Buying, selling and investing in commercial real estate isn’t the same today as it was 10 years ago, and 10 years from now it should be completely changed.
“Technology is changing in our industry,” said Brendan Keating, CEO, Logic Commercial Real Estate. “So the way we have to approach business, we need to be thinking about our technology while we’re marketing. Technology leaves no industry sacred and there’s a lot of revenue in the commercial real estate business that technology would like to disrupt.”
While it’s not certain what those disruptions will be, it’s likely that the industry will change in the next decade.
“People are more connected, with a new ability to communicate and to find information,” said Tom Fennell, principal, Dickson Commercial Group. Because now the general public can go see anything for sale or lease, the role of the broker is truly advisory. “It’s not just providing ‘Here’s a building or a piece of land for sale,’ but helping the client navigate and being an advisor on what’s a good deal in this market, is it overpriced or underpriced.”
“Tenants that are choosing to locate in various markets are doing a lot of research up front as to where they want to be and why they want to locate in a certain area,” said Garrett Toft, senior vice president, CBRE and past president of the Society of Industiral and Office Realtors (SIOR).
Where previously the decision to open a distribution facility in Nevada could be made by a business owner who lived in Southern California and liked Las Vegas, today Toft said, that decision is made after researching Nevada’s labor and transportation options. “They’ll spend a lot of time and money before they even pick up the phone and talk to a broker. Tenant sophistication has increased dramatically.”
Along with available labor, there’s a need for available land. Land prices have gone up significantly in Northern Nevada over recent years, to the point where property is just sitting on the market and owners are probably rethinking prices, said Ken Stark, president, Stark & Associates. Higher land and construction costs drive up lease and sale prices, as do increased local fees.
The Economic Effect
Too many fees and regulations can affect the commercial real estate industry, which in turn affects Nevada’s economy by discouraging business owners looking to get out of California, said Stark.
“They don’t want the same regulations here, so if we have high costs for new businesses coming here, they’re going to go to other states,” said Stark. That doesn’t mean Nevada needs to give it all away in the form of incentives, but Nevada needs to remain fast, responsive and business friendly.
“I heard somebody say, ‘In real estate, you only make money when the economy is either going up or going down.’ It’s when it’s stagnant that nobody makes any money, especially when you’re looking at buying and selling,” said Jennifer Ott, executive vice president, retail, ROI Commercial Real Estate. “The economy does effect our business and changes in economic development throughout our part of the state effect it as well. Economic drivers like we’re seeing now cause a boost in population, which benefits development and jobs.”
If the economy is strong and people are moving to the state, there’s a corresponding rise in the need for industrial real estate to supply support services. Currently e-commerce is a huge boost to the Southern Nevada economy.
“The demand for warehouse space for distribution hubs is probably the predominant use for industrial space in the market today,” said Michael Newman, managing director, CBRE Las Vegas.
When Nevada’s economy is strong, people feel more confident about making investments.
“The commercial real estate business is not a very liquid business like owning a stock, you can sell it the next day if your feelings change,” said Keating. “If you’re investing in commercial real estate, you’re generally taking a longer term approach than investing in the stock market. Therefore, you have to be thinking about how the economy is going to be in a year, three years, five years, so having good leadership in our state, having pro-business laws and pro-business agendas, is very important to us. As our economy goes, so our business goes.”
The industry affects the economy as well as being affected by it.
“We work with firms that are interested in locating here and facilitate that growth from those firms, so our business is primarily economic development,” said Newman.
“We convince developers to invest hundreds of millions of dollars into building industrial facilities for tenants,” said Toft. Then the broker receives sales commissions on the land and on leasing the building, the architects, engineers and contractors make money, and all the attendant construction vendors do too.
Not to mention the ancillary companies that follow growth companies, and all the different industries involved with a transaction, said Fennell. “If it’s a development or a lease, you have brokers, you have the construction industry, and all the trades that come with that. You have attorneys, you have developers, you have banks. There are so many people that are involved.”
Shoot for the Stars
What does it take to be successful in the world of commercial real estate? Passion, drive, a constant thirst for knowledge, an ability to adapt as the industry changes, education, more data and knowledge – and energy.
“You need to be a highly energized personality to where you can continue to push through even when things are tough. [It takes] long days and long nights, just embrace the grind of the business,” said Keating.
Do that, and you’ll probably succeed, Keating added. There’s also understanding transactions, understanding the industry, and seeking education.
There’s thinking ahead of the market. “We’ve done pretty well over the years by trying to think a couple years out and positioning ourselves in what we’re doing for where the market will be as opposed to being reactionary,” said Toft.
Another change in the industry is increased competition. As more companies move to Nevada, more people are getting into the field.
Education can give a broker the advantage in an increasing crowded field, and there are several national organizations that provide education and professional designations to increase a broker’s profile.
“The CCIM designation is fairly prestigious,” said Ott, president, Southern Nevada CCIM chapter. “It’s a way for people to differentiate themselves in the marketplace and to grow their knowledge and skill set to better serve their clients.”
CCIM – Certified Commercial Investment Member – is both the networking and educational organization and the designation.
“The networking within the Southern Nevada CCIM chapter is some of the most effective,” said Ott. “I never left a lunch program without gathering a useful piece of information, whether it was from the lunch program itself or someone else in the room, and I typically make meaningful connections.”
For clients, a CCIM designation means they’re working with an expert who can help them understand the transaction and move forward.
To earn the SIOR designation – the Society of Industrial and Office Realtors –certain income thresholds, experience and educational requirements must be met. So when people ask what the designation means, “It’s the equivalent of having a doctorate,” said Toft, past president of the Southern Nevada chapter. “It means the professional adheres to ethical requirements and essentially, you’re vetted.”
Designations match the type of commercial real estate the broker works in. Other designations include Certified Property Manager and other organizations include NAIOP (Commercial Real Estate Development Association), which doesn’t have an educational requirement but does have of educational offerings. Commercial Alliance Las Vegas, educational and informational on public policy, Urban Land Institute, a research and education organization, CREW – Commercial Real Estate Women – and ICSC, the International Council of Shopping Centers.
As for education itself, it’s a mixed bag. Toft was a finance major with a real estate minor, but other brokers have English majors or philosophy degrees. The common denominator, said Toft, is a great work ethic and being self-driven.
“A lot of people want to get into the industry because they think you can make a good living at it,” said Keating. “But if you don’t have the passion for the industry, if one person is thinking about it 16 waking hours of the day and the other person for four, the one with the passion succeeds.”
Past energy, clients looking for a broker want experience in the same type of transaction the broker will handle.
“If you’re going to purchase an investment property for $5 million and you start talking with a broker and they’ve never sold a $5 million property before, it’s a little hard to think that they’re going to be the expert in that realm,” said Keating.
Clients need to look for a broker who communicates well, is responsive and thorough. Communication between brokers is important, said Ott. The buyer’s broker and the seller’s need to be able to communicate, and to deal with the attorneys and bankers and other professionals that may be involved.
“This is a relationship business,” said Ott. “Not just the relationships we have with our clients but relationships we have with other brokers while negotiating.”
Clients on the listing side need an established broker who listens and who understands the market for their particular product, said Stark. From the tenant side, they need a broker who understands all the properties that meet the tenant’s needs. “The client expects to be shown everything available in the market, not just [the broker’s] listings, so you really have to understand what the entire market is,” said Stark.
Another change in the industry is a nationwide push by professional organizations like SIOR to adapt to younger brokers, said Toft. “Making sure there’s continuity of age within the organization and that’s a little challenging, because there are time requirements and income requirements that need to be hit before you’re eligible for the designation.”
A college degree, a graduate degree and patience, advised Newman. “It takes time to get started and there’s lots of competition. I always tell young people interested in getting into commercial real estate it’s a wonderful field and a great career, but it might be best getting into it when you’re just out of college and still living in your parents’ house and have time to generate opportunities and income.”
Brokers are often natives, often long-term residents of Nevada, and part of the community. “We’re not flying into town to transact business and then flying out of town and spending the revenue we create in the business elsewhere,” said Keating. They’re residents, whose children go to area schools and who visit the businesses they’ve helped locate in their own neighborhoods.
“I specialize in leasing and a big part of the business is landlord and tenant representation,” said Ott. “Through that I get to help shape our community. I get to help people find locations for their business and put tenants into neighborhoods that become part of your everyday life, so I get to drive down the street and think, ‘Oh, hey, I did that.’”
“We’re in a growing industry for most asset classes today,” said Fennell, a Nevada native. “There’s just more people needing to buy, sell or lease and more projects that hopefully are viable because of that growth, whether it’s a spec building or rehab or any type of project, it fuels growth.”
“We’re the only locally owned firm that has offices in Las Vegas and Reno,” said Keating, whose family has been in Nevada for several generations. “It’s where our families live and our connections are.”
“As brokers we are trying to sell the opportunity for investments in our market to institutional investors whether that’s life insurance companies or pension funds or managers of those funds,” said Toft. “We are selling the opportunity we see in the market for growth and convincing them to place their bet here.”