Commercial real estate investment sales - can someone take me through the entire process?
Hi everyone,
I am extremely interested in the CRE investment sales process (I am in NYC, so if we have any NYC brokers, what is different about the process here vs. other large MSAs).
The nuances sound complicated (if you have never been a broker).
I want to get to know as much about the entire process as possible.
If there are NYC based CRE brokers willing to discuss in person, I am more than happy to buy you a beer(s) or coffee/lunch for an hour of your time.
In the meantime, this may give you a feel for what I'm trying to learn:
1) How do you win or solicit business from sellers? How does this differ for the big vs. small guys? I am sure reputation draws business for the bigger guys such as JLL C&W CBRE. What about if you are dealing with assets $10M or less? Does it get significantly harder to solicit business from sellers at that level?
2) Once you win the listing from the seller, what do you have to do before you actually get it in the buyers hands? Is there alway a bidding process? Or do you shop the asset around from buyer to buyer? Do you shop it based on your contacts, or are there any other ways you shop it?
3) How do you close the deal? Is this itself a lengthy process? How do you know that your buyer actually has the cash lined up for the deposit?
4) How are teams segmented for deals? For instance - does only 1 broker work on a single asset? Or does he have analysts supporting him through the process? If there is a team - what do the other guys actually do to add value?
***5) Pricing: does a seller come to you with a price in mind? Do you see a difference from the institutional guys vs the guys with smaller assets - for instance, if a REIT or RE PE fund comes to you with an asset they want to sell, do they have a price in mind that you HAVE to hit? Do you try to work with them around the price to get the property sold? Are sellers on a smaller scale ($10M or less in terms of asset size) similar to the institutional guys - do they also have pricing in mind? Or are YOU as the broker establishing a pricing anchor in the minds of smaller owners?
6) Most importantly...how do you establish a reputation at your firm? And if you are a smaller firm that deals with smaller assets, how does your firm itself establish a reputation in the marketplace?
Also - if you are a CRE broker - you need a license, how hard is it to get this? How long would it take to get?
Thanks so much for the help. It's just something I am interested in as I deal with investment sales brokers more and more. I would like to understand how you conduct business and really get into the minds of a broker.
Again - if anyone is willing to meet up in NYC to discuss, I am more than happy to buy them a beer or coffee/lunch.
Best,
Patient Skeptic
Let me make a suggestion: ask one or two questions at a time.
It will take a lot of time to answer all of these questions. Especially for an internet stranger.
Why don't you seek out an informational interview from someone in IS?
^ Agree. I tried but I got a nosebleed from trying.
There has been quite a bit of brokerage talk on this forum, find those threads and you will probably get some answers.
I tried to answer as best I could considering the vagueness of the questions
1) Depends on the size of the deal, I’d say 50M+ its all relationship driven, for smaller deals 10M and under you’ll just be cold calling all day. Shops like Massey Knakal specialize in that size and those guys cold call hard and fast.
2) You create an OM (offering memorandum) and distribute to potential buyers. Most of the time there are two rounds of bidding, for the second round they usually take the top 2-3 bidders, tell them you sharpen their pencils and offer one “last and final” rarely this will go into a third round for very large or complicated assets but even Stuyvesant Town was sold in two rounds.
3) The buyer in his offer will tell the seller how much they are willing to deposit, the length or the due diligence period and how long after the end of that they are willing to close. Generally half of the deposit is put in escrow during the DD period. This amount is refundable if the buyer wants to walk after finding anything in DD. After the DD period is up the buyer will put up the remaining half of the deposit. This is called “going hard” and if the buyer fails to close the seller takes the entire deposit. A common closing timeline (for straight forward core deals) is 30 days DD, 30 days after that to close.
4) Visualize a pyramid, an MD has a couple VP’s who work under him and they each have a couple analysts/associates (depending on how big the office is). VP’s bring MD’s deals ( if they are of sufficient size), MD’s source deals and bring on others to help close them. The VP’s and associates handle the day to day and the MD is on the phone for important calls but generally he’s out there building relationships and sourcing more deals. If the deal is small enough a VP may run a deal he/she sources alone. Generally if you are an associate any deal is too big to run alone so they bring on their VP.
5) Almost any institutional seller will have a price target, a brokers job is to manage the process to get or exceed that number. Small deals, for example say a small multifamily building that a family has owned for decades, the owners may have no idea what the building is really worth and that’s when they rely on the broker for pricing and guidance. These guys will have a price they want to hit but because the seller isn’t “sophisticated” the broker needs to manage expectations.
6) The first part of this question I don’t really get…for the second part it all depends on how small. There are big firms and work on a ton of small deals (again think Massey Knakal) but there are also a ton of very small firms where one deal a year is all they need. If you start at one of these guys your entire job will be cold calling. Is that what you mean by reputation? With small guys a seller isn’t saying “man I need to call XYZ Capital, they are a great small firm” the seller is saying “I should call Bob, I know him from something else and I know he’s a broker”. Again sorry, question is pretty vague.
7) License is incredibly easy to get, it’s a basic “fog the mirror” anti discrimination, ADA type stuff 90% of which is more for residential.
Spot on... Great stuff
Sorry I didn't respond to this sooner - crazy week at work. This is extremely helpful. Thanks for this.
Investment Sales (Originally Posted: 03/24/2013)
Aside from all the bashing Investment Sales gets on these boards (below bankers, not enough pedigree, bottom of the barrel), it seems that these guys can make a very good living (albeit cyclical).
What I would like to know is, if you make it to the VP level at a top firm (CBRE, Eastdil, JLL) in a major market, how hard is it to succeed/produce enough to make a living? I know there are lots of starving brokers out there, but once you make to VP at one of these firms, have you typically developed the network and skills for success? Obviously, success varies widely in the industry as a whole, but I'd like to know how wide the variance is within the major firms as one moves up.
Top commercial real estate brokers can do quite well (and become principals themselves). At the entry-level it is critical you are on the right team (good mentors) and dealing with institutional-quality properties/investors. Power-brokers in cities like NYC with liquid markets can consistently do well even though sales volumes ebb and flow.
Avoid the smaller shops as well as any place where you will most likely be cold calling and detailing with retail-quality properties/investors. With the right attitude and good people around you it is not a bad way to enter the commercial real estate industry.
Good luck!!
But over the years, I think most of them do okay. My problem is I'm a little young, so I don't hear about what goes on behind the curtain, but I can't quite picture these guys losing their houses just because of a downturn. However, one thing that does hurt them is that they end up putting a lot of their money into real estate deals. If the RE market sours, then not only does their income dry up, their net worth takes a hit, so these guys can really suffer. Diversify!
Are you saying that they end up putting a lot of their money in real estate deals on the side or are you saying they often put equity in deals they broker, and after a while this becomes a large part of their net worth?
Can anyone comment on a RE analyst investment sales position at a firm like HFF and how this comp structure would look compared to the higher level commission based partners?
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