Broker networks give themselves an 'A' in adaptation as demands of retail real estate clients change.
Within the real estate industry, the mergers of independent real estate services firms with larger national players has raised the question: "Are broker networks still effective organizations?" Members of and executives for the networks say the answer is, "Yes," as long as the organizations continue to evolve and provide comprehensive and efficient services to their clients.
"The networks can't just be a referral service any longer," says Edward "Ned" O'Hearn, executive vice president for Houston-based ONCOR International. "They must provide a variety of talent and skill resources and economies of scale in marketing, research and other operations to help members compete in a highly competitive marketplace."
Strength in numbers Broker networks began as a defensive measure by small regional brokerage firms to protect their business relationships from the threat of national firms. Retailers interested in one-stop shopping for real estate services found favor in the larger firms that were readily capable of rolling them out nationwide rather than just regionally or in a single market.
By banding together and sharing market knowledge and experience, smaller brokers formed networks through which they could provide competitive services similar to those of their larger brethren. "The idea was to put together a group of independent firms in different markets -- all with excellent business reputations to ensure the members had confidence in each other," says Stewart Forbes, president of Colliers USA, Boston. "The reality was they could do far more for their clients as a group than they could individually."
"Recruiting firms became a question of bringing in good, top quality talent so that clients had access to all serv-ices somewhere within the organization," adds O'Hearn. Size had to be limited, however, as networks sought to form a diverse resource pool without making the number of members so great that communication was fragmented.
Meeting new demands Consolidation of retail real estate owners and managers, corporate downsizing and the growth of public retail REITs have pushed the business of real estate services beyond mere site selection and disposition. "Ownership of real estate has become institutionalized, and, with the increase in outsourcing by corporations, the scope of services needed by clients has increased dramatically," says Forbes.
Additionally, "mergers and consolidations have changed [clients'] needs," says Herb Weitzman, president and chief executive officer for The Weitzman Group, and president of Retail Brokers Network, both in Dallas. "Companies added different property types to their portfolios, and they needed more varied expertise."
As a result, in addition to their traditional functions, brokers must be able to offer solutions with regard to database systems, demographic information and mapping, lease administration, property management, and financial reporting.
"The vice president of real estate going before his company's board for approval of his real estate plan no longer has the large support staff to develop his reports that he has had in the past," explains Ed Page, a principal with Houston-based Boyd Page & Associates and president of San Antonio-based Chain Links. "Today, he needs his real estate services firm to not only provide the information, but to have the ability to put the entire package together for him."
"The sophistication of the reporting requirements has increased a great deal," confirms Gerald Divaris, president of Divaris Real Estate Inc., Virginia Beach, Va., and president of Virginia Beach-based Realty Resources.
In addition to mastering the complexity of new demands, broker networks also must be able to respond quickly to their clients' changing markets. Driven by the need to exhibit growth, retailers are expanding fast and furiously, often opening numerous locations in several major markets in a short period of time.
"Retail tenants don't want to have to re-educate a new representative about their needs in every market," explains Mickey Ashmore, president and chief executive officer for Dallas-based United Commercial Realty, a member of Chain Links.
More and more often, "major markets" extend overseas, meaning that networks also must be linked globally, with the capability to offer reliable services in foreign locations. This is particularly true for retail networks, says Page, who notes that "many American retailers have reached a saturation point in U.S. markets."
Organizing for competition The complexity of domestic and international demands is prompting most broker networks to re-examine their organization, says Forbes. The key, he explains, is to discover "where the skills and talents exist in their best form and how they can best be delivered to the client. More of an organizational structure is needed to provide the groups with effective communication and accountability," says Forbes.
"A strong, central organization gives the network the best of both worlds: an aggressive, entrepreneurial spirit to find ways of improving the organization, and the corporate know-how to manage the improvement process," says Jeff Finn, president and chief operating officer for Hightstown, N.J.-based New America International.
"You can't rely on the buddy-buddy club environment," adds Divaris. "It has to be more business-like. Cohesiveness is becoming more important."
Because broker networks are comprised of independent companies, continuity is difficult to achieve, says Page. "But more important than everyone using the same methods is that every member have the same basic culture and philosophy, including responsibility, credibility and integrity.
"You have to be able to evaluate credibility of members and maintain quality of service," he continues.
To enhance the network's continuity, Page says, "It is important to have someone whose focus is totally on the needs of [the network]." He adds that the person has to be adept at "handling issues such as advertising, communication between members, implementing the directives of the executive committee and monitoring the quality of service provided for clients.
"Creating an image and reputation for quality is the network's biggest need," he notes. O'Hearn agrees, adding, "It is important that the client sees you as an entire entity and not as a small isolated company."
A cohesive defense In addition to the resources made available to their clients, broker networks enhance their value by exchanging knowledge and industry information between members. Contin- uing education results from "collaborating with other members and sharing what has worked in your market," says Divaris. "This can include technology, accounting and really any business practice that can make members more competitive."
"The networks provide an opportunity to learn from other members," Ashmore adds. "You can gain incredible insight on marketing your firm."
Although network members communicate with each other daily using telephone, electronic mail and the internet, they also attend international, national and regional meetings to facilitate additional training and information exchanges. For example, Colliers International holds two owner conferences and one sales conference per year; each of the networks reports holding at least one annual meeting; and each indicates a growing emphasis on regional gatherings.
Despite networks' efforts to reorganize and to adapt to the three "Cs" -- cohesiveness, comprehensiveness and competitiveness -- it remains to be seen whether they are destined to fall to the fourth C: consolidation. (See Shopping Center World, May 1997, p. 146.) "Most of the owners of network members are strong entrepreneurs and do not want to be acquired by another firm," says Page. "They prefer their independence."
In addition, "many consolidations are based simply on monetary considerations [rather than] dissatisfaction with the networks," says Ashmore. "The better regional firms want to be part of a network."
The fact remains, however, that money talks. Forbes emphasizes that the availability of capital will entice many smaller firms into mergers, thereby fragmenting the networks.
He is not alone in his wariness. "Any network executive that is not concerned about consolidation is not paying attention," says O'Hearn.
Still, he adds, mergers may be tempered by the fact that the economic factors that drive them can often overshadow the reality that the business philosophies of the parties involved do not mesh. Large, publicly held real estate services firms "face a huge challenge to [integrate] former independent firms into their corporate machine without scaring off the top producers that made the acquisition attractive to begin with," he says.
Furthermore, broker networks are likely to find security in the fact that retail service demands appear to be growing on all fronts. From local tenants to national chains, retailers are on the move.
"You don't have this kind of volume in office or industrial markets," notes Weitzman. He is joined by Finn, who adds, "Retail is a natural beneficiary of the broker networks because of the large number of locations involved in their rollouts."
Additionally, the resurgence of neighborhood shopping centers has created expansion opportunities for smaller retailers and a market for broker networks, says Ashmore. "Often, smaller retail chains and mom-and-pop operations have little or no real estate knowledge and have a greater need for our services," he explains.
Networks continue to meet the demands of larger tenants as well, says Page. "Retail is the best property type for the networks, by far, because retail is driven both by the internal need of the company and by Wall Street," he explains.
The philosophy of the broker network has always been to consolidate resources in order to provide comprehensive services where they are needed and when they are needed, concludes Forbes. "As long as the networks continue to do this, they will remain successful," he says.