Monthly Archives: January 2007

Commodity Vs. Developer Property


There are two types of property we sell. Commodity properties are typically found on the MLS and are generally offered to Users. Developer properties are land deals that will ultimately be developed into a commodity property. While it is a tidy distinction, owners of each make mistakes because they don’t understand the differences from a deal-making perspective. Each property type has its own logical steps to marketing, representation, legal, and negotiation.

To sell commodity properties, such as a building in an industrial park, the goal is to offer the property to the widest audience of prospects. An aggressive campaign of mailing, cold-calling and online promotion will reach the most potential buyers and hopefully, the best priceIn contrast, selling development sites takes far more finesse and less mass marketing. Development sites are often unlisted because they can be difficult to comprehend, may require confidentiality, and need special expertise. In these cases, Sellers can often dictate the results by understanding the process better.

While environmental, legal, and occupancy issues are complicated, entitlements tend to be the major valuation difference in areas of urban density. Because there is little available land in Greater Los Angeles, local cities are micro-managing the zoning process to get greater economic benefit from the parcels they have. This condition works in the Seller’s favor if they have the skills to take full advantage of their property rights. However, lack of expertise often leads Sellers to offer their development site as a commodity without understanding the nuances of valuation and entitlements.

Commodity brokerage is the norm for most of the deals in the marketplace. It is commonplace to react to offers without considering development potential. No one should ever sell a property without talking with the city planning agency to see if any zoning changes are planned. One way for a Seller to get rewarded for a development site is to work with the Buyer by giving time for approvals either through a long escrow or a partnership. This gives the Seller a portion of the entitled value, but the Buyer is freed from interest carry and risk. Patience is a requirement, and there can be many false starts when working with cities on new development ideas. Unlike in commodity brokerage, trust and reputation are essential to longer term agreements like these.

Tireless energy and numerous contacts are essential for selling commodity properties. Clever planning and negotiation is needed for development sites. But the most valuable contribution is to figure out the deal using arcane rules of planning departments and the real estate industry.

Broker and Client Collaboration

The business is changing when we can be at a property and hold a video conference with a customer while he is making a final selection with recently emailed photographs. Or we can look at sites on an aerial, upload the geocode information to the GPS for a property tour and fax the offer from the car.

The brokerage business has transformed itself nicely from one that focused narrowly on a specific geographic area and product type, to one that can do almost anything, anywhere. Technology, networking, and customer focus are at the core of these changes. Large brokerage companies and affiliate networks have heavily invested in a platform to conduct business in every major business center worldwide. Despite predictions that technology would hurt the brokerage business, the opposite has happened. Technology has enhanced client relationships by giving the broker more repeat business.

For example, after a broker has proved himself in the first instance, there are many reasons to continue the relationship including a shortened learning curve, trust, and the continuation of success. Traditional client/broker roles are becoming more collaborative. Buyers can no longer sit in an office and review offerings. They need a strategy to find more opportunities. This thinking leads to a process where the broker is given more authority to secure property since they are the deal generators. Meanwhile, this leaves the client more time for property selection, due diligence and raising capital. For listings, the Owner, if he has the capability, should be managing the deal, while the Broker is searching out other tenants. Clients are realizing it is sometimes more practical to reverse traditional responsibilities in order to do more deals and make more effective use of technology and relationships

Specialization and knowledge are the foundation of the brokerage business, not its limit. No broker has all the resources, but they can piece them together through cooperative arrangements and project planning. While offering solutions is nothing new, methods are changing on a daily basis.

Because typical real estate offerings show such marginal returns, clients are putting more thought into how they approach real estate markets. They need to be creative, disciplined, and better planners to see opportunities. There is nothing more rewarding than being part of a team that embraces new tools and methods to achieve success. True collaboration is the next opportunity for brokers and clients alike.