They were the real estate cowboys, those commercial brokers of yesteryear, rounding up prospects like so many confused calves and driving them across the wide range of office space possibilities.
But life has become complicated on the leasing trail. Computers ride shotgun on all transactions, statistics back up every handshake and college degrees adorn the bunkhouse walls.
For the cowboys, the skies have turned cloudy. The discouraging word is that the era of the pure dealmaker is over in commercial real estate. And with it may go the gold rush of million-dollar commissions.
”The real gunslinger is fading away,” said Mark Donahue, who heads Commercial Real Estate Training Inc., in Hoffman Estates. ”Deal making is almost a given. Clients today ask, `What can you do for me beyond that?`
”To service the client, you can`t have the Lone Ranger-the kind of guy who says, `If you want a friend, get a dog. If you want a broker, get me.`
That does not foster service.”
Donahue is the former president of Rubloff Inc. and former north central region vice president for Coldwell Banker Commercial Real Estate Services. He founded his training firm last year in an effort to prepare newcomers to the field for the increasing complexities of the business.
”Where the deals were once like playing checkers, now it`s like playing chess,” said Jacque Ducharme, vice president in the Chicago office of Julien J. Studley, a national real estate firm.
”Ten or 15 years ago a broker was someone who was out there aggressively pursuing prospects, knocking on doors all the time,” Ducharme said. ”It`s still true to some extent. But when you`ve got 50 to 100 spread sheets to analyze and so many choices for space, you have to have highly educated, skilled individuals.
”When I started in the business I didn`t know but one MBA. Now everyone is an MBA or attorney or investment banker. But our customers are also generally lawyers and MBAs and investment bankers, and you have to be on their level; you have to be their equal.”
Even brokers considered to be the quintessential dealmakers in the business admit that times have changed.
”I`m basically a salesman,” said David Lind, one of the top producers in Coldwell Banker`s Oak Brook office for more than a decade, arranging deals worth more than $400 million in his career.
”Ten years ago all I needed to do was take a guy out in my car and run him around looking for property,” Lind said. ”Now I`ve got to be a lot smarter. I`ve got to understand construction, financing, management, you name it.”
”The pure dealmaker is gone, I`d agree with that,” said Goldie Wolfe, a top broker in the city who last summer formed her own firm after years with Rubloff.
”I could have started out by myself, but I came from Rubloff with a team of eight people,” she said. ”I have MBAs, too, but we work in the context of entrepreneurs. There is room for all kinds. But brokerage is still an individual business, based on personal relationships.”
Wolfe`s departure from Rubloff, whose founder, the late Arthur Rubloff, was considered the consummate Chicago real estate dealmaker, came amidst a restructuring of the company from strictly a brokerage operation into what Rubloff chairman Willard A. Brown Jr. calls a more diversified real estate services firm.
”We needed to re-orient the mind set of pure brokerage, which had historically been our strength,” Brown explained in the company newsletter last summer. ”However, commercial real estate brokers (now called real estate specialists) are extremely important to our company and hold an important place on our client service teams.”
Because of the name recognition, the moves at Rubloff created a clamor in the commercial real estate industry and served to underline changes already under way in the rest of the Chicago area brokerage community.
”There has been a remarkable shift in what brokers do,” said Richard Berger, manager of office leasing for Bennett & Kahnweiler. ”Before, we were inventory specialists. But I don`t think we`re going to be tour guides anymore.”
”We were used to a sequence of events that was like courtship: You call on prospects, you show space and you prepare a proposal. You work and you hope that in the end you get compensation,” Berger said.
”This is becoming a relationship business and not a transaction business. You need to have a longer term view in how you deal with clients and landlords alike. The trend in the business is to less entrepreneurship.”
And less entrepreneurship probably will mean smaller paychecks.
”A lot of brokers feel leasing people will never make as much money as they once did,” said William Ferguson, head of Ferguson Partners Ltd., a real estate consulting firm. ”So they have become advisers, with a good salary and bonuses, but advisers who will never get the money of the big deals.”
The changes in the brokerage business have brought about changes in the compensation system for brokers as well.
”McDonald`s, for instance, has created a real estate department that is a profit center and not a cost center for the company,” Donahue said. ”And they`re demanding that if you work with them, they get part of your commission. And it`s not an anomoly with McDonald`s; it`s going on with a lot of corporations.”
The commission system is likely to come under further attack. Donahue estimated that 85 percent of the brokerage firms around the country are contemplating some sort of salary system to replace the traditional commission split, in which a broker gives half the fee to the firm.
Some developers, Donahue said, are demanding that brokers they hire go on salary. And brokers who represent tenants exclusively, a specialty that was rare five years ago, now may work for a flat fee based on the square footage of the leases they negotiate instead of a commission.
”The corporations are saying, `Why should I pay you a seven-figure commission when the chairman of our company makes $600,000 a year?` So they are stepping up to the line and saying, `Look, if you want to represent us, even though the developer is willing to pay a $1 million compensation, we`re not willing to have you earn that.` ”
While the lone-wolf broker faces extinction, there remains a question as to how much of a role entrepreneurship and personality will play in commercial office leasing.
”The question won`t be answered for a while,” Donahue said. ”But the entrepreneurial broker has become the maverick at most companies. Most companies either overtly or covertly are going to service. People who are experienced in business, but not necessarily real estate, have become more valuable.”
Several companies have implemented team concepts like Rubloff, replacing individual brokers with a group of employees, each of whom brings a specialty to the table. Even those firms in which individuals remain the focus provide far more extensive research and support services today to those brokers.
”Even the pure dealmaker has to have the backup in order to verify the deal,” said Howard Ecker, another ex-Rubloff broker who formed his own firm in the 1970s. ”There are still lots of deals made in concept on the back of an envelope at lunch, but they still have to be reaffirmed by all the guys behind them.
”You could learn more in the hall at Rubloff in those days than you could in any school or seminar,” Ecker said. ”Arthur hired more impressive and aggressive people, and because they were more aggressive they attracted even more aggressive people. It was more the environment than the man.
”But those were the days when you could be an entrepreneurial real estate person, the days before the institutions invested in real estate,”
Ecker said.
The appetite for real estate displayed by those institutions-the big pension funds, the major insurance companies and the giant foreign investors- has helped transform the real estate marketplace. And as their sophistication grows, so, too, do the demands made on brokers.
”What is frightening as you look out over the next 10 years is who is contemplating getting into our business-Wall Street, accounting firms, law firms,” Donahue said.
Seeing the trend, real estate firms have countered by hiring the very people who otherwise might wind up in the enemy camp.
”They`re all hiring off of business campuses today,” said Ferguson.
”New blood and a different perspective is always healthy for an organization. The key is finding someone who can come out of a corporate environment and move to a more deal-oriented, entrepreneurial environment.”
Wolfe and others argue that despite the invasion of the ”pinstripes into the sharkskin suit brokerage world,” success still hinges as much on individuals as it ever did.
”Real estate, perhaps more than any other industry, is personality oriented,” Wolfe said. ”People are buying people. People have to have a level of comfort, a level of confidence in the people they`re doing business with. What are you buying when you buy an organization?
”People are going to come to real estate people to problem-solve. Whatever talent that requires, we will bring it to the table. Certainly, that is service oriented. But we are really transaction oriented, too, and that is not a bad word, transaction.
”Just to get reams of information is one thing,” Wolfe said. ”But what do you do with it, that`s the question. Someone still has to put it together, still has to implement the process effectively and strategically.”
Many developers still believe that individual brokers are critical to their efforts, according to comments made at a recent seminar sponsored by Colex, a new company that offers brokers a computerized data base of office properties.
”This is an environment of change, and the pace of that change is going to accelerate,” said Stephen Nichols, executive vice president and partner with the Palmer Group Ltd. ”But Chicago has always been a very strong brokers` market and I can`t imagine that changing.”
”The real estate development business and the brokerage business is still a deal business,” Nichols said. ”And because the transaction is critical, I really don`t see the industry moving toward a totally salaried compensation.”
Craig Bayless, regional partner and head of the Chicago office of Tishman-Speyer Properties, a development and property management firm, agrees. ”Without brokers, I don`t really believe there would be an office leasing industry as we know it,” Bayless said. ”Brokers keep the market active through their prospecting efforts, and they are constantly churning the market looking for ways to make deals.”
But without question, those who will be involved in real estate transactions in the future are going to have to be more knowledgable than their predecessors of 10 or 15 years ago.
”The good news for the industry is that with all this tightening up, a lot of people who perhaps shouldn`t have been in the business are getting out,” said Elayne Adams, vice president of marketing and director of downtown leasing for Fifield Development Co.
Adams said Fifield had about 1,400 brokers on its mailing list a year ago. That has dwindled to less the 1,200 today. But Adams said that only about 700 of those are brokers who represent tenants seeking space, and of that 700, some are not working full time.
”It`s phenomenal, the number of people who have changed jobs, switched from one side of the fence to the other or gotten out of the industry altogether,” Adams said. ”I think the smartest one of all is a man I know who went sailing around the world and is having a great time.”
