When I first left the corporate worlds of GMC and Westinghouse to join Henry S. Miller, Cos. in brokerage in 1974, I entered the world of the very entrepreneurial, Independent contractor/broker. (For the purpose of this blog post, I’ll treat brokers and salespeople as “brokers.”)
At the time, brokers were brokers, developers were developers, there were few national brokerage or development companies, and the lines were well drawn and respected by most of the local players. Henry S. Miller Cos. was a leading brokerage company, and Trammell Crow Co. was a leading developer.
At the time, Miller was unique as a “crossover” player, by virtue of its strength in the retail development market via Herb Weitzman’s leadership of its retail division’s brokerage and development groups. Therefore, our retail brokers benefited by the fact that “Miller” was developing and creating a huge inventory of retail properties for them to “feed” off. We estimated that we may have controlled about 50 percent of new retail projects. I’m guessing that local retail developers controlled up to 80 percent of the market. Remember, Crow and Vantage, for example, had just started thinking about entering the retail development business back then.
The major local developers were focusing on office, industrial and residential. (Again, there are always exceptions and always will be, but this is the big picture.) To give you an example of the size or our retail market back then, Herb and I would split all of the retail properties in DFW, drive each individually, and prepare the DFW Retail Report annually! Imagine two people doing that today for any of the commercial annual reports; impossible!
Retail brokers leased the retail properties for retail owners, industrial for industrial, office for office, etc. Most of the local brokerage companies were dealing with national clients in every specialty. Again, Miller’s retail brokerage group did the leasing for most of the third-party retail developers including Crow, Lincoln, and Vantage when they started developing and owning retail.
Again, the responsibilities were well delineated. Brokers brokered, developers developed, and we all dealt with the big national clients.
THE HERE AND NOW
I’m glossing over any particular economic environments/periods, by starting in the ’70s and bringing us to the here and now. Forget our market “ups and downs.” Remember, we’re talking about a 40+ year period!
So, DFW and Texas start booming! Dallas no longer is limited to one noteworthy Italian restaurant, foreign cars start showing up, vinyl roofs are no longer “cool,” people start talking about bringing residents to the CBD, foreign investors are buying properties, DFW Airport opens. We are no longer a “local business engine,” we are becoming a suave and sophisticated economic force and a growth magnet! We are discovered and noticed!
Soon, just about every brokerage and development company in the world start considering decisions to move or expand to Texas; at first a trickle and then a flood! Here come CBRE, Grubb & Ellis, and Cushman & Wakefield, to name a few. Later we have JLL, Colliers, Cassidy Turley, Studley, Transwestern and other nationals. How can anyone in the commercial brokerage and development business not be represented in DFW and Texas?? Remember lease commissions that were paid over the term of the lease—deferred? Gone! CBRE introduced “cash out leases” to the business!
Now the local/regional players are overshadowed by their larger national competition. The locals start forming national alliances with other locals like themselves across the country to compete with the large nationals. It works for a while as NAI, Colliers, CRESA, and TCN for example. Miller was a member of most of them.
But, soon, national tenants and clients start demanding to be represented in their growth areas by national brokerage companies, and not by an organization comprised of small independent offices with no national platform.
Why? There are a couple of reasons. Because of today’s “political correctness” and corresponding “litigious society,” clients felt safer (CYA) going with the nationals. And because our business is very much relationship-related, it is easier for the nationals to develop relationships in their respective markets and export them to their offices in other cities. In other words, they were effective in selling “one-stop shopping” to their clients, and they did a great job doing so.
About five years ago I felt the 1st “tremor” when one of my senior brokers who, at one time did a large amount of business with national clients, sadly advised me that he wasn’t getting invited to the “dance” any more by the nationals; i.e., his clients weren’t inviting him to bid on jobs; they were going to the nationals. Our national associations were starting to feel the same pressure.
Now, we get to the present, as I glossed over 45 years of change, booms and busts, but continued outrageous growth with no end in sight! (However, don’t forget cycles … they won’t go away!)
We’ve all read about the recent consolidations, and they will continue, as the large nationals swallow the locals and regionals; no need to go into detail here. However, the national associations themselves, like NAI and Colliers, are all being nationalized, with large companies buying their identities and their associated small companies and rolling them into their national organizations.
So, the question is: Are the days of the local/regional commercial brokerage companies and their cadre of entrepreneurial independent contractors going the way of the dinosaur? How about the developers?
THE WAY I SEE IT
Generally speaking (there are always exceptions!):
• The single-family land development business will continue to be mostly a local business, because land is a local business bought and inventoried by entrepreneurs who sell to land developers who sell to homebuilders. (Homebuilders, though, are generally national now.)
• Office and industrial buildings will be built by a mix of local and national builders with the larger projects being done by national developers and smaller buildings by local developers.
• Office and industrial leasing for national tenants will be accomplished mostly by the national brokerage companies, who, by the way, control a huge inventory of buildings.
• The sale of large investment properties will mostly be handled by the nationals, with locals doing most of the smaller properties.
• Land brokerage will remain local, mostly. It is naturally a local business and somewhat speculative. It doesn’t lend itself well to national companies; they don’t know our territory.
• Multifamily, because of its value to large institutional owners, will be developed primarily by nationals. Multifamily land will be sold to them typically by local brokers who know land.
• Retail is an interesting business, in that most of the retailers themselves have been forced to change the way they do business because of the Internet. And they have lost their historical stability, which has changed how investors now look at retail Projects as an investment vehicle. That’s a completely different article regarding strips and malls, but the change is very interesting to discuss. For brokers, what has changed is that to be successful in retail brokerage, it is immensely helpful to control retail properties either through being affiliated with a retail developer or an owner/investor of retail properties. The days of an independent retail brokerage group controlling a national retailer are becoming more rare.
UCR, for example, was one of the best for controlling retailers without being a developer and not owning an inventory of retail product. CBRE had a void in this business locally, and filled it by buying UCR. Collier’s is looking to fill a similar void by buying RKF in Manhattan.
Look at the strong local retail brokerage companies in DFW: The Weitzman Group and The Retail Connection, for example. Why are they so strong? They both develop and control retail properties and are in touch with national retailers on a daily basis! Their brokers have access to the retail business daily! CBRE, Colliers, Transwestern, Cushman & Wakefield/DTZ and the other large nationals have now, or will have, new retail developments or retail portfolios to underwrite strong national retail brokerage groups. They will buy strong locals or build the groups from scratch.
To give you an idea of how important a retail portfolio (through development or acquisition) is to a retail brokerage component, when Herb Weitzman I were together at the Miller company in the 1970s and 1980s, we estimated that 25 percent to 35 percent of our combined brokers’ gross was generated by in-house properties. Chain Links was/is a strong association of independent national retail brokerage companies, and at one time controlled and represented a stable of strong national retailers. UCR locally was a member of Chain Links and probably one their strongest affiliates. The Retail Connection now assumes that role, with UCR having been purchased by CBRE. (Honestly, I personally feel that the relationship benefits Chain Links more than The Retail Connection; the Chain is weakening, as their strong members keep being acquired by the majors. TRC brings the Chain strength via its strength in the retail development business.)
• Finally, there is a huge population of entrepreneurial broker/developers who build, own and manage a huge inventory of commercial properties here and nationally, who provide access to local brokers to lease and sell their portfolios.
THE BOTTOM LINE
Local brokerage is not dead by any means! There will always be strong, independent-minded entrepreneurial individuals who will continue to make a great living and compete against the “Super Powers.” But … we will have to pick the time and place to compete. Dallas-Fort Worth and Texas are growing, and growing means opportunities for all.
There are many exceptions, with small and large tenants looking for retail, office, and industrial space; there are many investors looking for investment properties. Many of these cannot or will not be served by the large national companies for a variety of reasons. Many of these tenants and investors get “lost in the shuffle” with the large nationals. More important, never under estimate the power and success of entrepreneurial independent contractors; they represent only 3 percent of the world’s working population who can make a living on commissioned sales, but just look around you and recognize the many well-known names of those who succeeded and continue to enhance the magnet that is Texas/DFW. These individuals can’t and won’t function as employees for any large company; they’ll generate the business on their own!
Where do you fit? Brokers haven’t changed, but the business has and will continue to do so. Pick your battles! There is enough business to satisfy the nationals and the locals!
