Larry Singer’s team at Newmark Knight Frank (NKF) has provided services to Ainsworth Game Technology Ltd. for years. First, the commercial real estate brokerage located a Las Vegas site for this gaming machines manufacturer and supplier’s 300,000 square-foot North American headquarters then helped them acquire, through auction, an additional 5-acre parcel from Clark County to square off the property. Having done so, Ainsworth had 5 acres of unneeded land, for which NKF recently helped find a buyer.
These transactions and this ongoing relationship exemplify commercial real estate brokerage work.
“We are advisors and strategic partners with our clients (large and small) on all aspects of commercial real estate ownership; acquisitions and dispositions, leasing, financing, project management, property management, facilities management, transaction management, to name a few,” said Las Vegas-based Michael Newman, CBRE’s managing director for Nevada and the industrial practice leader for the region. CBRE also has a Reno office.
The broker’s overarching task is to add value while serving their client’s best interest, said Brendan Keating, the CEO and co-founder of Las Vegas-based Logic Commercial Real Estate. Doing so requires collecting and analyzing data and researching and understanding the market—trends, opportunities, availability, pricing and more—for the asset classes in which they operate—retail, office, industrial, hospitality and land.
Other requirements are listening, advising, negotiating and anticipating. Developing and nurturing relationships with industry partners, such as bankers, title and escrow experts, architects, attorneys and the media, also are key, said Carol Cline-Ong, CCIM, who described brokers as “connectors.” Cline-Ong is the CEO and a principal of MDL Group, a commercial brokerage and commercial property manager firm in Las Vegas.
Finally, brokers must build and maintain a base of clients that include tenants, buyers, sellers, landlords and investors.
“Probably the least important thing that we do is take people out and show space,” said Singer, senior managing director of the international firm Newmark Knight Frank. His individual specialty is the office space market.
The Broker-Client Engagement
While the process of a commercial real estate broker providing services to a client can be complex with numerous factors involved, it can be boiled down to a handful of key steps.
First, a discussion ensues between the broker and client about the latter’s needs, aims and risk appetite. The broker surveys the market for products that meet the client’s criteria, obtaining all the information they’d need to underwrite the deal. Once the transactions are underwritten, the broker presents them to the client with lists of pros and cons. The two sides discuss the options, and the client narrows them down to a few. Then they tour those possibilities.
Depending on the type of client and their objectives, the next step could be creating a lease, acquiring a property, finding buyers or some other step. The broker-client relationship typically ends once that transaction is completed, but it doesn’t have to.
“You, [the broker], want it to be a life-long process because everything is relationships in the real estate world. You want to be a resource, be available to them and want them to know you’re here,” said Cline-Ong.
How Brokers Get Paid
Brokers get paid on commission. Usually that amount is a percentage of either the sale price or the total lease value of a lease transaction, said Mike Mixer, SIOR, the executive managing director of Colliers International Las Vegas. His specific area of focus is land and hospitality properties in Las Vegas’ resort corridor.
The commission percentage typically ranges from 1 to 7 or 8 percent, depending on the deal size. A 1 percent commission is common for huge projects, say $500 million or more, whereas 7 or 8 percent is more typical for smaller ones, around $1 million.
“It’s important for tenants, buyers and owners to understand the commission structure because it is part of the cost of the transaction,” said Singer.
Professional Broker Titles
Some brokers have designations, such as CCIM (Certified Commercial Investment Member) or SIOR (Society of Industrial and Office Realtors). These initials indicate that an individual has achieved a certain level of training and experience and has met the criteria for being recognized as an expert, Mixer said.
However, because a broker doesn’t have such an accreditation doesn’t mean they’re not proficient. Some have been in the field and successful for decades.
Advice for Prospective Clients
Experts offered these five tips for company executives or business owners who’re seeking a broker’s services. They should:
Jump into the process early and not wait.
Choose a specialist, an expert in whatever business they’re engaged in. “You want someone that knows all the intricacies of your particular product type,” said Mixer.
Select someone they connect and feel comfortable with and in whom they have confidence.
To select a broker, meet with prospective ones, maybe have lunch with them and test their knowledge and skill set.
Remember the broker is there to provide market knowledge, insight and analysis so the client can make a better real estate decision.
Today’s commercial real estate market in Nevada is “strong and steady,” a different landscape than in the many years following the recession, said Mixer. As a result, brokerage also has changed.
In Southern Nevada, the brokerage community has shrunk since the economic downturn, as it “weeded out a lot of the less experienced brokers in the market,” he added. Young professionals are entering the industry but not at the pace of those retiring, creating a gap.
Plus, consolidation in the industry continues. Larger companies are acquiring the regional ones to compete on a national basis, Newman said.
More national companies have joined the mix, both on the brokerage and client sides, Singer said.
Fewer agents vying for the same transactions has heightened competition. Therefore, brokers have had to become more knowledgeable about the market and what’s happening within it, broadly and within specific regions.
“You have to be on your game,” Cline-Ong said. “If I go into Henderson, I better know where the next medical facility or campus is going to be—know your product, know your area, know your client.”
Also to compete, many firms have shifted from offering only the core business of brokerage and investment sales to providing a wider array of services, such as workforce analysis for companies moving to the region and investigating business incentives for businesses that want to relocate or expand, Newman said.
Northern Nevada has more people in the brokerage business and more firms today than pre-recession, including some national brands, said Ken Stark, president and co-owner with Bradley Elgin of Reno-based Stark & Associates Commercial Real Estate. Stark specializes in office and investments. Competition is “fierce but friendly,” he added. While there’s not a lot of attrition out of the field, young people are entering it.
In both ends of the state, the investor pool is more diversified today, Keating said. For one, more of them are institutional versus private equity owners. Second, many of today’s investors are high net worth people seeking stabilized cash flow instead of turnaround projects. They’re investing directly into real estate rather than investing in companies that own and operate properties.
Challenges in the Industry
Currently, Northern Nevada is experiencing a market that has some brokers uneasy, as the industry as a whole is struggling to satisfy demand, said Stark.
Prices for land and industrial and investment property are higher than they were at the peak in 2005-2006, said Stark. This is unusual given the lending is tight and the financing process is more structured.
“We’re not sure that the lenders can keep up with the momentum of what the properties are worth,” he added.
The rise in prices, though, is being driven by a lot of cash in the market, high demand and low supply. Stark described a scenario where many people are spending $3, $4 or $5 million in cash in a transaction.
“We’re starting to see tangible speculative development and speculative development when a tenant is not already in place for it. It’s a little concerning to us, the pace of play,” Stark said. “There are not enough properties out there for the buyers that we’re seeing.”
With these fundamentals as a backdrop, on the leasing side, existing tenants are being forced to pay higher rents to stay in a property. If they don’t, the landlords will find a lessee that can. Similarly, in Southern Nevada, once landlords reach a certain level of leasing with their project, they can afford to wait to get the terms they want. However, tenants or buyers who need space for operating their business may not be able to wait.
For brokers representing landlords, in this market it’s difficult to obtain financing, to get deals structured the way they want to maximize the return on investment, Singer said.
The state’s Southern region is experiencing a shortage of Class A and Class B office space due to minimal construction, Singer said. For example, if a tenant is looking for Class A space between 10,000 and 20,000 square feet, they’re limited to about 10 available properties. If they’re looking in the 20,000 to 30,000 square foot range, they’re down to five or six options, and for 50,000-plus square feet, two choices. Consequently, they’re forced to look perhaps at space to be developed in the future, creating a time challenge.
“[The broker] needs to consider properties that are in the planning and predevelopment stages, which are going to take 12 months to 24 months to complete,” Singer said. “[Clients] need to leave a lot more time.”
Also slowing the process is clients throughout the Silver State tending, in general, to be more cautious in their decision-making, taking the time to consider costs, which are rising, and how they may control them.
Another challenge for brokers is catching and keeping up with technological changes in an industry that’s lagged behind others in adopting advances. For instance, more online tools for analyzing and understanding the market exist today than ever, which is a plus, yet professionals need to learn how to use them. Also, more and more previously secret or proprietary data are being aggregated and sold.
“It’s data overload,” Mixer said. “Unless you understand how to use it and analyze it, it’s daunting to keep up with.”
Technology has yet to “disrupt” the brokerage business but no doubt will, Keating said.
“We are focusing on how that is going to change our business model, while keeping a nimble and high-liquidity approach to be ready to adapt to those changes,” he added.
Expectation for the Future
Consensus is commercial real estate brokerage in both Southern and Northern Nevada will see steady activity for the next two to three years, at least.
“I think our industry will continue to prosper for the foreseeable future,” concluded Newman.