CIRB News & Transactions
News 05/01/2004 : The Daily Record: Commercial Real Estate Quarterly. Specialization in Real Estate. THE DAILY RECORD MAY 2004 MARYLAND’SCOMMERCIALREALESTATEQUARTERLY By Arlene Karidis Special to The Daily Record onsumers looking to buy or sell specific types of properties are demanding that their agents know the ropes within their given market or industry. So brokers are honing in on the restaurant industry, bank foreclosures and other niches. Specialists are winning out largely because clients like that they don’t have to educate their agent on the product and pitfalls. Many brokers with a particular focus say they are getting more work and negotiating more deals than when they were simply a “jack of all trades.” “Consumers want an expert who can reduce their liabilities that stem from a myriad of legal issues. [Brokers] need to know planning and zoning regulations as well as health department and fire codes that apply within a given niche,” said Ronald Deem, vice president of Coldwell Banker Commercial in Annapolis and chair of the Commercial Policy Committee at the Maryland Association of Realtors. A growing force of franchises several decades ago sparked the move toward the first specialty — commercial real estate. At the time, most commercial real estate was done out of residential shops, and brokers were not prepared to meet the demands of the McDonald’s and Exxon’s, which needed experts in site search who knew the inventory available within their markets. Today, even within commercial real estate there are subspecialties such as industrial, office and special uses such as carwashes set up on pad sites that are leased by shopping center owners. Specialization has mushroomed in the past few decades with support from trade institutes such as the International Council of Shopping Centers, the Commercial Investment Real Estate Institute and the Council of International Restaurant Real Estate Brokers. These organizations sponsor programs and events to help specialists market themselves as a group and to educate them in areas such as negotiations. The Council of International Restaurant Real Estate Brokers has 22 individual members nationwide who network with one another to take a strong hold on the restaurant market. “Restaurant brokers and other specialists are doing significantly more business than general practitioners,” said Marty Kotis, president of the council and of Kotis Properties in the Carolinas. His firm has grown 700 percent in the last five years, which is when he began turning down other work to narrow his focus exclusively on restaurant real estate. Brokers in this specialty understand parking, hood systems used to pull exhaust off the cooking line, as well as electrical and other systems designed specifically for restaurants. “The businesspeople we service need someone who can track the inventory. It’s a challenge to keep track of what’s out there, let alone what’s coming on the market. We can tell a client of a restaurant that’s struggling and that may soon be for sale,” said Kotis. Handling ‘dirty work’ David McIlvaine, associate broker of Coldwell Bankerin Ellicott City, specializes in bank foreclosures and says bankers will only work with specialists — Realtors who handle some of the “dirty work” and who know all of the corporate banks’ markets. Asset managers who do foreclosures may have 150 properties across the United States at one time. “Banks don’t want to be in real estate. But they must move their property quickly, because if they have to write it off as bad debt, it doesn’t look favorable on the books,” said McIlvaine, who works with eight banks nationwide. Besides marketing and selling foreclosures — usually for a fee of 6 percent of the purchase price — Realtors also handle hauling dumpster loads of personal property, dealing with abandoned pets and determining the investment that banks will have to make to refurbish homes that are often in poor condition. According to McIlvaine, 50 percent of the time the occupant is still in the home and refuses to leave, so he has to call the police in to handle the eviction. Business has been good, especially recently, he said. “I see more investors clamoring for foreclosures than four-bedroom colonials on nice, wellkept lots. For the investor, the worse the condition of the home, the better because there is a greater margin of profit,” said McIlvaine. Economies of scale Consumers depend on the specialists’ knowledge of economy of scale, or knowing how to maximize resources for the best return. “You’ll have costs related to storm water management, roads, parking and other infrastructures. You need [commercial real estate expertise] to balance these costs with your yield,” said Coldwell’s Deem. “So instead of building 3,000 square feet of space on $10 million worth of property, you will build more like 150,000 square feet. And you need to know the value of the land, as well as the cost to develop and improve it,” he said. While a specialized education and focused marketing efforts benefit both consumer and agent, the latter needs to plan strategically to keep the transactions flowing. In addition to joining trade groups, brokers advertise in trade publications and get exposure by attending meetings of professional groups, such as the Maryland Restaurant Association. They network with other brokers in related specialties who pass referrals back and forth. In McIlvaine’s case, clients find him through Internet sites posting bank-owned properties. Sites specialized in this arena gather data across the United States on foreclosure properties. Still, while many more Realtors are focusing on only one area, others have their specialties but also hold onto more traditional residential real estate. They claim both arenas are equally profitable. “In 2002, I sold 145 homes, and 72 were REO [bank-owned] properties. A lot of Realtors do solely REO’s, but my feeling is that it’s like having a mutual fund, where diversity is important,” said McIlvaine. He has two Realtors who work exclusively in foreclosures, while two more are general Realtors. He said his business is systemized, and much of the protocol for one type of sale applies to the other. Other Realtors have a different perspective. “We only do restaurants because we can’t do it all effectively,” said Kotis. “I think the market is going to force a majority of Realtors to become specialists. They will continue taking business away from the general Realtors.”
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