Episode #3 - How to Hire a Broker
The Industrial Advisors take a look at best practices when hiring an industrial real estate broker as well as some of the common mistakes companies make and how to avoid them.
Bill Condon: Hello everyone, Bill Condon and Matt McGregor for another podcast. This discussion is going to be how to hire a broker? What to look for? What's the normal process? We're going to dive deep into that and share some of our thoughts.
Matt McGregor: As always, you can catch us on Apple and Google podcasts and on our website, industrialadvisors.com. So hiring a broker is interesting. Bill and I are actually co-authoring a book on it, because there's absolutely nothing out there on this topic. I mean if you look for books, you don't see write-ups on it. No corporate real estate people don't have a process. It's really an interesting topic. Right?
Bill Condon: It absolutely is and it's an important decision for a company whether you're a user, a corporate company that has multiple locations. It is an extremely important decision, because not only from a cost standpoint but just from a liability standpoint when you negotiate these leases and these purchase contracts, you need a good trusted advisor on your side.
Matt McGregor: That's right. We'll dive into some details of what processes people go through, because there's really not a typical one. But first I'll say several years ago, one of the best things I ever did in my career, Colliers took a bunch of top brokers from around the country and actually around the world up to Brentwood, Canada and put us in a week training session. We didn't exactly know what we were doing, but what they did is they gave us all a pitch and said, "Okay, you're pitching to be a corporate real estate advisor for company X. You're going to be in teams of five and you're going to pitch against each other."
Matt McGregor: So all week long we prepared to pitch for this assignment. And, of course, the client situation was mock and the client was the CEO of our company and a couple of others. And what was fascinating to watch is what corporate real estate people have to watch in brokerage, which is a whole lot of not differentiating yourself and a whole lot of boring. Right? Pitch after pitch and the similarity of it was terrible. Right?
Bill Condon: Right. I did the similar thing with Colliers and Prague.
Matt McGregor: And Prague, that's right.
Bill Condon: And what you quickly realize is to your point, brokers are all saying the same thing.
Matt McGregor: They are.
Bill Condon: And a lot of it was just focused on them, not the actual client. Right? So truly understanding the clients and their needs before pitching is extremely important.
Matt McGregor: Yeah, they had actually done a study with Bain Consulting and Boston Consulting Group in preparation for the class and found when they interviewed it was 40 firms that they had interviewed all fortune 500 and they said, "What should the brokerage team or broker know? What should their expertise think?" And the number one thing is understand their business, right? And brokers always want to... The term goes, "Show up and throw up." Talk all about them and their resume and how many millions of square feet of leasing. They don't know anything about the client. Right? And just watching that, I'm sure you've found the same thing in Prague. It was terrible. I mean I can't imagine, and it did demonstrate how important it is probably to go early in the process.
Bill Condon: Sure.
Matt McGregor: Because boy, by the fourth run, you want to shoot yourself in the head.
Bill Condon: Yeah.
Matt McGregor: Right?
Bill Condon: Right, right. Yeah.
Matt McGregor: It's pretty bad.
Bill Condon: Yeah. Never, the Friday afternoon pitch is never a good one. Right? You always want to go early.
Matt McGregor: Yeah, exactly. Exactly. So to that point, what is the process? I think that something that's amazing that we see so common in the industry is the person hired. And I think the further up that you go up the food chain, larger company, the more this happens is you end up... I don't want to call it the brother-in-law, but you end up with people hiring simply because, "Oh, the fraternity brother," or a high school friend that they golf with. It's amazing how much the hiring process is just really a relationship, not about the quality or resume of the person and/or company, but the relationship. Do you see that?
Bill Condon: I do. And it's interesting because you think of a company that makes brokerage decision, hires a broker, right? It's really typically a multimillion dollar decision.
Matt McGregor: Yearly.
Bill Condon: Right? And on an annual basis, and to just hire somebody because you know them or have a relationship with them, which we see more often than you would think in our industry, is not the right move. Right? It is-
Matt McGregor: No.
Bill Condon: In fact, it's you almost want to pull yourself away from that, if you do have a relationship and let other members of your corporate team decide who the best team is, because it is such an important decision. And so oftentimes you'll go into a pitch and you'll know if you have a leg up or if another firm does because of a relationship that's in place. But it should be an even playing field. "Hey, let's go hire who we think the best is for this actual assignment."
Matt McGregor: Yeah, and we'll get into how you do that and what the best is. But I'll say we have seen... And you can just Google and look at it, some really ugly situations when people don't vet out the person, and maybe it is just a fraternity brother or whatever brother-in-law situation. If you Google it... I just read in preparation for this podcast, one of our competitors just had to pay 100 million dollars in a lawsuit. And the two brokers involved, which were buddies with the head real estate guy, ended up going to jail.
Bill Condon: Yeah. I mean, and the trust factor, people talk about it, but it really is important. And so I think that when you do these pitches, it shouldn't be a one meeting, in particular, if you're a corporate company that's hiring a firm to handle all of your real estate. It should be a multiple interview pitch process, so you can really get comfortable with the people that you're going to be working with day in and day out. And so if the companies would just do a one pitch and choose. Do you really know that company that you're hiring? Do you know the people that are going to be on your team working with you day in and day out? So I think it's really important to go through a process that is detailed and somewhat lengthy to make sure you understand who your partner's going to be.
Matt McGregor: That's right. Yeah. It's ever more important to be able to trust and really know that person. And I don't think you can do that in a three or four week time. Here's the RFP, send it out to the logicals and all of a sudden you're interviewing. I agree. A one process we went through that, again, there's not anything written on this, but I really liked the process. And I won't name the company, but the one we won a few years ago, I respected that process. It was about two years long where they went through a series of interviewers and qualifiers of seven firms, which was a lot. But over the course of two years, and it was about what, four people involved corporately, there weren't any relationships. They excluded those. And then they went through a process of evaluating seven firms over two years with one live interview to kind of kick it off and qualify it. And then multiple quarterly calls over the course of two years that culminated and finally a presentation with four firms. Right?
Bill Condon: Right.
Matt McGregor: And we went through that live presentation. They compared and contrast the firms. And win or lose, I'm not saying that this was a great process just because we won this one. But I'll say, "Boy, at the end of the day they certainly knew who they were dealing with." Right? Two years and probably I would say two dozen calls, two live interviews. By that process when that firm had expired... And obviously there was an incumbent, they knew and had a relationship with and really understand the tools that all those firms offered. And then the end, obvious, we prevailed in that. But looking back on it, I think that was the greatest process I've ever seen.
Bill Condon: Really good point. The other thing I appreciated, and I think that they did well was they involved different people. You mentioned four people. They had an executive. They had a legal representative. They had an HR representative. They had a real estate person. So you had all people that had stakes in the real estate game, but four different voices there that all agreed on who they should move forward with. So I think it is important to involve different layers of the organization in a process like that.
Matt McGregor: That's right. And we touched on trust, but what are the other things that you see as an important qualifier? And I'm not talking about the one off pitch to go get 30,000 feet in your local market. I'm talking a hundred plus million dollars a year of transaction volume in a corporate real estate setting. What are the qualifiers?
Bill Condon: Well, a lot. Right? And I think the things that stand out really... You mentioned trust. That's a no brainer. Track record, anybody that's going to go pitch that business, better have a great resume or you're not going to be there. Right?
Matt McGregor: That's right. And anybody, any one of those people can negotiate on free rent and a base rate.
Bill Condon: Correct. I mean that is the easy part of it. Right?
Matt McGregor: Sure.
Bill Condon: But how deep is that broker going to go? Right? What's their expertise in negotiating leases and what other services do they have? What's the legal partnership that... What's their legal background? Do they understand how to negotiate specific terms within a lease? And I'm not just talking about rates. What's the process that they go through when they select a site? Right? How deep and how detailed is that?
Matt McGregor: Site selection, sure.
Bill Condon: Yeah, exactly. So there's a lot to it and it's, of course, a lot more than just, "We can negotiate great rates."
Matt McGregor: That's right. I mean I think our industry is getting more and more technical, and it's going to be harder and harder to compete. And the barrier of entry is increasing to a level where you have to be... If you're a corporate real estate advisor, you have to be an expert in site selection. You have to absolutely understand labor and incentive negotiations. You got to be able to take a deep dive into supply chain. I think that is the buzzword of today, but requirement of tomorrow, and I think it's formal education. I think it's as we're all known in Europe for years to be a what we call a broker... They have another term for it. They're in the eight years of school equal to a doctor. Okay. I think to be a corporate real estate advisor executive, you have to understand all of these things and have some formal education in it, not just blowing smoke and then putting that onto your corporate services department. Right?
Bill Condon: Right, right. And then we mentioned it earlier, how well do you know that company's business? Because if you're hiring a broker, you want... They're your partner. Right? And they should understand your company and your goals and do you need flexibility? Is cost most important? What are the most important things for that company? Brokers need to understand that.
Matt McGregor: That's right. And to your point, understanding your company. How does that facility fit into their business objectives and goals? How does it fit into their branding? How does that particular facility tie into employee recruitment intention and retention, which is going into labor studies? And really, really understanding that. And again, I think that you can only do this by a very formalized process-
Bill Condon: Agree.
Matt McGregor: Of comparison. But I think that should be the criteria in order to get at the table and then obviously to win it. And I think of winning it, if you boil it down and go, "Okay, finally." If you take that as the must haves, the formal education and the direct knowledge. I'm not talking about the brokerage team outsourcing it, but the direct knowledge of how to advise and do those sophisticated studies are a requirement. It's going to boil down to two. Then the trust and likability factor comes in to say, "Okay, here's the top two most qualified teams. Which one can I deal with on a daily base? Who am I going to enjoy working with?"
Bill Condon: Right, right. Absolutely. So all of that I think plays into it.
Matt McGregor: So in wrapping this up, yeah, I look forward, obviously, Bill, to completing a book with you on it. It's an interesting topic and as we noted, one that there's not a formal process on. Every company goes about it different, and you just see some horrific processes. So hopefully we can shed a light on some best practices that we've seen out there and improve the way people are hiring corporate real estate brokers.
Bill Condon: Yeah. I appreciate it and thanks for listening and we'll be hopefully talking with you all soon.
Matt McGregor: Thanks so much.