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In Brokerage, There's No One-Size-Fits-All Model

It's fair to say that since the recession of 2001, the brokerage industry has been in a state of upheaval. The largest companies remain under extreme financial pressure to grow revenues because user demand for commercial real estate space remains tepid. Take Jones Lang LaSalle, for example. Total revenues for the company rose 3% to $950 million in 2003, which is a positive sign, but expenses rose 4% and operating income declined 4%.

Wanting to boost their revenues, many brokerages continue to raid their competitors for top talent and are willing to pay hefty signing bonuses. Add to the mix the merger between CB Richard Ellis and Insignia/ESG. That mega-deal has reignited an age-old debate about the ideal brokerage model for today's market and set the stage for this month's cover story.

I'm sold on the idea that there is not a one-size-fits-all formula for success in brokerage. David and Goliath can co-exist. Still, one can't ignore the fact that an increasing number of multinational companies mandate that service providers offer a global platform to fulfill their needs. Regardless of who you're rooting for, this tumultuous period is hardly the first for the brokerage industry and certainly won't be the last.

The battle for market share in key markets was just as intense a quarter century ago. For example, in the November 1980 issue of NREI a full-page advertisement from Coldwell Banker boasted that with nine commercial offices in Southern California, “We know Los Angeles inside out.” Three pages later, a Cushman & Wakefield ad countered: “No one knows Los Angeles like we know Los Angeles.” At the time, C&W was touting that it had 38 offices nationally

In the 1980s, Coldwell Banker experienced tremendous growth by acquiring several companies throughout the United States. But in 1989, Sears, Roebuck & Co. sold the commercial side of Coldwell Banker to a group presently known as CB Richard Ellis. As part of the deal, the companies agreed to not compete in major markets for five years. (Interestingly enough, Coldwell Banker's roots date back to 1906 when Colbert Coldwell played an instrumental role in rebuilding San Francisco after the earthquake.)

“Everything is cyclical. We are in a phase of bigger is better, of acquisitions,” says Randy Podolsky, a principal with Podolsky Northstar Realty Partners in Chicago. “There is some room for big firms, but there is no doubt in my mind that there is room for regional firms and local knowledge.”

Indeed, Podolsky's firm has local expertise. Known predominantly as an industrial player, the company's business is divided into three parts: brokerage (60%), property management (30%) and development (10%). The firm brokers several hundred million dollars in transactions each year and manages 5 million sq. ft.

“The clients who choose us recognize we're entrepreneurial, we're hands on and we're as good as anyone else at getting the job done.” The firm's client lists includes life insurance companies, banks, institutions and major retailers.

Still, mergers like CBRE and Insignia do affect clients' perceptions, Podolsky says. “Some clients say, ‘I have to pick the biggest firm, and if it doesn't work, no one can say that I picked the wrong guy.’”

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