Bye-Bye Boutiques

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The era of independent boutique brokerages that focus exclusively on investment sales or exclusively on capital advisory are close to an unceremonious end.

I hate to see them disappearing, since they have some of the sharpest transactional minds in the industry. These firms were my mentors and gave me my start in this business in New York. The boutique independent firms, no matter how prestigious, are just no longer the most efficient structure for getting
transactions done.

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Remember the rough and tumble pits on the floor of the major stock exchanges? For centuries, aggressive human traders dominated order flow on the exchanges until they were usurped by technology and hyper-fast electronic trading. The same thing has evolved in commercial real estate.

Real estate analytics is all about real-time market intelligence. Yes, everyone can pay a hefty ransom to subscribe to firms offering sales-driven comp data. But that only tells you part of the story. You need to see the
entire picture.

Remember the tagline from the iconic Reese’s Peanut Butter Cup commercials: “Two great tastes that go great together”? That philosophy couldn’t be more spot-on when it comes to the intertwined relationship between investment sales and financing. The two groups need each other to consummate a deal — unless we’re talking about an increasingly rare, all-cash buyer. Working collaboratively, the two groups share up-to-the-minute market data on property level comps, tenant sales comps and capital markets pricing. By doing so, they leverage the highest profitability and execution for the client. And that is just the start of it.

We all know the devil is in the details once you get into property discovery. Overcoming issues that inevitably surface in a transaction is much easier when the transaction team is huddled together under one roof, sharing real time feedback without delay.

Believe me, I know.

I’ve been on both sides of the transaction fence and have wasted precious days and weeks awaiting a response from an outside investment sales broker. As a finance guy, my motto is: “Time is no friend of the IRR.” I’m no fan of having my allotted financing
contingency shortened by a lack of
responsiveness from an outside sales agent. 

Our investment sales team was on a real-time crunch on several retail net lease deals. The capital markets team solidified firm loan quotes within three days because all of the pertinent information was in shared files. Needing to close the transaction within 45 days, the
client accomplished his tax-
advantaged 1031 exchange. The buyer and the sales transaction were saved. The buyer’s direct
relationship banks just weren’t able to move fast enough and their rates weren’t even as competitive. 

When it comes to collaboration in our industry, there are two keys. First, commercial real estate is a very competitive business. Not every full-service firm that provides both investment sales and capital advisory capabilities subscribes to a fully integrated approach. Beware of firms that work in distinct pods. They compete against each other and see no benefit to sharing their information with others. Secondly, true synergy is a collective knowledge base that can be tapped into by any individual.

Our investment sales group was representing a multifamily property located in a tertiary market. With the in-house capital markets team sharing competitive bids from multiple vetted lenders, our buy-side client was able to choose the one they felt most comfortable with in terms of surety of execution. The capital markets team understood the property type, comp area and financials. They ultimately closed within a week of our PSA date, hitting every due diligence benchmark along the way. If we had worked directly with a bank or outside mortgage broker, they would have not been nearly as receptive, and most likely would not have made it to the closing table on time or at all.

As Greek philosopher Aristotle said: “The whole is greater than the sum of its parts.” I wonder if Aristotle would have liked peanut butter and chocolate together?

Brad Kraus is a senior director, capital markets,  at Los Angeles-based James Capital Advisors.