Looming too large?

You could call it the first real estate clash of the new millennium. In one corner are the large international monoliths that have bulked up to offer one-stop, global real estate services for clients around the world. Lining up on this side are, among others, the CB Richard Ellis', the Insignia ESGs, the Cushman & Wakefields, and the Grubb & Ellis' of the industry. These "nationals" contend that they can offer more services and provide more of what global clients seek, particularly consistent quality of service.

In the other corner are the entrepreneurial upstarts, the rapidly growing networks of independent real estate firms that include the ONCORs, the GVAs, the COREs and the NAIs, to name a few. Most network members believe that private entrepreneurship, owner oversight of business, access to like-minded industry leaders and specialized talent offer clients more responsive and more resourceful real estate solutions.

At stake is not only current business but future growth. Each side is busily preparing itself for the new millennium, a time when companies will continue to expand locally, nationally and internationally.

Integrated and diversified service companies that can drive standard and common operating procedures will be the providers of choice for both small and large companies, say the nationals. Not so fast, counter the networks. A network allows member firms to keep their entrepreneurial edge and lets principals maintain their flexibility while enjoying the national or global reach of the whole organization.

The "battle of the networks vs. the nationals" is heating up, although some contend the controversy is purely in the minds of the players. "Clients, in general, don't care how big you are, how you are structured, or how you are branded," says David A. Ball, president & CEO of Washington, D.C.-based ONCOR International, an organization of top-ranked, privately-owned commercial real estate companies. "They select a service provider based upon criteria and values unique to their firm and their firm's needs" adds Ball. "Relationships and 'fit' are more important than stereotypes."

Networks may be offering the same services as national full-service firms, but there is a difference, counters J. Leonard Caldeira, senior managing director of New York-based Cushman & Wakefield's Rosemont, Ill., office. "I believe that networks can get an organization chart together, they can provide all the disciplines, and they have plenty of people to do the work," he says. "The difference that will always continue to exist, no matter how hard they try, is that a network cannot compete with homegrown people who are on board with policies, processes, procedures - the works."

Ball says he is not convinced that the mega-sized companies formed through recent mergers and acquisitions are necessarily "more powerful" than the companies that formed them. "Sure they are bigger, but they have also taken on enormous new responsibilities relating to their public ownership, not to mention assimilating different cultures and operations," he says. "My observation is that those responsibilities have proven to be both challenging and distracting."

At ONCOR, firms work regularly and successfully for many companies, says Ball. "But, our overriding goal is not to be their sole services provider. We have not structured our organization for this, nor do we see it as very profitable.

"Clients want a customized team 'at their side, on their side' wherever they have a real estate problem," explains Ball. "No successful provider operates as a 'referral service' anymore for a significant client. The mega real estate firms like to say they are 'seamless,' but they're not. And, they like to say we're just a 'referral service,' and we're not."

Ball believes that independent companies in networks do a better job of attracting and retaining talent."Brokers, whether traditional 'cowboys' or relationship-focused, are mavericks for the most part and aren't effective when corralled," he says.

A not too rosy future? Mitchell E. Rudin, president of U. S. transactions for New York-based Insignia/ESG, begs to differ. He notes that Insignia has experience with both nationals and networks, and says the future of the latter is not rosy.

"It seems to me that networks are rapidly in decline, and some would say they have a very short future because the world of real estate services has changed dramatically as consolidation has taken place and the level of service has risen," he says.

A former executive at The Edward S. Gordon Co., which was a strong regional player, Rudin says change was inevitable. "We quickly realized that even though we had been a member of a network, networks were clearly not the future of the real estate business because they could no longer satisfy requirements of clients," he says.

The reason for this is that networks could not offer standards for quality control, management initiatives, uniform service, consistent technology and the like, he says.

"A company needs people, not only with an extensive background in real estate, but who have had training as MBAs, CPAs with expertise in financial and strategic planning," says Rudin. "Their expertise brings a different dimension to the business which small, local companies that comprise networks don't have."

Rand A. Diamond, president of GVA's North America Board and president of GVA Williams in Chicago, says national firms naturally tend to minimize the importance of global networks. Some market segments - the largest multi-national corporations, for instance - feel most comfortable outsourcing their tenant representation and facilities management to a single-ownership entity, Diamond acknowledges. But, a large portion of the market executes real estate services on a local or regional basis, and networks continue to be effective at winning that business on the quality of their local people, he says.

"Companies don't just hire a firm, they hire people," says Diamond. "And, our people are exceptionally strong locally and regionally."

Customer service at national real estate firms can vary by market or sector, says Diamond. "The nationals typically have to work with their other offices around the country," he notes. "At GVA Worldwide, we have the flexibility to go outside the organization if we have a highly-specialized client need or we don't have a partner firm in a particular market." Ultimately, Diamond adds, the success of a real estate organization does not depend on whether it follows a national or network model, but on whether it provides the skills and services to achieve its clients goals.

Shifting dynamics Doug Frye, president of Northbrook, Ill.-based Grubb & Ellis' Institutional Services Group, says increased competition between the networks and the full-service national firms is transforming the dynamics of the real estate industry. "The situation is changing pretty quickly because the audience is changing," says Frye. "The networks are tending to steer toward the middle and low end of the market - the secondary and tertiary markets - because they have been less successful in big markets."

Firms such as Grubb & Ellis offer more services and provide more of what the client is really looking for: consistent service quality, adds Frye. "When you look at a disposition or leasing assignment, the client today wants to know that he will receive the same quality a client received in Chicago or Houston or Los Angeles and preferably the client would like to see the same reporting system," he says. "It's very hard to accomplish that with a network because being part of a network doesn't mean you have the same standards. It just means you are a member of the network.

"I don't see [the networks] competing on an institutional level with firms such as Grubb & Ellis," says Frye. "We'll earn revenue for transacting a business' entire real estate, from soup to nuts, and I think networks will be focused more on the transactions side."

Not so fast, says Scott Rickard, president of the CORE Network, Newport Beach, Calif., an affiliation of national commercial real estate firms. The real estate industry is changing so rapidly that it is providing opportunities for both networks and national firms, he says.

"What's happened over the last two years is that technology has narrowed the field," says Rickard. "It has made it more effective and more viable for a network of local and regional firms to be competitive on a national basis." Networks can now provide market research comparable to that of the national companies, he adds.

"Our industry will see less transaction-oriented activity, and more advisory services," predicts Rickard. "That's where opportunities are created."

CORE is an anomaly, he says. "Now it's next to impossible for a new network to start today and become a formidable player in the marketplace because most of the best local and regional firms have affiliations," says Rickard.

Standards are not an issue at networks, says Rickard. "We are going through our organization and standardizing the processes and procedures. We're taking the 10 best tenant and landlord representative companies in our organization and evaluating their best practices to develop a model for all of our firms to adopt," he says.

Still, consistency is a problem for networks, says Caldeira. At a recent Cushman & Wakefield conference, the focus was on international expansion and the global services the firm provides. "One thing that was clear in all the presentations was that the presentations we are used to seeing in leading U.S. cities such as New York, Los Angeles and Chicago are the same as you see in places like Beijing, New Delhi or London," he says. "Other cities may have a different format with a different language, but basically it's a Cushman & Wakefield presentation."

With networks, the process is different, according to Caldeira. A client is still dealing with independently-owned-and-operated firms that can do things their own way, he says. "Yes, they're buying into network systems, but they may do what they think makes sense, while at Cushman & Wakefield, there is a dictate," he explains. "Everyone is following one set of rules. That is what is going to keep the networks from ever really taking over. It's going to be very difficult to really compete on the grand scale."

Small independents spread Networks can argue Cushman & Wakefield probably has some weak links from office to office, but even the weakest link is following policies and procedures, says Caldeira. Networks are a less-rigid grouping of independent companies, most of which will continue to employ independent thinking and practice, he adds.

Even so, Caldiera believes networks will always be around. "The real argument is, 'Will they ever be as good as national, full-service firms?' They hope to be better, but I don't think they will catch up and I don't think they will overtake home-grown firms with card-carrying employees like Cushman & Wakefield," he says. "They just don't have the consistency. It's difficult enough to maintain consistency when everyone is an employee. I can't imagine dealing with people who grew up in an independent firm and then joined a network."

But, not all networks are the same, according to Jeff Finn, president and COO of Hightstown, N.J.-based NAI, a global commercial real estate com-pany. "At NAI, we have our own staff of employees who represent major users of properties on a global-portfolio basis and who manage 230 offices licensed by us throughout the world to handle specific projects," explains Finn. By comparison, "most other networks are just a composite of indpendent companies tied under an umbrella."

NAI uses a tested process to ensure quality, consistency and service delivery, he adds. "The whole vision of NAI is to provide a seamless global-delivery platform," says Finn.

Because of this, NAI is able to work with clients such as International Paper and others on many different projects, says Finn. "We have a dedicated corporate services team on the NAI staff that works with the clients to support them; provide advisory, management, and administrative services; and access any of our offices," he adds.

Finn says other networks typically have brokers in member offices who refer business to one another. However, NAI has "a salaried staff of corporate real estate professionals that provide a different type of service, much more long-term than transactional," he continues.

Christopher R. Ludeman, president of brokerage services for Los Angeles-based CB Richard Ellis and managing director of the company's western region, says there will be a proliferation of small, independent firms that are very geographically-oriented or very niche-focused within a specific industry application. "But people and firms in the middle will continue to struggle and have a difficult time defining themselves and articulating a distinct, differentiating competitive advantage," he contends.

Ludeman says clients tell him about the challenges they face with networks, such as inconsistent processes and accountability. "It's difficult to derive common standards of service and then enforce them in a commonly owned and managed platform," he says. "Networks, with their loose affiliation, have difficulty enforcing and putting teeth in consistent operating standards."

Not only is there a lack of common standards among members of a network, but there is also a variety of technological systems and dysfunctional communications that result in service that is often negatively impacted, Ludeman says. "While I think technology is getting cheaper, it is harder for the various firms belonging to a network to invest in and maintain common operating platforms."

Perhaps the final word belongs to J. Michael Dow, national president and CEO of New York-based CRESA Partners, a national corporate real estate advisory firm. It was founded at the end of 1998, when five like-minded real estate firms - Avalon Partners in Boston; Preve, Liberatore & Barton in Miami, Fla.; Cooper/Brady in San Jose, Calif.; CRESA Partners of Georgia in Atlanta; and Metrospace of Los Angeles - joined forces to strengthen their capabilities and provide greater accountability for clients.

CRESA Partners was also a founder of the Corporate Real Estate Service Advisors, the national CRESA alliance that gives CRESA Partners access to 40 additional markets. Dow says the formation of CRESA Partners reflected some client pressure as well as a desire to do more national rather than regional and local business.

"I think there is at least a perception that unless you brand yourself as one company, and coordinate operations that way, you'll be much less successful," he says.

What does the future hold? Diamond claims some companies will get stronger and some weaker, particularly with the proliferation of new networks in the past five or six years. "The networks that are strong and well-established will continue to grow," he says. "But, at this point new networks would have difficulty finding unaffiliated firms of the caliber they would need to build their success."

Both have a future, says Ball. "The reason is that there is no single recipe for success in our industry," he says. "Different clients seek different kinds of services and providers. Everyone wants 'quality.' Everyone wants 'value.' But those attributes can be packaged in many different ways. Networks are not going away; in fact, they are thriving. The mega-firms are not going away either."

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