Building Nevada - March 2008

Brokering the Deal

More Than Just a Pretty Face

by Jeanne Lauf Walpole

Suzette LaGrange, vice president of Colliers International Las Vegas, never had a second thought when it came time to decide on her lifetime profession. A native Las Vegan with a family background in business and development, she earned a bachelor’s degree in finance at the University of Nevada, Las Vegas, and quickly rolled up her sleeves to begin full-time work at CB Richard Ellis. “I always knew I wanted to be in commercial real estate,” she said. “I’m a deal junkie.” After honing her craft for 10 years at CB, she joined Colliers three years ago, and so far in her career, has been involved in commercial sales and lease transactions of around 15 million square feet.

Although LaGrange was fortunate enough to be involved in deal making right out of college, Dean Willmore, senior vice president of Prudential CRES/IPG in Las Vegas, didn’t become a broker until age 30, after having learned the business working for a development company. He attended the University of Arizona with the intention of becoming an architect, but ended up with a degree in finance. “I liked to draw, but then I saw kids who could draw circles around me,” he said. His brother convinced him that a career in commercial real estate (CRE) would be fulfilling. Because of the complexity of CRE transactions and the need for trust and experience, Willmore believes that potential brokers need time and experience in the field before actually brokering deals themselves. “You aren’t believable at 21,” he explained. He also said that brokers need to become proficient in sales and dealing with people before jumping into high level commercial negotiations.

For people with the “right stuff,” a career in CRE can be exhilarating, as well as very financially rewarding. “Every day in commercial real estate is different from the day before. I love the fact that I get to work with business owners and entrepreneurs. It’s sophisticated and challenging,” Willmore said.

John Pinjuv, president of Reno-based Grub & Ellis NCG, agreed. “The type of client is really exciting. You get to help these people realize their dreams,” he said. Because they are interested in people, brokers find that one of the most interesting parts of their job is working with an eclectic array of individuals who represent a fascinating variety of business enterprises. “I love learning about their businesses,” Willmore explained.

Who Can Meet the Challenge?

In spite of its glamour, however, brokers emphasize that CRE is a tough, highly competitive business that isn’t for everybody. Those who are contemplating a career in it need to be scrupulous in their preparation for this world of complicated business deals. “You need to have some finance background,” Pinjuv emphasized. Thus a college degree in business and real estate qualifies as a foundation along with obtaining a license from Nevada to sell and/or broker real estate. Licensing requirements include course work, which is specified on the Nevada Real Estate Division Web site, as well as a state examination. Beyond the intellectual piece, however, is the equally important personal side of this business. “You have to be disciplined, detailed, determined and ambitious,” LaGrange said. “You can’t be afraid to hear ‘no.’” Brokers also have to be people-oriented and willing to work long hours, especially in the beginning of their careers. “You can’t do this part-time,” she explained. “I work 50 hours a week.”

Because payment is based strictly on commissions, starting out in the CRE business can be brutal. “It takes a year or two to build relationships. You need to have a year’s worth of income to live on first,” Pinjuv explained. Recalling his early years in the business, Willmore said those starting out need to ask themselves: “Am I willing to live on cocktail wienies for a year?” Commissions are paid only when a deal is finalized – such as upon the signing of a lease – at which time, the broker typically will receive one-half the commission with the remaining half paid upon tenant occupancy. Commissions can vary anywhere from 1 percent to 10 percent depending upon the size and complexity of the transaction. A typical lease arrangement is usually around five percent which would then be split 50-50 if two brokers are involved – one representing the lessee and one representing the landlord. With many complicated deals taking months and even years to complete, it’s vital to have a number of them in the pipeline to survive financially, brokers say. “One of the barriers of entry to this business is not having the cash in the pipeline. I’ve had deals that I worked on for three years,” LaGrange said.

What Brokers Do for Clients

Deals can be very complicated for brokers because they are involved in the transactions every step of the way. The role of the broker is to introduce owners to buyers or tenants, furnish market data and advise their clients on specific transactions as they relate to overall market norms, according to attorney Alan Sklar, managing partner of Sklar Williams LLP in Las Vegas. Brokers can represent either owners or tenants. Also, according to Sklar, more specifically brokers will:

• Find a buyer or tenant for a client who owns property.

• Locate an available property that meets the criteria for a purchasing or leasing client.

• Assist client in determining price negotiation strategy and ultimately arriving at an agreeable price.

• Advise on market norms regarding size of deposit, length of due diligence and time to closing.

With about half of his work having significant real estate elements to it, Sklar is an experienced hand at performing the legal side of CRE transactions. In protecting the clients’ legal interests, Sklar said an attorney will:

• Advise the client on the structure of the transaction.

• Ensure that the legal documentation reflects the client’s understanding of the deal.

• Represent the purchaser in obtaining acquisition financing or assuming existing debt that the property may be subject to.

• Counsel the client on special issues such as environmental and regulatory matters.

Because most business people don’t have the level of expertise in property transactions that a CRE broker does, it’s important for them to use a broker to protect themselves, and also to ensure they are getting the best possible deal. Business individuals should do what they do best, which is to manage their businesses, leaving the nuts and bolts of hammering out a real estate deal to broker experts. “Any deviation of time takes away from running their business,” LaGrange explained. Business owners should also keep in mind that they are not required to pay an extra fee for the broker service because the broker’s commission comes out of the rent, lease or sales payments. According to Willmore, the advantages of using a broker include the following:

• Helps client see all the available options.

• Gives client more clout in negotiating.

• Provides a free consultant.

• Delivers an unbiased evaluation.

• Guarantees confidentiality.

• Eliminates personal issues.

• Saves time.

• Ensures favorable contract language.

• Minimizes the risk and maximizes the dollar advantage.

• Provides a single point of contact.

With the strong growth Nevada has experienced in recent years, brokers have become even more important in the overall commercial/industrial expansion of the state. Because many clients are new to Nevada, they rely even more heavily on the knowledge of locally based real estate professionals. In many respects, CRE brokers have become the front lines for economic development agencies and chambers of commerce throughout the state. “I’m selling Las Vegas every day I work with somebody from someplace else,” LaGrange said. Because many businesses investigate multiple locations when they are in the process of relocating, frequently, brokers must not only find the right property for their clients, but also sell them on the community as a whole. LaGrange recalls brokering a deal for an out-of-state company that required 1.5 million square feet for a distribution center. After looking all over the Southwest for the right location, they settled on a site in North Las Vegas. “I had to convince them that Southern Nevada was the best place to be,” she said.    

Economic growth has also raised the bar on the quality of business clients coming to Nevada, according to brokers. As the business-friendly reputation of the state grows along with its prestige for being a vital and dynamic community, larger corporations, as well as more multi-national/global enterprises are finding it attractive as a potential location. CRE deals have become increasingly more complex and larger in terms of space requirements and dollars involved. LaGrange recently worked with such entities as HCA Healthcare, ProLogis, DP Partners and CDW Corporation. Pinjuv has represented clients such as California Health Care Foundation, Bank of America, Wickland Oil, Charles Schwabb Company and AT&T. Sklar has provided legal representation for Centra Properties, Siefert Investments and Executive Home Builders. With a wide variety of clients over the past 16 years, Willmore has individually completed more than 600 office and industrial sale and lease transactions valued in excess of $400 million. “I couldn’t have moved to Las Vegas at a better time,” he said. “It’s been fantastic. I love it here.”

Thinking Before Leaping

Although a broker will be an invaluable asset to commercial clients, business people need to do some thoughtful homework before engaging a professional to help them. If the transaction involves moving an office, for example, officespace.com suggests that owners and managers ask themselves the following questions:

• Why are we moving?

• How will the move benefit the future of the business?

• What is the cost of the move and can we afford it?

• What are the disadvantages of the move?

• When is the best time for the move?

• Can the business afford an interruption for the move?

If the deal involves finding space for a new startup business, preliminary questions should include:

• Where is the most ideal physical location?

• How large a space is needed?

• What kinds of special requirements does the business have for such things as utilities and transportation?

• How soon does the space need to be available?

• How much can the business afford to pay?

• Are there any issues concerning financing?

Once the broad-based questions have been fleshed out and the decision has been made to pursue a real estate transaction, business people can begin the search for the broker who will best steer their ship through the potentially stormy seas of commercial real estate. Brokers emphasize that it’s a good idea to get personal recommendations from business colleagues you know and trust along with checking other client references. Attention should be paid to a broker’s other clients to prevent a potential conflict of interest. Ideally, several brokers should be interviewed before the final decision to hire is made. A broker should only be hired when the business is sure of going ahead with the transaction and property should not be seen until that broker is on board. For those contemplating a “do it yourself” deal, professionals strongly advise against it. “It’s in their best interest to hire a broker rather than do it alone,” LaGrange advised.

Perhaps the most misunderstood aspect of CRE is that it’s somehow related or similar to residential real estate. Nothing could be further from the truth, according to CRE professionals. Residential sales agents and their clients should never assume that their experiences in buying and selling homes can be compared to the complex world of commercial/industrial transactions. In comparing commercial to residential, Willmore said to forget everything you ever knew about residential. “Residential is a very emotional buy, but commercial is a business decision,” Pinjuv said. While the process of buying a home is pretty much standardized, according to LaGrange, dealing in commercial property is far more complicated because almost everything can be considered negotiable.

Looking into the Crystal Ball

Although residential and commercial real estate represent divergent industry sectors, both have suffered downturns in recent months. “No individual developer caused these problems,” Sklar said. “Collectively we have a problem. The market turned very quickly.” With continued losses month after month, the residential market has yet to bottom out. Foreclosures are at record highs and new construction down sharply. Relying somewhat on leasing to carry it through, however, CRE has seemed to weather the shrinking market in better shape than residential. Leasing is still strong, but buying is very slow, according to Willmore. “You may need to lease during good or bad markets, but you don’t need to invest,” he explained. Investment buyers who were looking for commercial buildings or land for development have all but disappeared. “Land sales have almost come to a standstill,” Willmore said. “The driving force is the interest rate. If it falls, sales will start to pick up.” Market uncertainty has kept many people on the sidelines, according to Sklar. “They are in a wait-and-see mode,” he said. Sklar has found that due to economic changes, much of his work these days involves recapitalization of residential condominium projects that have yet to be built. In order to keep projects viable during the downturn, builders are restructuring their financing packages until it becomes attractive enough to build again. “Developers who have large loans on land might be in a scary position,” Sklar said.

With the economic forecast uncertain at best, CRE professionals have mixed feelings about the immediate future of their business. Sklar is somewhat pessimistic about the coming months. “We have more pain to come yet,” he said. “I don’t think it will wash through the system by this summer.” Willmore said that after a number of years of very strong growth, he’s conservatively optimistic about the immediate future. “We will see a return to normalcy. People will evaluate more before going forward. I think 2008 is going to be a good year,” he said. Pinjuv views the downturn as a correction in the housing market which he said affects office space because it’s related to home builders. LaGrange acknowledges the downward market, but shifts her focus to make the best of it. “It has slowed down a little but I’m fortunate enough to have things in the pipeline,” she said. “It’s definitely a buyer’s and tenant’s market, so we can negotiate fantastic deals.”

As seasoned experts who have enjoyed the fruits of successful careers for some years, these professionals expect the vitality of Nevada to continue to provide them with exciting opportunities. “Las Vegas and Reno are buoyant markets because of their continual growth,” Sklar explained. Although growth has slowed, Pinjuv doesn’t expect it to stop anytime soon. “Northern Nevada is still a very dynamic community,” he said. As he reflects on the part he plays in building Las Vegas, Sklar looks forward to continuing to bring value and satisfaction to his many clients. “To be part of building a city is very exciting,” he said.

Jeanne Lauf Walpole
Jeanne Lauf Walpole is a freelance writer based in Northern Nevada.