Fine, good definition, but why are they important?  The main reason why they are important to commercial real estate is for determining obsorption rates of office vacancy, but they can also be used to determine highest and best use.

Here’s an example; let’s say and investor owns a vacant building that used to hold a Blockbuster Video store and he wants to lease or sell it.  Typically, an agent might look at his building, look at the zoning codes and list the property based on what could go there.  As you probably know, video/DVD rental stores are declining due to the advent of Netflix, Video on Demand and YouTube.  But how would an agent determine what would be the most likely tenant for the space?  One way would be to research the Bureau of Labor Statistics website to determine which industries are flourishing in the area that meet the zoning requirements for the space and cross reference them with the latest census report.  Through the use of understanding NAICS codes, agents can be more prepared to list space for prinicipals.

Whether you realize it or not, Commercial Real Estate is dominated by agents and brokers who, either in personal action or in accordance with brokerage philosophy, judge other agents as not having the expertise necessary to conduct commercial transactions simply by the company they work for.  This “Old Guard” secular mentality allows them to horde fees, not return calls, or simply not cooperate with other agents that don’t work soley in commercial real estate or work for a big firm – simply by instituting a righteous point of view.  This old guard (old world) style of business says that certain agents don’t have the expertise to transact certain properties and therefore, do not count when representing cleints.  The mentality is ingrained and super resistant to change.  These policies while extremely profitable for big companies, erode the possibility of clients receiving fair market value for their assets – as listings are held to certain circles where agents have control and brokerages can “double end” the fees (represent both sides of the transaction).

With the advent and adoption of brokerages using collaborative technology’s – the world, and commercial real estate is slowly beginning to evolve to a higher consciousness. This is evident by some brokerages blurring the lines of agency between commercial and residential transactions, firms such as Re/Max lead the charge and which is now being picked up by KW and others.  These firms teach residential agents to partner with commercial agents for these commercial transactions and build unity between the two groups.  This is the coming philosophy of collaboration that the world is evolving into.

That said, there are still some people in high positions inside corporate America that try to keep the Old Guard mentality entact – as you can imagine, it’s mainly in the banking community – who reaped untold riches from unsuspecting borrowers with their devious lending practices.

This morning I had a conversation with a director at Wells Fargo Private Bank, and was once again surprised by the dated advocacy of these types.  The level of ignorance this person displayed in judging the experience of an Agent by the firm he/she belonged to – was appalling!  When I mentioned, I worked for myself, I was shunned.  She never even bothered to ask my experience, abilities, or designations – just lumped me into a segment that she spoke of with a hint of disgust in her tone – a manner of speaking that I have often heard from the egoic temperments of commercial agents in big firms.  Apparently Wells Fargo only lists properties with “commercial only” firms like CBRE and Marcus & Millichap.  I felt sorry for the woman I was speaking to and found it oddly lucky for her that she was late in her life as I feel the coming change in commercial real estate – when the Old Guard dies off – would be difficult for her to endure.  As you can imagine, I ended the call quickly thereafter.

It’s been no mistake to move on to greener pastures through taking the time to get a broker’s license and open up my own shop.  My intention is to get away from the Old Guard… to work in cooperation with other agents as it is my natural way of being.  While some may say I will find it an uphill battle, I continue to successfully list and close multifamily properties and I welcome the challenge and believe my clients who understand my decision will be most served by my resolve.

So why is it such a good time?  It’s a great time because tenancy of apartments is rising and expected to rise for the forseeable future.  More people, for a variety of reasons, are moving out of their homes into apartment buildings.  Another reason is a combination of very little development combined with obsolescence (apartments being taken off the market).  The third factor is the value of debt.  With interest rates at an all time low, borrowing is cheap right now.  Lastly, inflation is expected when the economy swings back and there is no better hedge against inflation than investment real estate.