Robert B. Cleary Jr. is vice president and ONCOR manager for Meredith & Grew • ONCOR International of Boston.
Corporate America has been driving the globalization of commercial real estate professionals for some time. Corporate needs bring service providers across borders both inside and outside the United States. Friction often occurs as transactions cross borders. Additionally, corporations’ needs and goals in a service provider are defined and evolved. The functional purpose of commercial real estate firms are found to differ dramatically from country to country and even from state to state. Commercial real estate practitioners must proceed into the international arena with careful attention to the goals and interests of their clients and themselves.
The globalization of commercial real estate has been an extension of the national corporate needs in the commercial real estate service industry and other service industries. The philosophical backbone for providing global service has been in place for years. However, the structural backbone is still being formed and is shaped around the standardization of service providers within an organization including level of sophistication and efficiency in transaction process.
Among the impacting elements that will assist in successfully implementing corporate real estate needs are the globalization of the capital markets, the growing availability of business systems on a wide-scale front and the vastly expanding trade markets. China and Mexico are fine examples of hybrid models of internal and global investment in infrastructure and modernization.
The global standardization of service providers is challenging at best. Most commercial real estate firms can barely promise seamless services within the United States from office to office.
Brokerage companies need to have expanded capabilities in today’s expanding business borders. In order to protect and serve client relationships and generate alternative streams of income, firms are forced to offer global services. Those firms that do not have the reach to assist in various types of transaction and consulting services on behalf of clients risk losing potential revenue from global service and, more critically, local client relationships. Commercial real estate professionals must be capable of going where a clients go, and today’s corporations are not always loyalists to a particular zip code. Finally, opening the doors to global capabilities will open the doors to more than direct fee income from transactions and consulting. Referral opportunities from new partners will generate new income sources.
Friction and Familiarity
Friction often occurs when business crosses borders. The pure recognizable differences in the language, culture and customs of a society can wreak havoc on business, and commercial real estate is not an exception. Preparation and research is absolutely a must prior to conducting or practicing commercial real estate country to country. In addition to obvious cultural discrepancies, differences in compensation, licensing, structure (contracts) and professional service provider relationships can be profound.
Fee structures vary from market to market and from country to country and can be smaller than expected. Have the conversation up front and put the agreed upon terms in writing. Understand who pays the fees and how. For example, in the United Kingdom, the tenant pays the transaction fee for their consultant or service provider. In most transactions, the landlord has a representative whose fee is paid by the landlord and the tenant/buyer has a representative whose fee is paid for by the tenant/buyer. This is somewhat common throughout Europe.
The United Kingdom is by far the most advanced European country for managing commercial real estate needs and referrals from the United States primarily due to the commonality of language and, in many cases, financial accounting practices and familiarity of tax law. The United Kingdom also provides a source of consistency in advice and level of service throughout Europe. The one-off transaction mentality is very much alive and dominant in European markets, which heavily conflicts with the more highly evolved and desired account management style of the service providers within the United States. The United Kingdom has embraced this technique of service and thus has the bulk of European referrals managed from their homeland efficiently and successfully.
Licensing may or may not exist in a given marketplace. How and by whom the industry is monitored is very unclear, except in U.K., where three years in university, two years practicing, testing and dissertations results in a professional designation for the industry there. The more common European situation is that no license is required or one may simply purchase a local license to practice real estate. Unfortunately, general practitioners without ethical standards and common practices can be mistaken for the professional word the U.S. often uses: broker. In Europe, understanding this may not be such a good term to classify oneself as is important because some markets find brokers to be unethically motivated according to U.S. professional business standards.
Contract law and common practices are very difficult to generalize. The very nature of laws from country to country will differ. In many cases, commercial real estate business contracts and discussions will be conducted in English, which will present at least some familiarity. However, without preparation local custom and practice will prevail and could present undesirable experiences and results.
Professional service provider relationships can be confusing and troublesome. Whether it an association, a network, a joint-venture partnership or a national real estate corporation, the level of accountability, service and success will inevitably vary from source to source. Individuals and national organizations alike, face very similar challenges to provide good service, good coverage and good professionals for their very important client relationships. After all, in each instance big money is at stake for investors and senior management in the corporations and for principals and practitioners in the commercial real estate providers’ industry worldwide.
Over all, the global relationships between corporations and their real estate service providers are under intense scrutiny and competition. Global commercial practitioners must trail the needs of clients. Be ahead of the curve. Understand the complications and the fundamentals. Be prepared, prepare your client and stay very focused on the purpose of your assignment.
