Why Your Approach to Comp Data Has to Change
Coronavirus has drastically altered CRE. Brokers and firm leaders must adapt.
There’s no denying the impact COVID-19 has had on commercial real estate (CRE).
“We went from an environment where deals were teed up for Q2 and Q3. People could predict, to some degree, what their pipeline looked like and where the next deal was coming from,” said Rethink CEO Vijay Mehra. “That all went out the window in March.”
Brokers who want to navigate this new environment will have to change their approach to comp data in order to effectively price out deals.
“We had a good idea of what properties were trading for when the year started. A broker could tell you what cap rates looked like in East Austin or a sub-market in L.A. or a particular neighborhood in New York, based on recent transactions,” Vijay explained. “Now, that historic information has essentially evaporated.”
Vijay’s professional journey has given him a unique perspective on the challenges CRE firms currently face.
In addition to spending the last 15 years working in commercial real estate — starting with identifying and closing sale-leasebacks for an investment firm in the mid-2000’s and extending to an East Austin development project he’s currently managing — he started Rethink during the Great Recession in 2007.
“People thought I was crazy for launching Rethink during one of the worst economic situations in modern history,” he said. “But I saw it as an opportunity. More than anything, I was just excited by the idea that we could bring value to the industry.”
Due to this experience, Vijay knows how challenging it can be for CRE firms to succeed during a period of economic uncertainty.
But he also recognizes that the current crisis is unlike anything the industry has experienced before.
“The 2007 recession was definitely a long burn. It didn’t happen as abruptly as what’s happening today,” Vijay said. “I also don’t think it was as deep as what we’re seeing today.”
“Companies are no longer thinking of expansion,” he added. “They’re not thinking about the next bar they’re opening or the next restaurant or the next retail location. They’re in survival mode.”
And that’s having a tremendous impact on the way deals are unfolding.
“Deals are going to continue to happen,” Vijay noted. “But they’re going to happen in an entirely new realm and paradigm. This presents a whole new element of fear for brokers because now, we don’t know how to price deals anymore.”
But those who successfully press through this period of uncertainty will be well-positioned for success as the economy rebounds.
“We’re going to see a lot more vacancies and empty buildings flood the market in the short-term future,” Vijay said. “But we live in an entrepreneurial society. New businesses will open looking for space, and brokers will be behind every one of those deals. Many investors looking to park money in a safer investment vehicle than the stock market will also lean heavily on commercial real estate.”
So, how do brokers position themselves for success right now?
Vijay suggests an approach that includes:
Aggressively tracking deals that close
While the current market has slowed, Vijay notes that deals will continue to close.
“All the data that’s going to be collected around those transactions will be the new data you’ll use to price out current and future deals,” he explained. “Without that data, it’s going to be extremely difficult to get clients the best deals.”
Vijay also notes that while brokers may feel overwhelmed going from a large data set to a smaller set that only contains the deals closed in recent weeks, there’s no need to panic.
“Those who are quick to the punch to start collecting data across recent transactions are the ones who are going to beat out the competition,” he said. “So, while today there may not be a whole subset of information and comp data flooding the market, you just have to start with that first data point.”
Reaching out to people in your market
Vijay went on to say that brokers shouldn’t wait for their own deals to close, instead they should reach out to people in their market who can help bolster their comp data.
“So much of what a commercial real estate broker does is maintain relationships, not only with their clients but with other brokers in the industry,” he explained. “Reach out and say, ‘Hey, I heard you just did this deal. What did it trade at?’ Then, aggregate that data.”
That suggestion extends beyond calling other brokers.
“Pick up the phone and call landlords, tenants, buyers, and sellers,” he advised. “Use every source at your disposal to collect and aggregate more data.”
That approach, Vijay says, can even help your prospecting efforts.
“When you’re calling a lot of these landlords, potential tenants, or investors, you’re soliciting information from them. That solicitation can turn into a relationship where you can then represent that person or company on their next deal,” he explained.
And the information brokers gather during those initial calls can give them the edge they need to close the deal.
“They can then use that info to go back and pitch a service, pitch value to that person. You might be able to say, ‘Hey, I know you just purchased this building at an X cap. Have you thought about leasing it? I may have a perfect tenant for you to place in this building,’” he added.
Improving your negotiation skills
While comp data can give you a solid starting point, Vijay says pricing out deals is a fluid process.
“Something is only worth what someone is willing to pay for it,” he said. “A lot of times that’s what will define a price point.”
And with greater uncertainty in the market than ever, negotiation skills will take on even more importance.
“Brokers are going to have to be negotiating experts,” Vijay said. “They’ll have to put in the work to get their clients the best value out of a deal, especially with the limited data set that’s available.”
Keeping market data clean and organized
With fewer data sets to work with and more importance placed on all the information you collect, it’s more important than ever to keep comp data clean and organized.
Unfortunately, many brokers still rely on traditional methods of tracking and managing data that leave much to be desired.
“Historically, most brokers have used pen and paper to track information — spreadsheets for those who are more sophisticated,” Vijay said. “But they need to implement a programmatic way of capturing this information.”
That’s why he suggests using this time to evaluate new technologies that can position your firm to successfully navigate this crisis.
While some may be hesitant to invest in technology during a time of economic uncertainty, Vijay notes the success of those who did during the Great Recession.
“The people who really excelled and dominated during that downturn are the ones who turned to innovation, turned to technology, and utilized technology to their advantage. And a lot of them have since retired,” he said. “They came out of that downturn stronger than when they went in.”
“As I compare it to today, I think the same thing is going to happen,” he added. “Those who really excel, and those who come out of this stronger than when they went in are going to now realize that using technology to help give visibility to their data, their processes, their deals, and their relationships is what’s going to help them come out of this ahead and stronger.”
Technology can be particularly powerful for larger firms, who can share comp data firmwide, leading to a larger pool of knowledge.
“Then, the brokerage gets even smarter,” Vijay said. “They become even more intelligent in their respective market versus having a bunch of brokers running around with comp data in their heads or Excel spreadsheets or notebooks sitting all over the place.”
He went on to say that brokers and firm leaders should consider more than just managing comp data when evaluating technology. They should consider CRE’s most valuable resource: relationships.
“They have to find innovative ways of staying connected,” Vijay said. “And not just with their clients. How is a brokerage supposed to manage the success of their individual brokers — How many dials are they making? How many relationships are they building? How many deals do they have in their pipeline?”
With remote work taking hold, understanding that information has become increasingly difficult.
“When you’re able to meet in an office every day, every week, you can spit something out in a weekly meeting. Now, it’s a lot more difficult,” Vijay explained. “If you want to stay competitive, if you really want to stay ahead of the curve, you’ve got to have a dialed-in approach to tracking this information. Not just from a deal standpoint, not just from a comp standpoint, but from managing your relationship with your brokers internally to managing your relationships with your customers and the information you’re sharing with them.”
How Rethink can Help
Rethink — the dealmaking platform purpose-built for CRE — can help you quickly and easily track and manage comp data and relationships.
- Automatically create comps with every deal closed.
- Track all dealmaking data from a single location.
- Share key data across your firm in real time — without making brokers’ carefully guarded prospect and client contact information public.
- Access the full history of your firm’s past communications with clients and prospects.
“Rethink is the connector. It helps us break down any silos that build up between departments. There’s no question of where to find information or who to reach out to. It’s just accessible, whether you’re at your computer or on your phone.”
Krista Leetma, Director of Intelligence and Marketing, Landmark Advisory Services