Market Know-How: In Chase of Exclusive Deals

Being a Broker

A broker is always on the move. He or she is mobile, prompt, a quick thinker, capable of critical decision-making, knows how to establish contacts and make money for his or her company. The lazy, absent-minded and unsociable do not qualify for the job. Male brokers wear suits, ties and carry briefcases; women brokers are clad in blouses and office skirts and carry a file folder under arm.

A broker maintains a large database on all properties, projects and clients. Their ultimate goal is to secure an exclusive deal with an owner of a large building. Such is the impression produced by people of that trade, formed on the basis of what brokers have to say of themselves. The profession of a broker may be viewed at different angles. That occupation bears traits of various activities. Some of their responsibilities are akin to those of business journalists, most professionals polled by Vedomosti agree.

They, too, are required to obtain data on projects and properties where none of their rivals have taken part yet. Openness is just as important. A broker needs to know how to win the client’s sympathy and achieve results. It would not be an exaggeration to say that 80 percent of a broker’s success hinges on their communication skills as it is due to connections and personal contacts that the majority of exclusive deals are being forged.

People involved in property brokerage often call themselves “agents”, which suits them well, creating an association with a secret agent of some intelligence service. And isn’t a broker indeed an intelligence officer? Brokers are active in a great variety of areas. There are customs brokers, stock exchange brokers, insurance and advertising brokers. Those are different professions but they are all united through the word and concept of a ‘broker’.

The loan-word entered Russian vocabulary in the early days of transition to market economy in this country. In a 1991 issue, the Ekonomika i Zhizn (Economics and Life) newspaper provided two following definitions of the word: “a broker – an intermediary between the seller and the buyer on stock exchange market; broker – an intermediary versed in market situation, buying and selling opportunities, specialized in a relatively narrow range of commodities.” The meanings of the word provided in the English-Russian dictionary are tantamount to “intermediary”, or “middleman”. In the U.S. property experts are also referred to brokers.

For many professionals, brokerage is not only a profession, it is a lifestyle, a state of mind. Some say such feelings are inherent to especially successful agents. Some claim brokers are cynical and venal. In the essence, however, a broker’s profession is akin to that of a seller. At least, the underlying mechanism is the same, holds Ruslan Suvorov, head of industrial real estate at Praedium. (Suvorov himself worked in trade and logistics for several years).

Deals and Fees

An agent and his property find each other by a number of traditional means. Sometimes an owner of the building himself is looking for a broker, who would fill his business center or a warehouse complex with suitable tenants. These days, the number of landlords and developers who hire consultants and brokers for their projects is growing, as agents themselves report.

Senior consultant at Prime City Properties, Antonina Lairova, says that some projects are especially successful. Take for example, the Aeroport business center by MR Group – the tallest building on the 4th 8 Marta Street, she says. Aeroport is a top quality Class B office building, but it is lost in the side-streets and hard to find at first. However, the project was brokered by professional consultants and brokers – the CB Richard Ellis / Noble Gibbons company, who organized an active marketing campaign and made the property well-known on the market.

Some developers still fail to evaluate a potential of a favorable building site in a favorable location and undertake office projects without assistance from professional realty consultants. Thus, a potentially successful project results in a failure. According to market operators’ reports, a building raised by an obscure development firm at 7 Bolshoi Strochenovsky Side-street, at the intersection with Zatsepa Street, between Paveletskaya and Serpukhovskaya metro stations, could have become a splendid business center, given its highly favorable location in immediate proximity to the Garden Ring. But the owners had never contacted brokers and, having raised the building under a shared construction scheme sold out the offices in blocks. In those circumstances, it is impossible to ensure professional property management on the site. Nowadays, that property is rated as class B, although it could have been a class A+ property.

Many brokers seize the initiative and contact building owners or developers themselves. Sometimes, would-be tenants get in touch with brokers. The degree of brokers’ participation in the project varies. Anna Ivanova, deputy head of office real estate at Colliers International, says that in addition to broker services, her company often consults project owners on optimization of planning and architectural design solutions, provides financial and legal support, carries out marketing research and analysis of the competitive environment, etc.

According to property agents, everyone seeks exclusive rights to the project, despite of enormous responsibility such deals involve. At the same time, an exclusive deal brings good returns. The brokerage fee is based on the volume of space leased out by the team. As a rule, the total space is multiplied by the size of rent of 1sqm per year on the site, proceeding also from the term of lease signed by the tenant.

For example, offices at a newly built class A business center, Capital Plaza, developed by Capital Group in 4th Lesnoi Side-street, were let in blocks measuring 3,000 to 4,500sqm, with rates varying from $620 to $700 per 1sqm, VAT and operating costs excluded.

Brokers’ incomes vary, too. Quite often experienced agents subsist on their comparatively high fees. Some make as much as $60,000 per year, earned from only a couple of deals. Some companies pay salaries to their brokers, plus they receive fees measured by a percentage of each deal they broker. At this, their base pay may be as low as $500. But there is also a quite common restriction – the higher is the agent’s base pay, the lower is the premium he is entitled to, even where he finds a buyer for a project worth millions of dollars. A broker may be entitled to 3 to 25 percent of the commission, earned by the company, depending on the sector of the market and his or her personal contribution.

It may take a year or two before the new project is leased out. The agent gets his fee only after the tenant signs an agreement with the landlord. For example, Colliers International has reported that it took the company two years to let Aurora Business Park, 18 months to let Hermitage Plaza and 1.5 to 2 years – Riverside Towers. Nonetheless, everyone seeks an exclusive deal.

Office Sector Competition

Traditionally, before hiring a broker building owners invite bids from property consultants. On June 5, ST Group and Swiss Realty Group issued a press-release announcing a tender to select tenants for a business center on Tverskaya Street – the much-talked-about project Four Winds, between Tverskaya and 1st Brestskaya streets. ST Group said it would invite bids till June 30, whereupon the list of leasing agents – participants in the project – will be made public. Organizers say they decided to hold the tender after they realized that the demand for office space was too high and they could not handle the inflow of applications from would-be tenants on their own. Alexei Korsik, head of the project at ST Group, complained that applicants literally besieged the company with requests to sign tenancy deals immediately.

Developers decided to adopt a face control policy for the tenants. ST Groups places emphasis not only on the reputation of future tenants and their ability to pay high rents, but also demand a guarantee that the occupant would not entertain crowds of visitors on his premises, which could disrupt his neighbors’ operations. Ilya Shershnev, development director at Swiss Realty Group, says that his agency is forced to reject many applications only because Four Winds is a EPOB (Executive & Private Office Building) project – a format, new to the Moscow market – catering for companies who seek a quiet and peaceful property where they can treat their most respectable clients. An alternative is an office mansion, but such offers are scarce. In the first two days after the tender was announced ST Group received over 200 bids.

Admittedly, companies pursuing upscale projects on the market are vitally interested in such press releases and high-profile PR campaigns to attract media attention and let their properties sooner. It cannot be ruled out that some points in the statement are somewhat exaggerated. Market operators agree that the project, indeed, is one of the best in the class A segment, developed by a famous company in a favorable location, aiming for well-known tenants. That is why future tenants must be selected thoroughly. However, such VIP projects often practice publicity stunts to catch attention. Yet, this, perhaps, is the first such move on the market, whereby organizers of the bid have turned the procedure into a public marketing stunt, holds Andrei Patrushev, public relations director at Knight Frank.

A Great Schemer

At each stage of their work agents employ special techniques, which they use to attain a variety of goals, including securing exclusive deals. For example, at the outset, when the broker learns of some project where vacant space is available he sets about obtaining complete data on the property, gets acquainted with the landlord and developers. Once he realizes that the property is interesting he begins to look for the tenants.

Each agent maintains his own data base of tenants, projects, developers and landlords and, as most brokers admit, that is the main resource they work with, obtaining information from the media, delegating trained staff to find out which projects are underway across the city and where. Many practice cold calling where an agent takes a phone directory and calls a number of companies. “We are looking for contacts in organizations, get acquainted with them,” says Anna Ivanova. “We had a colleague, an expert whose entire work was based on phone calls and who was very successful,” she says.

Quite often brokers are awarded exclusive deals at recommendation from a certain developer who has already worked with that team and is satisfied with the results. Successful agents attach importance to the so-called active listening. Hearing a client, expressing interest in his problems, being aware of what he needs is the key. Another key to success is the skill of self-presentation.

Techniques employed by brokers may be honest or vice versa. Experienced agents know that each client has their prejudices, and agents often take advantage of that, Ruslan Suvorov says. For example, a broker arrives at the meeting with the owner, assures him that he will fill the property with the best tenants in no time, provided the landlord grants him exclusive rights. Landlords should exercise extra caution upon receiving such an offer, for the agent is clearly bluffing. Another common trick is to promise the client to let space at unreasonably high rates and to criticize brokers from other companies far and wide.

Then, there is such a phenomenon as shadow brokerage. Shadow brokers go all out in persuading potential tenants to rent a certain building. Quite acceptable is the technique of persuading clients that all members of your team are professionals and cooperation will prove rewarding. Some offer dual presentations where a broker represents the interests both of the landlord and tenants. And, of course, brokers organize media campaigns, hold conferences and receptions. For example, Cushman & Wakefield / Stiles & Riabokobylko annually holds presentations of office and retail markets.

Yelena Kolesnikova, head of office real estate at DTZ, believes that it would not be bad for an agent to show that he is different, that he has something new, original to offer. Ruslan Suvorov says that quite often phone calls bring little luck. A person on the other end of the line may react to your call, as people usually respond to calls from obtrusive sellers of weight loss plans, for example. But those are trivia, which should not be taken too close to heart. As they accrue experience, agents grow more cynical. “But I also knew people who just could not get over those unsuccessful calls,” Suvorov says.

Dmitry Khechumov, head of retail at DTZ, says that his work is based on good knowledge of the market situation, openness, communication skills, and, of course, his own name.

Alone in the Mall

An exclusive agreement is an ideal scheme for the retail property sector. Sometimes, co-exclusive deals are practiced. An exclusive agency agreement is, in fact, the only effective means of leasing space at shopping centers, says Maxim Gasiyev, head of retail real estate at Colliers International. Co-exclusive deals where two brokerage companies are involved in the project or open listing whereby the landlord invites all brokers capable of letting space for him to join the project are more common in office and warehouse sectors.

Gasiyev explained that in Russia there are not so many major tenants who rent large properties at top class malls. As a rule, those are well-known retail chains. That is why the broker’s objective lies not so in finding a new tenant, as in achieving an appropriate tenant mix for each project. The size of commission depends on which operators rent space at the mall. The owner of the building usually seeks to set the highest possible rental rate and the broker representing the developer also pursues the same goal. But here finding the golden mean is important, professionals say. Today, consultants more often represent developers in Russia, whereas abroad brokerage companies often represent tenants as well, says Gasiyev.

Terra Incognita of Warehouses

Consultants working with warehouses and industrial facilities and land report that so far that sector has but a handful of professional brokers. Large-scale class A and B projects have appeared in this country only recently. Before that, the companies worked with Soviet-era facilities on a largely wild market.

Ruslan Suvorov, who followed in the footsteps of his boss Ruben Alchudzhyan and left Colliers International for Praedium, says that a warehouse broker is to a certain degree a logistics expert with well-developed spatial reasoning skills.

Industrial real estate brokers take regular trips to the countryside, quite often they have to visit several sites in one day. They even joke that they are the luckiest as they are always outdoors. They need in-depth knowledge of technical details and must be able to determine the height of ceilings and quality of floors, the size of unloading bays, etc.

Warehouse property brokers practice two approaches – quick deals with inexpensive properties and long-term cooperation with developers, quality consulting. Agents exercising the former approach usually broker one or two deals per month (properties measuring about 2,000sqm). Large projects take at least three months to fulfill.