Probability Brokerage

All commercial real estate brokers must realize one essential truth – time is your most precious asset. Your expertise as an intermediary is a close second, but it is still second. If you spend your time on low probability activities; you will never recover the lost hours. Time – unlike money or skill – cannot be saved for another day. When assessing how to spend our professional time we must focus on probability; not possibility. Is it possible that you will sell that 50-year old building that’s been vacant for three years in a tertiary market? Sure. Anything is possible. It’s just not probable.

Every discipline in CRE (Agency, Tenant Rep, Investments, etc…) has a slightly different process for assessing probability, but the essentials are similar. Here is an example of how to assess an investment listing:

1.      Credible, Defensible Net Operating Income – These are investments, so keep in mind that return is the primary concern. Did the owner provide detailed historical P&L’s, copies of leases, CAM reconciliations, current rent roll? Whenever you accept less than full financial disclosure; you are lowering probabilities. That is not to say that you will never accept anything less than full disclosure. Many brokers have been faced with doing “back of the napkin” analysis to secure a listing. But at some point, failure to provide substantiation of the income stream will lower probabilities of a successful closing.

2.      Seller Motivation – why is the owner selling? Presumably, you wouldn’t even be discussing a listing unless they had some reason, but not all motivation is created equally. What if the reason is netting the last dollar on a top-of-the-market price? What happens in 90 days if interest rates have increased 50 basis points? The best brokers know how to patiently and effectively question a client about possible outcomes and then assess how likely the seller is to proceed to close.

3.      Potential Buyer Pool – There are two levels to this consideration. The first is fairly obvious. Is the potential listing an anchored shopping center on a main arterial with national credit tenants? Is it a functionally obsolete building with 50 percent vacancy in a rural location? There is a lid for every pot, but there are clear differences in demand levels. Not every broker has the luxury of only working on A properties in A locations, so the second level of consideration is more practical. Do you have a database of potential buyers? Certainly, cooperating with other brokers can expand your access to investors, but you should have your own prospects. It is a misuse of time to have to reinvent yourself for a listing unless your entire career is taking a new direction.

4.      Availability of Debt – Before taking a listing you should discuss possible financing with a lender or mortgage broker. Not a generic discussion about loan programs and spreads, but a specific consideration of the listing. Is it financeable? At what rates and terms? Are there multiple lenders in the market that would have interest? In the case of recourse financing – what must the borrower look like and how does that match up with your assessment of #3 above?

We are often so excited at the prospect of a new listing, especially at the start of a career, that we rush headlong into low probability situations. Don’t fall victim to the age-old new broker traps of “having something to put my name on” or “having a reason to make calls.” If you cannot see a clear, probable path to a closing then you must strongly consider passing. This is as much for your own benefit as it is for doing right by the seller.