In an article dated March 16, 2018, Long Island Business News Focus Editor Bernadette Starzee takes a look at how local commercial real estate firms stack up against national global firms operating on Long Island. Ms. Starzee discusses the challenges local firms face in terms of brand, resources, and profitability and how these firms are holding their own within the local market.
Schacker Realty President Phil Shwom, Vice President Gary Friedman, and other local industry leaders offer their own perspectives on this issue…
David vs. Goliath
How Local Commercial Real Estate Firms Go Up Against National Global Firms
Long Island is an attractive market to national and global commercial real estate firms, many of whom have offices here. But the commercial real estate sector is also made up of local firms, who, despite lacking global resources and brand names, have succeeded in a competitive market.
Going up against the big guys is not without its challenges, and small firms must be especially careful in how they devote their resources.
“A boutique firm must be extremely selective with respect to the allocation of time,” said Neil Schorr, president of Realty Insight Group, a boutique firm in Plainview specializing primarily in the leasing of retail real estate. “We must choose accounts and projects as carefully as they choose us.”
A larger firm, according to Schorr, assembles a team of agents with the 20/80 rule in mind: 20 percent of the team will bring in 80 percent of the business. “Profitability is a numbers game,” he said.
However, in a smaller, principal-driven firm, “Every failure is personal,” Schorr said. “It is much more important that each and every project receives the appropriate attention to ensure the highest likelihood of success.”
An even bigger challenge than time, according to Schorr, is overcoming the “perception that a larger firm can bring more to the table, when they really cannot.”
“Thanks in large part to the incredible software platforms that are available today, a boutique firm provides all the same information, research and reports to help clients make informed decisions,” Schorr said. “After that, it’s about the individuals that you choose to trust as your real estate advisers, and that has nothing to do with size.”
A typical commercial real estate customer on Long Island is more focused on the individual providing representation rather than the firm, according to Phil Shwom, president and principal of Schacker Realty, a full-service industrial and commercial real estate firm in Melville.
“Long Island customers want someone who they believe is highly knowledgeable in the market, experienced, skilled, and someone they can trust and connect with,” Shwom said. “They aren’t necessarily interested in someone who has an impressive office in Manhattan, or a branded name and matching logos; if you’re looking for independent space on Long Island, those things are not relevant.”
While global firms may have seemingly unlimited resources, “the benefit of a large firm is not necessarily how large it is globally or nationally but how large it is locally,” Shwom said. “If we have a 12-person industrial department and a national firm has a four-person industrial group on Long Island, we typically will have a lot more information, despite the fact that they have offices all over the country. Their Arizona office is not going to be helpful in knowing the tenants and property managers on Long Island. The national firms aren’t necessarily any bigger on Long Island.”
When working with a local firm, clients benefit from dealing with local ownership, according to Mario Asaro, president of Industry One Realty Corp., a 14-person full-service commercial real estate firm in Melville.
“We are principal-led,” Asaro said. “I own the company, and our clients are dealing with an owner-entrepreneur who is dedicated to the client as an owner would be.”
More than Manhattan and other markets, “Long Island is made up of a lot of small businesses, and it has a boutique feel,” said Alberto Fiorini, managing principal of Deer Park-based Alliance Real Estate Corp., which focuses primarily in the industrial and commercial space. “Small business owners can relate to me as an owner of a company on Long Island. We planted our flags here because we grew up here and we want to do business here. Our firm eats and sleeps the markets we serve. We know them inside out, and as a local owner, I can make decisions pretty quickly. I don’t have to worry about running it up the flagpole.”
Schorr also stresses the advantages of working with a principal-led firm.
“When a client is evaluating us against a national firm, I try and highlight that, all too often, [in a larger firm] the person you sign with is not the person you work with. You end up with a junior agent on a brokerage team, and the service you receive suffers in the process,” Schorr said. “When you work with a principal-driven boutique firm, you receive the consistent direct attention of an industry veteran. Just picture yourself in a hospital, and tell me whether you would rather have your surgery done by the chief of the department, or the intern that needs to learn surgery by practicing on you.”
Asaro added that there is less red tape when dealing with a locally owned firm, such as shorter, less complex forms to sign.
“To start with, our initial listing agreement is a one-page, four-paragraph document that property owners typically do not feel the need to hire an attorney to review,” Asaro added. “National agreements typically have much more legalese and verbiage.”
Many local Long Island companies are just that: local Long Island companies.
“They don’t need national representation,” Asaro said. “There are many layers with a national firm, and the pie needs to be sliced up more. Sometimes a smaller firm can be more flexible and competitive on price.”
However, if a Long Island firm is looking for commercial real estate services in other locations, local real estate brokers who are members in the SIOR (Society of Industrial and Office Realtors) or CCIM (Certified Commercial Investment Member) networks can use these relationships to assist their client.
“As a SIOR broker, I attend national conferences that are held twice a year,” Asaro said. “I know SIOR brokers throughout the world, and we send each other our property listings. I just did my second deal in the past two months with a SIOR broker. It’s the best of both worlds: global contacts without the oversight and red tape.”
When assisting a client with an out-of-state deal, Shwom said he interviews several SIOR and/or CCIM brokers.
“If I have a requirement in Chicago, I can interview five people and choose the best one, and because they have the SIOR or CCIM designations they have had to pass rigorous training and other requirements,” he said. “A national firm may feel obligated to go with someone in their office in that city, even if it’s a junior broker who does not specialize in the type of real estate needed. We look for someone who has the skills and is willing to dedicate time to the project.”
Besides customers, local firms also have to compete with the global firms for brokers, who may flock to a bigger firm in search of more career advancement opportunities and a bigger payoff.
“People who come to work for us want to be in the Long Island market. Some people entering the brokerage business don’t know where they want to wind up, and it’s an easier transition to go outside the market if they’re working for a bigger firm,” Fiorini said.
A broker at a national firm may get “built-in assignments, such as when a big company like GE has an exclusive national relationship with a big real estate firm,” Shwom said. However, as Fiorini noted, the more layers involved, the more the commission has to be split.
And, in Shwom’s estimation, “If you look at the top producers at national or local firms, most of their business is done with their own relationships. Being with a big firm is not critical to doing business here.”
Devoting resources to training programs helps Schacker Realty attract and retain brokers, and by helping develop their skills and knowledge, improve customer service.
The training programs, which include classroom training and shadowing opportunities, are led by company Vice President Gary Friedman, a New York State licensed instructor, who also teaches real estate finance at Hofstra University.
Training includes “weekly sales seminars for all our brokers, but especially the newer ones, to teach them best practices in everything from writing up sales materials to canvassing to handling obstacles that come up,” Friedman said. Regarding shadowing, “trainees spend a significant amount of time on appointments – not just property showings, but meeting with government agencies as well as various contracting trades such as roofers and plumbers to understand all the different trades involved in managing buildings,” he said.
Good brokers – whether at small or large firms – differentiate themselves by developing relationships with customers.
“When I work with someone, I’m looking at representing their best interest,” Shwom said. “Sometimes I’ll talk them out of a deal that doesn’t make sense, which may cost me money in the short run, but in the long run I build trust and confidence, and they will call me if they need something in the future, and they will refer me to others.”
And it’s not just about developing relationships with customers, but with other brokers – at both local and national firms – in the market, Schorr said.
“At its core, the commercial real estate brokerage industry is a loose affiliation of thousands of one-man businesses,” he said. “Every agent, at every firm, regardless of size, is an independent contractor working to generate commission income. Certainly there are moments when you will compete against another agent for an account, but far more often, that other agent is a potential customer. The secret to success, at any size firm, is to respect and nurture those partner relationships and put the notion of competing aside.”
Reprinted from LIBN.com, March 16, 2016, by Bernadette Starzee
https://libn.com/2018/03/16/david-vs-goliath-2/