant chain has in place a thorough program for staff training and it may pay to observe whether if the customer is not always right at an establishment how the staff person handles a customer who is being a bit particular.

2. Entry

I use Andrew’s story as an example of the opportunity that commercial real estate offers. A senior business mentor and good friend of mine told me in Florida in 1971, just at the beginning of that recession, that commercial real estate offered an opportunity to enter a business without having my own capital to invest other than my time and energy, and, with no limit on the size of transactions that could be put together. We discussed this in relation to my going back to law school. His opinion was that it was almost a “sky is the limit” approach, but with some basic sense to it. I had done a few financial reports on potential deals offered to him. I also handed over that year, at my mentor’s instruction, a $300k commission check to a broker who he had employed to buy a property that he had settled on the year prior to that. The next year, at the same time, I handed over the same check to that broker as the second half of that commission to that broker. Please realize that in 1972 that commission amount in the onset of that recession was a significant amount of money for any transaction.

Each state has its own regulations for licensure. Florida required a person to take a sales licensing course, pass that, then work in a licensed real estate broker’s office for a minimum of two years before being eligible to take a state broker’s exam. The sales course is offered by numerous private firms and colleges, evening courses in particular. The cost of the course is minimal. The basic skills for reading, writing and math portions are not difficult. Depending upon your educational qualifications, commercial real estate firms may often offer to provide the course. Smaller, more generalized, brokerage firms may also do the same in order to gain a salesperson.

There typically is a recognized “culture” or business reputation known for a real estate firm in any community, The community can be local, regional or national. It pays to do your homework as to which firm appears to suit your style. The internet is definitely one of the most productive sources for finding a firm’s history, its areas of expertise, personnel, and its successes. Recognize that major metropolitan commercial firms often outsource client needs in an outlying area to a smaller commercial firm in that area rather than requiring one of their main office brokers to commit to travel time. Consequently, if you are in a rural market outside or between major metropolitan markets, you should investigate which real estate firms have those relationships for the larger deals.

Your time for success starting in commercial real estate (particularly without capital) will be the result of what you put into it. I had the option in the early ’70’s of returning to law school and finishing. What I realized most was that I liked being out of an office and “on the street.” My attorney friends in Ft. Lauderdale were spending innumerable hours, as needed, in their offices to write briefs, draft documents, etc., all of which that profession requires. My decision was to put in the same hours on commercial real estate that I would have to put in for any law practice. If it worked, then fine, if not I would go back to school.

Considering that the early ’70’s recession in Florida hit every occupation with almost equal damage, many attorneys had practices with slim billings and clients whose businesses were suffering economically. Several real estate brokers who I met were having very difficult times because the banks were not lending money for deals. Florida had a usury cap of 14% at that time. Deposits were down and when interest rates in California started to go above 14% that is where the money went.

Weekdays in those years, I was knocking on the doors of businesses in the West Palm to Miami corridor. Weekends, I was often painting a house or captaining a motor sailer owned by a friend’s corporation. Weekday evenings after dinner, I was at the office reviewing property information, ownerships, tax data, etc. for the next day’s driving or phone calls. I found that it was possible to earn a living while getting into the commercial real estate field. I later found out after moving back to Philadelphia, that several of the commercial real estate firms did not mind their starting salespeople to moonlight as bartenders, waiters, or whatever until they had enough experience to close transactions. That has changed somewhat in the larger cities due to the financial strength of the larger firms and their ability to either offer a base salary or draw to new salespersons.

Gender in today’s commercial real estate world is not an issue as it was in the ’70’s. At that time, men only eating clubs were often the norm and women were not often able to match that type of selling locale. The number of women who have joined commercial real estate organizations such as SIOR, CCIM, etc. (which I will discuss later) has increased dramatically over the past 15 years. The commercial real estate courses offered today provide an excellent means of obtaining knowledge that once was taught generally “in house” by senior brokerage personnel responsible for a new salesperson’s progress.

Therefore, in considering commercial real estate the aspect of having minimal capital has not changed. Gender is not an issue and many women who have chosen to specialize in industrial or office real estate have done very well. You
can choose your hours, choose your area of specialty(s), choose your market area(s), and choose who you want to approach as a firm to join. Most commercial real estate involes the standard business week, not including late Saturday or Sunday hours (vs. residential Sunday open houses). These are several of the positive aspects of working in commercial real estate. The competition is keen, your competitors respect a good work effort and, most importantly, they respect a strong reputation for any individual.

You should investigate both larger commercial firms and smaller real estate brokerage firms. There are advantages and disadvantages to both.

A). Larger firms may be willing to offer a base salary or a draw against commissions. They may prefer prior business experience, but not necessarily prior real estate brokerage experience that may conflict with what their “culture” is and what their in-house training entails. Typically, a new salesperson would be assigned to a senior broker or brokers to do cold calling, marketing materials, marketing reports for any existing client’s property and probably handle property inspections by other competing brokers with their prospects.

A few points on Larger Firms:

Future ownership potential for you in the company may be limited or non-existent.

Control over what market, territory or discipline that you work in may not be your choice. If you are hired for one department, such as retail, that may change if they need personnel support in another department, such as office. You may find that they prefer a new person to rotate through each department and possible each regional office if they have multiple offices.

Depending upon whether the firm is privately held or a public company it could be sold or merged without you being involved in the discussion. There is no real “safety blanket” for any position in a larger firm. If a primary, large, client is lost to a competitor, cuts may be relatively fast to absorb the lack of revenues.

Senior brokers who are successful occasionally leave to join another firm or to start their own competing firm. Clients usually follow those brokers and that could disrupt your potential income if you are in that department and the rain makers leave.

Deal volume can be significant as can be the size of the deals. If an institutional owner (bank, insurance company, pension fund, etc.) has a presence in an urban market, the leasing or sale assignment that they may award to a larger firm can be a “year maker” if the assignment is completed. Usually some year end bonus money flows down to the salespersons who may have participated in the marketing effort.

Senior brokers should have upper level corporate contacts through either a business association, country club, educational institutions, commercial lenders, or contacts referred from other cities where a corporate headquarters may be located. If the firm owners or top brokers are not developing those contacts and relationships, but are relying on the mid-level brokers to do that you may want to look at another firm whose top management is better involved. You want work to filter down from the top instead of getting the crumbs leftover from competing firms who have a solid community (business and non-business) presence.

B). Smaller firms usually will have a broker/owner running the operations with or without broker partners in the firm. Quite often they will have a residential department and a separate commercial department in which a few of the brokers may work in residential and commercial properties.

A few points about Smaller Firms:

Future ownership shares may be offered depending upon deal volume and commitment to the firm. If the founding broker of the firm is nearing retirement age, the opportunity may be better provided that they are maintaining an fully active presence in the community.

Commission percentages may be much more liberal once a minimum threshold of deal volume is met to cover the cost of your desk, phone, secretarial, etc..

A salary or draw is less likely to be offered.

A senior broker may be more likely to have you work directly under him on any property. You will be accountable directly to him and, as should be the case, learn “on the job.”

If there is a residential component to the firm, those brokers specializing in that area should be a source of commercial referrals and the same for you referring any possible single family residential to them. Smaller multi-family buildings should be on the commercial side of the business, but motels may be on either side. This can vary in an area such as Ft. Lauderdale, Hilton Head, or New Jersey resorts where a residential owner with a relationship to the firm may also own retail rentals.

Most regional areas have a Realtors Association, Chamber of Commerce or other organization that offers discounted insurance and other benefits to its members. Whereas a larger firm may have a good corporate health plan and other bulk discounted benefits to its employees, you should look at the costs for each that are offered. I have not found that much of a saving on either side, but if you leave a larger firm you will need to find the alternatives that are affordable.

Your business exposure may actually be more effective working out of a smaller firm and being a primary contact for that firm instead of a secondary contact at a larger firm.

Property databases and the Internet have provided smaller firms with much better access to real estate information than in the mid-’90’s and before when only larger firms could afford to maintain proprietary property information for a larger market. Launching a significant marketing campaign for a property can be expensive even with the Internet and smaller firms will have a lack of cash resources to compete for major property listings. Deal size, therefore, will be smaller and you will have to strive for volume,

Best regards.

Peter P. Liebert,IV-SIOR
Flourtown, PA

Commercial Law – European Private Company Legislation – Consultation – Communication

The objective of the European Private Company (“EPC”) legislation is to make it easier for European small and medium-sized enterprises (“SMEs”) to conduct cross-border business. This is achieved by providing SMEs with a special European legal form equalled across each Member State.

It is intended that the ability to operate in various Member States according to the same corporate rules should significantly reduce compliance costs and therefore enhance the mobility and competitiveness of European SMEs. The existing statute applicable to European Companies has been designed for large companies, and does not constitute a viable option for SMEs. This is particularly due to the fact that a minimum capital requirement of 120.000 EUR is stipulated.

Work has been carried out on the EPC legislation over the last three years. In 2004, the Commission launched a feasibility study for the EPC legislation targeting SMEs. It presented its results on the 13th of December 2005. In addition to this feasibility study, a question on the need for the EPC legislation was also asked in the public consultation on the future of the Company Law and Corporate Governance Action Plan (December 2005 to March 2006). The outcome of the study and the consultation were, however, unclear.

Even though the EPC legislation received a considerable support from SMEs, there were still some who were sceptical about it. The European Parliament has been working on the EPC legislation and the Committee of Legal Affairs has drafted an own-initiative report and a resolution on this issue together with recommendations on possible content of the EPC legislation. It was adopted by the European Parliament on the 1st of February 2007.

It is interesting to note that the European Parliament adopted a Resolution on the European Private Companies at the beginning of February 2007, yet little had been done for almost 6 months. The Commission has studied the European Parliament’s report and recommendations as well as the feasibility study conducted in 2005. Whilst doing this analysis the Commission discovered several issues which needed to be tested in the market. This is why the Commission launched a specific consultation on European Private Companies in July. It is intended that it should give the Commission the facts and evidence needed for a legislative proposal.

The public consultation continued until the end of October. Its results will then be analysed and incorporated into the impact assessment, which is likely to take a number of months. The next step would be the preparation of a possible proposal and consultation of the draft text with experts. Exact timing on these matters is likely to be made clearer by the end of 2007, but a draft proposal could only be ready in the first half of next year.

The Commission has also considered issues relating to a simplified business environment for companies in the areas of company law, accounting and auditing. This was highlighted by the Commission’s Communication published in July 2007. An important part of the Commission’s Better Regulation agenda is the revision of the existing European legislation. In this context a full review of European company law, accounting and auditing directives was carried out.

The objective of the exercise was not only to reduce the administrative burdens for companies, specifically SMEs, but to ascertain if the European rules are still adequate in today’s business environment. The Communication published in July contains the Commission’s proposals based on the outcome of the review of the directives in the fields of company law, accounting and auditing.

With regard to company law, the Communication outlines two approaches:

§ The first option would limit European legislation to matters that have cross-border relevance. For example: The registration of companies and branches as well as cross-border mergers. The directives that cover mainly domestic situations (For example: The Third Company law Directive on domestic mergers and the Second Company law Directive on companies’ capital) would be repealed.

§ The second option is a slightly more detailed approach that would allow for the analysis of individual provisions in the directives, such as reporting requirements in the case of a merger or a division. It would offer possibilities of simplification, repeal or introduction of alternative provisions.

With regard to accounting and auditing, the focus of the Communication is on reducing costs for SMEs. The following measures are accordingly set out:

§ To introduce a new, additional threshold for micro-enterprises (Namely those with less than 10 employees, balance sheet total below 500,000 EUR and turnover below 1,000,000 EUR ) in order to exempt them completely from any requirements on accounting and auditing under the two directives.

§ To extend the transition period for SMEs crossing the thresholds from two to five years.

§ To exempt small entities from the requirement to publish their account.

§ To give certain medium sized companies easier access to the exemptions for small companies.

Aside from the above, the Communication has had two further objectives:

§ Firstly, to amalgamate the views of businesses and stakeholders on the proposals. This consultation ran until mid-October 2007.

§ Secondly, to find a common ground with the Member States and the European Parliament on the matters future legislative proposals should cover in order to simplify business environment for companies. In accordance with the principles of Better Regulation, impact assessments will then be prepared. Subject to the results of these documents and the outcome of the public consultation, legislative proposals are expected to be presented within the first few months of 2008.

© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.

How To Get An Unlimited Supply Of Money For All The Residential And Commercial Real Estate Deals You

As an investor one of the most important things that you’ll want to realize is that banks are not the only place that you can turn for loans. In fact, there are many people who are willing to invest in the idea that they, too will profit financially from the investment. If you are seen as a good investment, in other words, they feel that you can give what you’re promising; they will be willing to invest in you without the traditional hassles of going to the bank for such a loan.

A private lender may be a wonderful source for money for your investment idea. The biggest difference between a private lender and a bank is the fact that a private lender is looking into the investment more than your credit history. A bank sees the idea, but is really more interested in your credit standing and your debt to income ratio. If they feel that you, the person, are a good credit risk; that you will pay back your debt regardless of the success of the business, they will approve you for the loan and this will be the beginning of a long process. A private lender on the other hand will like to see a good credit rating and debt-to-income ratio, but they will place their focus on your business idea. If they feel that your idea will bring large profits, even if your credit isn’t perfect, they may be willing to invest in that idea. If they decide to invest, they can usually get you the money within a few days. This is much shorter than the process you’d have to go through with the bank.

Another tremendous benefit to a private lender is the fact that through discussion with you the amount that will be borrowed will be decided upon. If you find later that you need more money for some unexpected problem with your investment such as re-wiring a house or something along those lines, a private lender can do that with a little conversation rather than another long drawn out loan process. The terms for paying the loan back will be more flexible with the private lender as will the flexibility of those terms. If you run into trouble in the repayment you can speak to the lender and work out some short term solution until you are able to resume full payments. All decisions of repayment and terms will be between you and the lender.

The main benefit to the private lender to some is the ability to avoid a hard money loan. This type of loan (hard money) is one that caters nicely to those that are having financial difficulty. They are willing to loan money to those that have credit trouble or have had credit trouble in the past. The good part of that is quickly dwarfed by the downside. A hard money loan will have very high interest rates and a strict repayment term. If the loan is defaulted on, the hard money lender will have the right to claim the property and sell it in order to recoup the loss of the loan. You will be putting yourself and the property you’re investing in at great risk through a hard money loan. The term of a hard money loan will come to maturity much faster than with a private lender. A private lender will not be as worried about your credit and they will be willing to work with you to stay in good standing with the payback of your loan. In some cases, you may be able to borrow the entire amount of investment into the property including any necessary repairs or updates and pay the entire amount of the loan back when the property has been sold. No bank or hard money loan will allow this type of term.

Some may think that this all sounds great if you can find a private lender willing to work with you. There are more places to look than you may think. A good place to start is with the local investor’s association. Most areas should have some association made up of local investors. Since these people have been in the investing game for some time, probably, at least some of them may have had dealings with a private lender. If you can find some that have, they can also give you some tips as to how to appeal best to the lender. They will know what’s important to the lender and what things they would like emphasized. This will help you to land the loan you’re looking for.

Some other places you may want to ask around about private lenders are your local professionals. Local doctors, lawyers, or dentists, may be private lenders themselves, or they may know people that are. They may be able to again tell you exactly what they or their acquaintances are looking for in a business proposal. They will give you tips as to how to present your business plan and what kind of things included will get you the loan you’re looking for.

Friends and family would be the next area that you may want to investigate. You may think that you’d know if they could help you, but you may be surprised. Your aunt’s cousin’s sister-in-law’s little girl may have had a teacher that does private lending. It’s always possible so if you’re thinking of putting together a business plan and investing in some real estate, commercial or residential, be sure that everyone you talk to knows about it. You may find that there are people among those that you know that can help you get exactly what you’re looking for.

A Google search will also help you when you’ve exhausted all other avenues. You can do a search on “local private money lenders” in your area and the internet may just be able to give you a place to start. You can start calling around from there and through talking to the first on the list, you may be able to find the others.

Wherever you find your investor, know that they are there to help you and themselves with the profits you are both looking for. Be sure that there is paperwork between you and your lender and make sure you have only one lender per property. That will help avoid confusion and may build a lasting relationship between you and your chosen lender. This will keep your profits coming and make your lender money at the same time.