Making the Commercial Grade

Can you cut it in commercial real estate? Know what you’re in for before you make the switch.

September 1, 2000

In an age when top office and retail properties regularly sell for millions, if not hundreds of millions, of dollars, there probably aren’t too many residential salespeople who don’t occasionally think about switching to the commercial side of the business.

“People hear that you just closed a $3 million deal, and they do the math and think about the commission,” says LaMar Going, a former residential salesperson who’s now an associate broker with Coldwell Banker Commercial Advisors in Indianapolis. “But it’s harder than it first appears.”

“Commercial and residential are very different businesses that require very different skill sets,” says Dennis R. Cronk, president of the NATIONAL ASSOCIATION OF REALTORS® and a principal of Waldvogel, Poe & Cronk Real Estate Group Inc., Roanoke, Va.

How different? Take something as basic as product knowledge. “In residential, product knowledge tends to be demographic--who lives where, the ages of the people in the neighborhood, that kind of thing,” says Joe Hanauer, former chairman of Grubb & Ellis and currently a principal of Combined Investments LP, Laguna Beach, Calif. “But in commercial, it’s very technical. The real value-added service the salesperson provides is knowing construction, alternative uses, environmental issues, and the local labor market.”

“Commercial property is much more difficult to understand,” says Cronk. “For a multistory office building with a number of tenants, you need to understand how it performs as a financial asset and be able to compare it with other investments. You have to understand leasing so that you can analyze the risks involved.”

Probably the biggest difference, and one that affects a number of different areas, say commercial executives, is the tone of the business.

“Commercial transactions aren’t normally as emotional as residential transactions,” says Cronk.

“I remember a residential training session I once attended in which the trainer advised salespeople to have a loaf of bread baking in the oven when showing a house so that it would seem warmer and homier,” says Jerry Anderson, president of Coldwell Banker Commercial in Parsippany, N.J. That may still be a great idea in residential sales--but it underscores the different mentality involved in selling commercial real estate.

“It’s all numbers,” says Mike Markowitz, an associate broker with Coldwell Banker Commercial in the Chicago suburb of Des Plaines. “The color of the drapes or the condition of the carpet doesn’t matter. If the numbers work, you have a deal.”

However, executives say that one emotion does surface in commercial, namely, pride. “There’s a certain amount of ego in having the biggest and the best and the tallest,” says Steve Keyes, an associate with Northside Commercial in Atlanta. “Ego plays a much bigger role than people think.”

Executives also say commercial is a far more consultative business than residential. “The residential salesperson needs to know how to close, how to get a decision,” says Hanauer. “It’s not true to the same degree in commercial because the skill and motivation levels of the client are different. The person making real estate decisions at a company has usually made this kind of decision many times before. The commercial salesperson knows a decision will be made. He doesn’t have to force the issue.”

The heart of all real estate selling, commercial as well as residential, is relationships. But given that the real estate needs of most businesses are ever changing, commercial salespeople tend to work more intensively with fewer clients.

“You work with the same buyers over and over,” says Cronk. “I know many commercial salespeople who have only one client, and taking care of that client’s real estate needs is their job.”

Executives also say that selling commercial real estate is more of a team effort because of the depth and complexity of the deals.

A large commercial company, for example, will typically have a number of research analysts on staff to analyze the specifics of various deals and to provide salespeople with the data they need to close the sale. In addition, commercial salespeople, without a single, organized multiple listing database, rely more heavily on networking to make transactions happen.

“In residential,” says Going, “I used to dread weekly sales meetings. It’s the opposite in commercial. I want to hear what the other members in our office have going, because sometimes we can get together on deals.”

As for the money, executives paint a mixed picture. “The very top commercial people probably do better than the top residential people,” says Hanauer. “But the notion that the money is automatically better in commercial isn’t accurate.”

In residential, brokers or salespeople set their commission and negotiate from there with sellers. But in commercial, says Anderson, “every deal is different. Since you’re operating in a consultative mode, you might not get a commission at all. It might be a flat fee. The charges to clients are all different.”

What’s indisputable, however, is that the transactions are fewer and generally higher priced than in residential.

“My last year in residential,” says Going, “I closed about 90 deals. There’s no commercial practitioner I know of in this market who’ll do that this year. My goal this year is to close six $1 million-plus transactions.”

For residential people interested in making the switch, the first step is to sit down with commercial brokers to “get a feel for how they spend their day,” says Hanauer.

“I transitioned to commercial real estate over a couple of years,” says Going. “I went back to school and got my CCIM designation, which gave me the skills to analyze the market.”

And what’s life like on the other side of the real estate fence? “It suits me better,” he says. “In residential I found it frustrating to walk into what I thought was a great buy and have the customer turn it down because the carpet wasn’t right. I like to cut to the chase.”

Robert Sharoff is an architectural writer for The New York Times, Washington Post, Chicago Tribune, and Chicago Magazine. With photographer William Zbaren, he has produced books highlighting the architecture of Detroit and St. Louis. He is a former senior editor with REALTOR® Magazine.

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