Lessons from a Start-up Commercial Real Estate Brokerage

I once witnessed a new mid-range brokerage in a capital city try to ‘start-up’ in the midst of the global financial crisis.  It is a story worth sharing.  There are some lessons worth remembering for new people entering the industry.  So here is the story.

The brokerage was trying to break into the established CBD and suburban commercial property market as an ‘independent’, and in doing so compete with established real estate franchise names and larger corporate real estate groups.  The industry was already catered for comprehensively by some very experienced people and brokerages.  So why did the industry ‘need’ another independent brokerage?

As part of commencing business they needed to find good people to join the brokerage, and tried to ‘lure’ them in by offering big salary bases to be ‘topped up’ by commissions.  This of course meant that the overheads for the start-up business were very high from the outset; without a reasonable property management portfolio to bring in some cash, problems could and did soon develop.

It is worthwhile noting that proven performers in other agencies and brokerages were approached to see if they could be enticed to move across to the new business.  They didn’t move across to this new brokerage; they simply were not interested.  Perhaps the ‘GFC’ had a bit to do with their decisions?

The only agents working in the new brokerage were inexperienced, and new to the location or the industry; they are what I would have called ‘really green’.  On that basis they could not bring real systems of value and momentum to the business.    On a scale of 10, most of the agents in the brokerage were only a 4 or 5 by level of skill and commitment.  Yes, I know people can improve but there was still another issue stifled personal improvement.  The team leader principal was relatively inexperienced in commercial real estate brokerage and certainly was not much good when it came to ‘team leadership skills’.

So this I am sure you will agree is a ‘bit of a mess’, and it was for quite some years and still remains a problem brokerage of little industry profile.  A reasonable property management portfolio eventually rescued the business to bring in some income stability.  Sales and leasing activities however remain really average, so the really big commissions never really eventuate.

Here are the main issues that you can learn from:

  1. Leadership problems – The leadership model was erratic and emotional.  It was hard for the team members to build traction and confidence.  One week they were being praised at the team meeting, and the next they were being ridiculed.  You can’t build a good real estate business without encouraging and nurturing the team in a positive, constant, and ongoing way.
  2. Listing stock – The listing stock was always random by type and ‘open’.   There were very few ‘exclusives’ coming in.  The property owners had little reason to agree to ‘exclusivity’.  That was largely because the individual agents were not experienced in selling and pitching for exclusivity and obtaining vendor paid marketing funds.
  3. Zone of focus – The listings for the brokerage business were all over the city.  That prevented a growth of market share and did not help when it came to referring buyers and tenants onto other properties.
  4. Prospecting systems – Most if not all of the agents had little momentum with regularly prospecting and pitching for new business.  Just about all of the listings came in by ‘luck’ and certainly most of the listing stock was of little quality.

You can learn a lot by looking at the negatives in this story.  You can reverse the 4 factors mentioned and easily see what needs to be done to establish and improve a great brokerage business in commercial real estate.