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Once Lucrative Commercial Real Estate Industry Faces 50% Job Cuts Nationally
Date: 10-28-2009
By Tara Kreider and Russ Wallace of Coldwell Banker Commercial TradeMark Properties
Guest Columnists
By Tara Kreider and Russ Wallace of Coldwell Banker Commercial TradeMark Properties
 Imagine working 10- to 12-hour days without knowing when and if you will get paid. Or collaborating with a client for six months to find the right property, only to find out the bank that approved them for a loan has since changed their lending requirements, which means you get paid nothing for half a year of work.
This is a common reality today for many commercial real estate brokers. Some industry experts predict that 50 percent of the 130,000 CRE brokers nationwide will be out of the business by 2011. These job cuts will not be due to layoffs or RIFs, but from sheer job attrition.
“Right now, many of our advisors are working much, much harder and earning less commissions,” says Brian Farmer, president of Advisory Services with Coldwell Banker Commercial TradeMark Properties in Raleigh. “I see brokers taking on smaller projects that they may not have taken on in a better market and working outside of their specialty just so they can close deals.”
 The reason for the downturn is, of course, the recession. As companies went out of business and economic activity slowed, vacancies rose in many commercial properties across the country. Even with discounts on rent and tenant improvements, many office users are declining to sign long-term deals and downsizing their work spaces, adding to CRE brokers’ woes.
At the same time, most CRE brokers are not salaried employees, but independent contractors who work on straight commission from sales, leasing and consulting activities. Those that choose to work bigger projects and land deals may go several months between paychecks.
Many brokers are finding themselves forced to find more stable, predictable salaried jobs to keep food on the table and pay the mortgage. Most new brokers lack the benefit of having reaped the benefits of plentiful commissions when the market was strong in the mid-2000s, so the lean times for them are even more challenging and disheartening.
The data reflects their pain. The 2009 National Association of Realtors® Commercial Member Profile of more than 81,000 of NAR’s 1.2 million members found that the median sales volume in 2008 was down nearly 10 percent since 2006, resulting in a 13.6 percent decline in median income.
This situation has resulted in some firms going out of business, most notably Advantis Holdings, which has closed its GVA Advantis offices in nine of its 16 offices throughout the Southeast, including one in Durham.
“While our commercial leasing transactions are up above previous years, our number of closed sales are only 60% of what they were in 2006 and 2007,” Farmer says.
Given these conditions and bleak forecasts, there nevertheless remain many individuals who stay committed to their jobs. These brokers believe they have made proper adjustments that will keep them afloat for now and prepared for success in the future.
“I truly love commercial real estate and made the decision to stick with it and simply try to position myself to be successful when the market turns around,” says Tara Kreider, a commercial real estate advisor with TradeMark Properties who specializes in retail and land.
Brokers are taking steps that perhaps they did not have the time to do when they were busy drawing up contracts a few years ago, such as intensely studying the market and trying to build encyclopedic knowledge of inventory, values, vacancy rates and absorption in their areas of responsibility. They are meeting with property owners and business owners, building relationships that will hopefully lead to business in the future.
Russ Wallace, also an advisor at TradeMark Properties who specializes in multi-family properties, says that this knowledge is already reaping rewards. “Becoming intimately knowledgeable about the market, properties and potential opportunities will pay off big,” says Wallace.
Experts believe training provides another advantage to those seeking to be among the elite CRE brokers in America. Wallace and Kreider are currently taking advantage of intensive corporate career training through Coldwell Banker Commercial and pursuing other career-enhancing opportunities such as Certified Commercial Investment Member (CCIM) designation.
Diversification is key to navigating these uncertain times. Handling the disposition of bank-owned commercial real estate properties was once a relatively small portion of the work handled by commercial brokerages. In today’s market, REO work is becoming a much more prevalent, and coveted, area of expertise.
“REO work currently is and will be an integral part of our business model for the foreseeable future,” says Farmer. We are already working with six (6) major financial institutions in handling their REO properties. One institution has awarded us with over 1,400 assignments! Most real estate experts are saying that 2010 and 2011 will likely yield many more foreclosed properties in the U.S., North Carolina and in our Triangle marketplace. This is due to aggressive loans that were made in 2005-2007 that will be coming due.
But as much as training, diversification and other procedures can help right now, the big unknowns for CRE brokers is how and when customers and banks will respond to previous levels of activity. That is the one area they cannot really control.
Mark Howe, a senior investment advisor with TradeMark and also a CCIM, has never seen anything like this in his 27 years in the commercial real estate business. “Everyone is having to be much more resourceful right now,” says Howe. “Nowadays, it is not uncommon to see deals split between several brokers… and we are constantly being beat up to reduce our hard-earned commissions.”
Howe and other senior brokers are stepping up to help provide guidance and encouragement to the junior brokers. He acknowledges that some days, it is hard to keep a positive attitude. There is just no crystal ball to tell when financing will loosen up or when consumer confidence will rebound.
Some observers are quite pessimistic in predicting the future. Chicago Tribune business reporter Greg Burns writes that “the investment equivalent of a death watch is under way for highly leveraged properties” in commercial real estate. A Wall Street Journal survey finds that commercial real estate loans could generate losses of $100 billion by the end of next year for more than 900 small and midsize banks if the economy worsens.
Reviewing the current scene, Jerome Idaszak, associate editor of The Kiplinger Letter, calls commercial real estate the “next big headache” in the economy, noting how the few buyers who can agree with sellers on terms often cannot obtain credit for their purchases.
“An estimated $250 billion in loans will mature this year, with $300 billion more coming due in each of the next three years,” writes Idaszak. “With property values down 40 percent for some office buildings since the recession began, owners are in a bind. Worse, values are still eroding: By the end of 2010, they’re likely to lose an additional 10 percent.”
The good news here is that Idaszak sees a growing economy as a way to fill empty offices, and he sees Raleigh as likely among the cities to lead the recovery. Given how Raleigh has rallied quickly in the past, this seems a plausible scenario. Indeed, U.S. News and World Report has listed the Raleigh-Durham market among the country’s “10 Cities Primed for a Real Estate Recovery” in 2010.
Can local commercial real estate brokers hold on and ride out this downturn? Or will each join the growing 50 percent that are leaving the business? Those at Coldwell Banker Commercial TradeMark Properties consider themselves likely survivors in the profession, because they think that the tremendous challenges they face today will lead to tremendous opportunities in the future.
They are learning the latest marketing techniques and tools and applying them to their jobs. They are considering innovative and unique methods of financing. And they are networking more within the profession and the community to reflect their commitment to CRE brokerage.
The commercial real estate market may be down now, but plenty of CRE brokers at Coldwell Banker Commercial TradeMark Properties refuse to be down and out. They are poised to come back just as strongly as when the local economy rebounds. While half of their colleagues may disappear from the field in three years, they vow to remain in the game for the long haul, as they see unlimited potential for themselves in this market.
About Our Guest Columnists:
Tara Kreider is a Commercial Real Estate Advisor at Coldwell Banker Commercial TradeMark Properties. She is responsible for tenant and landlord representation services, as well as assisting clients in identifying lease and purchase opportunities for retail and office properties throughout the Triangle. Tara joined TradeMark Properties in March 2009, having previously been a commercial real estate broker in Raleigh with 18 years of experience in marketing and new business development. She resides in Raleigh, N.C. Tara can be reached at (919) 573-8112 or TKreider@cbctmp.com
Russ Wallace is a Real Estate Investment Advisor at Coldwell Banker Commercial Trademark Properties. Russ focuses his responsibilities on identifying lease and purchase opportunities for industrial properties. He has nearly 30 years of experience in sales and marketing, having worked as a home improvements contractor, business owner, mortgage loan originator and residential real estate broker before joining TradeMark in March 2009. A native of Jackson, Miss., Russ currently resides in Holly Springs, N.C. Russ can be reached at (919) 782-5552 or RWallace@cbctmp.com
For more information, visit the Coldwell Banker Commercial TradeMark Properties Web site at www.cbctmp.com. For other guest columns, check out our authors page at www.carolinanewswire.com/authors.php.
CarolinaNewswire.com provides the thoughts and analysis of this columnist as a free benefit to our readers but without any representations or warranties as to the accuracy or efficacy of such thoughts or analysis. The opionions, analysis, and thoughts expressed here are those of the author only and should not be deemed as medical, legal, financial, tax or other advice from this publication. Readers with such questions should consult a professional.
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