“World wide coverage” is the marketing slogan for many commercial real estate service providers in response to satisfying multinational clients’ needs. As real estate professionals are drawn out of their local markets and over national and international borders, clients and service providers discover the difficulties that arise in out-of-market transactions.
With commercial real estate being a primarily local business, it is always going to be a challenge for international companies to service portfolios at a global level. For many companies that cross borders, the decision of which service provider to choose comes down to the difference between world-wide coverage and world-class service delivered globally.
Global capabilities are an essential component of today’s leading commercial real estate providers. Client relationships are expanding to service the many corporate executives whose responsibilities now often take them globally when making real estate choices. Consequently, as clients take on an international focus, commercial real estate professionals must follow suit in order to service, support and retain existing relationships and develop new business opportunities.
Being able to travel and to practice real estate at the destination where your client’s business takes you is crucial for brokerage survival. Many brokers feel that the inability to handle multimarket requirements will eventually lead to being replaced by another commercial real estate brokerage professional who can and who will subsequently reap the long term benefits of multinational or global client relationships.
Corporate Structure
Multinational clients have two basic business models to choose from when seeking a global commercial real estate service provider: one model uses the approach of forming a network of privately owned real estate companies with local expertise; the alternative model is a single company owning worldwide offices under a single brand.
When deciding between the two models, the most important aspect to fully understand is the lack of standardization in the global commercial real estate industry. For example, Europe’s real estate industry sees a vast majority of transactions with different real estate advisors on each side of a transaction. In the United Kingdom, the tenant involved in the transaction usually pays its own tenant advisor fees.
In general, fee structures vary from market to market and from country to country. Understanding who pays for services and how much will be paid is always important to know upfront and before a transaction gets underway. Other factors that contribute to the lack of standardization in the global commercial real estate industry include communications, human resources and capital costs. These factors also create complications with establishing international capabilities and conducting business globally.
Real estate professionals must recognize that in foreign markets, the language barrier may be the least of their concerns. Cultural differences, the variability of compensation, differences in licensing requirements, monetary terms and deal structures all require close attention when dealing globally. Preparation and research become important in understanding the subtleties of the international marketplace.
Perhaps the most significant factor in establishing international capabilities is the capital cost. While most real estate firms are knowledgeable of the rewards of global relationships – enhanced fee compensation and the reciprocity of transactions provided through worldwide initiatives – the time and upfront costs associated with establishing an international presence could be significant. Firms must realize that these initial costs are essential. By building a platform for successful transaction work, global real estate service providers must invest in technology, infrastructure, accurate research, and property owner and tenant lease databases to compete effectively.
Customer Demands
One interesting reaction from the multinational corporate community to the high cost charged by large, single-source national real estate providers is that clients don’t want to pay extra for cross-border services. The heavy costs for these real estate providers arise from the infrastructure that is necessary to offer global packages to clients. However, there seems to be little justification for global real estate professionals to charge clients a premium for coordinating a global service.
If you consider legal, accounting or high-level corporate strategies, there is a clear need for a global package from one company. But real estate doesn’t move. It is inherently and fundamentally a local asset. Thus, there is no need for customers to pay extra for a service despite a global need. There is sufficient sophistication in each market to meet the requirements.
Clients today are looking for innovative solutions, and the reality is that real estate companies work better without the big infrastructure necessary to offer global services under one umbrella. Their big infrastructure tends to stifle innovation and promote an attitude of obligation between offices to work for the brand rather than themselves as individual companies.
The alternative to the large national firms is coming into its own. With the maturing of communications such as e-mail and the Internet, borders are closer than ever. Networks will increasingly allow privately owned companies with local expertise to find opportunities to offer personal, international services with full service capabilities while maintaining value and knowledge in local markets.
The important thing to remember for commercial real estate professionals who wish to be active in a client’s global business is that there is a true distinction between global real estate capabilities and the globalization of real estate. World-class service can be delivered globally without an international infrastructure from internationally-connected local market experts.
