The Due Diligence of a Commercial Real Estate Agent
-By BILL Latrany
I have been approached by several of my colleagues in real estate over the years asking me, ‘What does it take to become a successful commercial real estate agent?’, and my response is the same. “Persistence, Hard Work, Working Smart, Dedication, Communication, Discipline, and Due Diligence, Due Diligence, and Due Diligence!” Although I DO NOT pigeonhole myself as a “Commercial Realtor”, I have discovered the unique blend between the two venues; commercial and residential real estate marketing, being a nice balance, as one facet very often complements the other.
With that said, I know many seasoned commercial agents in our industry may cringe not knowing what I’m going to share next, as some of the ‘trade secrets’ are as closely held as the formula to the Coca Cola recipe in and of itself! At the risk of getting 8-Balled from this “Cotton Club,” The trade secret is available to anyone who seeks it, however it must be earned, as I, and many of our licensed commercial colleagues themselves have attended this ‘school of hard knocks’ to earn the recognition. It’s a school from which you never graduate, however as you progress, the lessons may become easier. I certainly do not mean to sound condescending, however unless the industry trade relating to understanding this ‘unique animal’ is earned, it will result in wasted time and despair. Since any licensed real estate agent in the State of Ohio can practice marketing and selling any real estate (short of cemetery plats), from vacant land to homes, shopping strip centers to malls, office buildings to industrial parks, with anything and everything in between, frivolous business practices might be at risk of being exercised, and then as a result, we have chaos. This creates lack of integrity, which does not bode well within our industry. So, in order to earn the knowledge and insights to this secret recipe, Due Diligence is a definite prerequisite to success! And as a result of this ‘prerequisite’, a root word from the word “Learn”, is “Earn”. Intertwined throughout this composition are portions of the secret, however unless you open your mind to “Serendipity” (perhaps our first lesson: look up the true definition of ‘Serendipity’, and make the true meaning uniquely your own), and recognizing these serendipitous secrets, the endeavor may not prove to be as beneficial.
To help those who are ardently interested in embarking on this path of a commercial real estate marketing venture, let me preface with this pearl of wisdom. “Become an expert in the trade, with a humbled servant’s heart.” One never ceases to learn, and those who think they know everything, are doomed for failure! The “big commissions” are truly earned, and rarely received without hard work. Working smart should evolve from working hard; and working hard should then result easier from working smart.
Due Diligence is not to be taken lightly. Learn the commercial real estate trade by performing your own inner self analysis of Due Diligence, and then follow thru with performing the Due Diligence on the property, then of the clients, and then of the customers… ALL of whom which you may then choose to work and serve. If you aren’t willing to perform these very basic, early fundamentals prior to embarking on this facet of our industry, you are just wasting the time of the client’s, the customer’s, your fellow colleagues, as well as own. Arming yourself with the proper tools will help you succeed as a true professional, and set you apart from the rest.
Begin your quest by researching and truly knowing the definition of the following terms. By investing time to intimately learn and know these terms, rather than me just sharing and defining them here, will weed out the ‘tire kickers’ from those who are ardently interested in enhancing their trade. Understand BOMA , and ‘The BOMA Method’ (of measurement), Cap Rate, CPI, Triple-Net, Due Diligence, NAV, NOI, IPO, Going Public, Construction Lien, GBA, GLA, Gross Rent, Depreciation, Land Lease, Infrastructure, “Angel” (as it pertains to financing a project), Venture Capital, Project, Joint Venture, Variance, Deed Restrictions, Rail Spur, Crane Clearance –vs- Clear Span –vs- Free Span, HVAC (and what type of system is used), Ventilation Shaft (found in multi-story commercial buildings, running from lowest level straight up to the rooftop, and “why it’s necessary”), Zoning / Zoning Board –vs- Planning Committee –vs- City Council, “Table” (as it pertains to presenting variance or proposal to the community zoning board or city council meetings), Grade –vs- Recessed Dock, Setback’s, Green Space, Building Codes and Zoning Codes and Ordinances (and knowing the differences), Versatility, Urban Renewal Projects, Tax Abatement, Return, Parking Ratio, Cash Flow, Construction Loan, Easements, Feasibility Study, SBA, Phase (as it pertains to electrical power supply; ie: 3-Phase Service) Community Development, Contract Bid, Footprint, “Pulling a Permit”, Buy-Sell Agreement, “Shill” (as it pertains to a ‘buyer’), DBA, By-Laws, BOD (Board of Director’s, including President, Vice President, Treasurer and Secretary, and “Who” truly has the most / real power in the decision making…your discovery may surprise you) Vanilla Box, Cash Call, Investor(s) –vs- Lender(s) –vs- Partner(s), Occupancy Rate –vs- Vacancy Rates and Ratio, Expansion and Contraction (as it pertains to expanding or downsizing), Density, Amenities, ADA, Wetlands, Certified Appraiser accredited with an MAI, Certificate of Completion, Certificate of Occupancy, Fire Codes, Air Space Rights (good to know locally, but more applicable to the larger cities), LOI, CAM Fees (and why they are charged separate from the lease), Lease (as well as precisely the ‘WHO’ by definition is the Lessor and the Lessee), Escape Clauses, Freestanding, Box Store, Anchor, the Three types of appraisals: Cost Approach, Replacement Approach, and the Comparable Approach (and why each is used), Tank Closure, EPA Phase I, Phase II Environmental Studies; JEDD Agreement (Know it! This could kill a deal!), Class A, B, and C space, Contractor, Architect, Interior Designer, Surveyor, (and know the difference between them), Integrity (as it pertains to the building), Site Plan –vs- Blue Print –vs- Rendering, Letter of Credit –vs- Commitment Letter / Loan Commitment, Permit –vs- License, P&L Statement, R&D (meaning), LLC –vs- LLP –vs- Inc., RoI (meaning), DBA, Property Manager –vs- Leasing Manager, REIT’s, Demographics (and why certain businesses seek to position themselves in certain locations), Redevelopment –vs- Rehab, Sub-Divide, Sub-Lease, Debt Service, Option(s), “Grandfather Clause”, “Sweetheart Deal”, Drop Dead Date, Target Market and Market Analysis, Ingress & Egress, Traffic Count, Sale/Leaseback, Site Plan & Evaluation, “Press Release” –vs- Advertising, Build-out –vs- Tenant Allowances, Sign Ordinances, Visibility, Wide-Shallow Lots, ‘Utilities at Curbside’ and the definition of a ‘lateral’, Marginal Road (and “Why” they are becoming part of the community infrastructure), … This is only a partial list of the required insights and lingo to aid you along, but incorporate all in concert with the training that has brought you to this level in your career. Sure, some of these terms may look familiar, but do you REALLY know their true meaning as it pertains to the uniqeness of the commercial industry?!
By incorporating your classroom training with the trade lingo, you’ll most likely develop a “street smarts” for the industry as a result; being able to walk the talk, and talk the walk, which in turn will make you better poised, greater perceived, welcomed and received, as a more accepted professional in this venue. This knowledge will set you far ahead of the competition, therefore making it easier on you, and your colleagues, to exercise smoother, and more professional transactions.
If you are truly interested in learning more, understand that everything in life has a cost, whether it be “time”, or “money.” Consider splitting a commercial transaction you ‘bring in’ with a respected ‘commercial agent’ with the understanding that you would like to learn the process by being involved every step of the transaction, which will afford you a ‘front row seat’ in the classroom within the ‘school of hard knocks’. You will then be learning and acquiring the necessary experience by working shoulder to shoulder with the commercial agent, learning thru ‘osmosis’, as you work with your mentor. In the long run, this may be the benefit of splitting the transaction –vs- just receiving the referral fee. Conversely, if you discover practicing commercial real estate isn’t your forte’ after all, then please consider the wiser, and do everyone a favor, by referring to a competent agent of your choosing.
Becoming ‘The True Expert with a Servant’s Heart’, is entirely up to you!
BILL Latrany is a licensed agent with Coldwell Banker Hunter Realty. This composition was composed at the request of his fellow Board Members of the Board of Directors of LoCAR (Lorain County Association of Realtors) of which BILL serves as Director, an appointment to represent both the residential & commercial facet of our industry, for the monthly LoCAR E-Newsletter. For more info and insights, you are invited to visit his professional website: www.RealtyResults.cc