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September 22, 2017

Commercial Pros Are Clicking Through to More Deals

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Commercial Pros Are Clicking Through to More Deals

Tenant-matching technology enables brokers to help smaller businesses find a home.
Crelow online interface

A Houston broker is seeking 2,600 square feet of office space for a company in the city’s central business district, and his client isn’t looking for just any old digs. In addition to a kitchen, boardroom, and reception area, the six-person business wants easy access to the freeway and lots of natural light—and they’re looking to move in by September, if the price is right.

Another Option
CommercialSearch, powered by Xceligent (a REALTOR Benefits® Program partner), is a free national listing platform for marketing commercial real estate to tenants, ­buyers, and other brokers. Listings are visible both on CommercialSearch’s website and on realtor.com®. Brokers, owners, and others who post listings can get lead notifications while activity tracking notifies them when their contact information has been shared with potential clients. Brokers can also create profiles ­highlighting active listings and their areas of expertise.

The tenant rep jumps online to a site called Crelow and, under the anonymous handle “Prescient-Swami,” submits a detailed bid request with his client’s wish list on the site’s Houston Deal Board. While Crelow digitally blasts his request to local landlords, Prescient-Swami sits back and waits for the bids to come to him.

His identity (and the landlord’s) are revealed only if he sees a proposal he likes. At that point, he can request a tour and Crelow makes the proper introductions. If all goes well, Prescient-Swami will earn the same commission he would on any other deal—3 percent of the aggregate lease value—but with far less legwork.

Crelow, a Minneapolis-based startup that markets itself as a “matchmaker” for commercial real estate, is one of several new companies harnessing technology to streamline office and retail lease deals for smaller tenants. The phenomenon also provides opportunities for brokers to get new leads and, as this real-life example demonstrates, makes it more cost-effective for them to work on smaller deals that may otherwise be unappealing.

Jim Simpson, the CEO and founder of Crelow, likens his two-year-old company to a dating service for commercial real estate deals: “Our goal is to set up a quality first date with our matchmaking service—and then we back out,” he says.

Crelow’s sweet spot is small--business tenants looking for less than 5,000 square feet. Such businesses represent an estimated 80 percent of all commercial leases. They are often underserved because such deals are less lucrative than those with larger tenants but can require just as much work for the broker. For example: In a situation where the listing agent and tenant rep are splitting a 6 percent commission, the broker working on a five-year, 50,000-square-foot office lease at $16 a square foot will pocket $120,000 at the end of the deal. But for a 1,500-square-foot lease at the same rate, the rep would earn just $3,600.

That’s where tech can provide an advantage. It won’t boost the commissions themselves. But with its slick, demand-driven platform, Crelow makes it far more efficient for brokers to work on smaller deals. Instead of scouring listing databases and soliciting proposals from individual landlords, the offers come to you. And you don’t have to waste time trying to verify data that might be stale. Every bid that comes back is guaranteed space available.

Dual-Agency Dilemmas
Brokers using tenant-matching technology should be mindful of their state’s laws and brokerage policies on dual agency—the ethically murky situation that occurs when the broker represents both the landlord and the tenant in the same lease transaction. Though common in the commercial real estate space, the practice has come under increased scrutiny in recent years, with tenants often assumed to be on the losing end of the fiduciary tug of war. As a result, some states, including California and Illinois, have enacted strict disclosure requirements for commercial brokers who serve both parties.

And while the startup, which also currently serves the San Francisco, Los Angeles, Phoenix, Denver, and Seattle markets, incentivizes tenants who go solo and deal directly with landlords by offering them a rebate, there are still plenty of ways for brokers to get in on the action. In addition to posting bid requests on Crelow’s deal boards, for instance, tenant reps can sign up to use the service’s “Rep Matcher” tool, which pairs tenants up with seasoned brokers.

Simpson says the company created “Rep Matcher” in response to tenant users who went online intending to use Crelow on their own, but quickly became overwhelmed by the complexity of their search and realized they need a professional guiding them. In fact, he estimates that two-thirds of Crelow users, both on the tenant and landlord side of the equation, are brokers.

Expanding Your Arsenal

While Crelow is gaining traction in certain markets and aims to expand to another 14 cities by the year’s end, brokers around the country are experimenting with other tech-driven platforms to gin up business in the small-tenant marketplace. Lawrence Kopp, vice president of transactions and assets at Riviera Real Estate in San Diego’s North County, has been using a site called Digsy to help meet clients. He jumped in early, shortly after Digsy’s 2015 launch, and says he sees a lot of other brokers getting on board.

The Irvine, Calif.–based startup is the brainchild of veteran commercial broker and tech guru Andrew Bermudez, who wanted to make it easier for brokers to prospect for leads and serve small to mid-sized businesses who can’t always get the attention they deserve.

Smaller commissions are just part of the problem, he says. The other reason that “nobody calls them back” is because “when listing agents get into the office, they have tons of voicemails. On average, one or maybe two of those calls will be people who actually qualify to take the space. So agents just get inundated and they ignore people.”

To address the issue, Digsy operates as a web-based “concierge” service that links clients to a tenant rep who actually wants their business. Like on Crelow, users type in their desired location, square footage, rent budget, and a few other details. Then Digsy hooks them up with someone like Kopp, or another of their 3,000 vetted commercial real estate brokers, who undertake to start working on the deals ASAP.

Kopp says Digsy hasn’t yet generated many deals for him. Of the 255 opportunities sent to him over the past couple of years, he’s worked on 34 and closed four, but he sees it as an extra tool in his arsenal, and he likes the price. While some systems charge brokers a monthly fee for leads, Digsy charges a referral fee of 20 percent of the broker’s commission only if the deal closes. “The advantage is you don’t have to pay up to $400 a month for leads that might not pan out,” says Kopp.

Another benefit is Digsy’s incentive-based platform, users say, which prods brokers to take actions that are more likely to help them win business. For instance, the likelihood that an introduction of a tenant to a broker will result in closed deal is just 3 percent at the outset. But once that broker meets the tenant face to face, the probability of success jumps to 15 percent, according to Digsy’s data. As a result, the company promotes those sorts of interactions by “gamifying” the system: For every positive action you perform, you earn “deal credits” that help you land the next unrepresented tenant the site has up for grabs.

Both brokers and technologists say online strategies should augment, rather than replace, traditional efforts. That’s because many prospective tenants browsing online listings are simply window-shopping and determined to do things on their own. But commercial real estate, like the residential side, is still a people-oriented business. “I tell brokers, what’s always worked for you is still the more important thing, and that is the relationships. We offer you a few more relationships per month for a small fee,” says Jason Freedman, the cofounder and CEO of 42Floors, a listing site that also targets small-business commercial clients.

The sites are drawing brokers’ interests for different reasons. While Kopp prefers Digsy because of its data-driven tips for securing deals, his business partner favors Rofo, a San Francisco–based CRE listing and marketing service that’s also hyperfocused on the smaller tenant market. Tenants can peruse Rofo free of charge. Landlord reps can advertise properties for $15 a month. Tenant reps, meanwhile, can sign up and respond to specific leads such as the one recently posted by the user William W., who is seeking 400 to 1,000 square feet of office space with conference room, parking, and a reception area in Holland, Mich. If the lead goes nowhere, the tenant rep loses nothing, other than the time spent pursuing the lead. If the broker ends up closing William W.’s deal, he’ll owe Rofo a standard referral fee.

David Mussari, a Cincinnati broker who handles both residential and commercial sales and leasing, says he’s had good luck with lead generation on OfficeSpace.com and sees a slightly higher conversion rate with internet--generated leads on the commercial side. “On the residential side, that number’s under 5 percent. It’s higher on the commercial side—probably closer to 10 percent conversion leading to transaction.” Regardless of which tools end up winners, with such low costs of entry, Mussari sees little downside: “There’s really no reason not to adopt and take a shot at it.”

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