Commercial Real Estate Data – Nationally Inconsistent

Commercial Real Estate Information, It’s Complicated.

Your inquiry pertains to income producing property. In order to estimate the value of a property, you need to calculate the property’s potential Net Operating Income. Just knowing what the market rental rates are, although helpful, is insufficient. A landlord makes money from signage, parking and other services. A Landlord can recoup operating expenses, Tenant Improvements (buildout), taxes and insurance. A skilled Tenant Representative will negotiate on all these items to secure their tenant a good deal and minimize the tenant’s occupancy cost.

So, getting a complete picture of what the market for lease space is very complex. I don’t think that data standards have much to do with it. Documenting the most important deal points of recent lease comps is difficult enough.

Every market is different CoStar, LoopNet, Catylist, Xceligent, ePropertyData, CommercialSource are very different from market to market. Depending on the market and the property type, the various services will have strengths and weaknesses.

Helping you client accomplish a successful transaction and achieve their business objectives, is the measure of success. Answering every question and providing them a “complete picture” is, in many cases, not possible. A well researched local Commercial Information Exchange (CIE) will have a great deal of active listings, lease comps and sale comps. Although not totally comprehensive it will provide a basis for evaluating alternatives, negotiating and making decisions.

Each market defines its own data standards and there is a remarkable level of consistency between many commercial markets on most of the important data elements and terminology. Establishing consistency of data within a single market is most important, between different markets, less so.

MLS with its rules and structure is a gift to the current generation of REALTORS from the previous generation of civically minded brokers. If MLS were invented today it would probably be less stringent and less consistent. Many significant commercial brokers will not cooperate with an authoritarian listing service that mandates strict compliance and enforces those rules with fines and penalties. These brokers have alternatives and competition dictates that flexibility and voluntary compliance be accommodated. Efforts to create better data are rooted in customer service, research and creative solutions to encourage and reward brokers and firms that help compile complete information.

CommercialSource.com is NAR’s commercial portal. There are no commercial Automated Valuation Models (AVMs) because of the complexities of valuing such disparate properties. RPR is still largely theoretical and primarily residential in its focus, so only time will tell if RPR has any impact on the commercial marketplace. In addition to brokers, appraisers are an important source of information.

I’m a CRE newbie trying to learn, so my apologies in advance to everyone if I ask dumb/obvious questions.

@Sam: Interesting. So commercial brokers are more or less taking the opposite route of most residential brokers, believing that the value created from owning their own information exceeds the value created if they were to pool their listings with their competitors in a shared repository. Quality information is actually a point of differentiation for CRE firms, as opposed to a point of parity for RES firms. Am I reading this right?

So when a CRE buyer (or lessor) contacts a CRE agent to get shown properties, does the agent direct him to his own broker’s listings first? Are those potential conflicts of interest effectively addressed in the marketplace?

There are Levels of Cooperation

@Jeff, most commercial brokers are reasonably cooperative and willing to share information about active listings, provided it does not take much time and energy, when they get around to it. Most organized firms have admins whose job it is to keep the various systems up-to-date. But these admins are always getting pulled in different directions and at some point they have to turn off the lights, go pickup the kids and start dinner.

That is why a CIE/Listing Service needs to have a research team and good customer service to assist with data entry. If the process of sharing information is not pleasant and easy, then it will occur rarely. Firms like to promote themselves with an image of having a trove of proprietary internal information. The reality, once you get a look at their secret internal information cache, is usually some derivative analysis from a third party, or a spreadsheet of researched comparable deals from 6 months ago.

Brokers tend to be less forthcoming about some of the sensitive deal points of completed transactions. Term, renewal/escalation clauses, extra TI allowances, signage and expense provisions are critical and rarely disclosed items. Many commercial representation agreements include confidentiality provisions, so the broker may be prohibited from disclosing details of their work. Much of this sensitive information may only be shared among close friends with years of collegiality and then only in an oblique and hypothetical context.

Since there are few true Commercial MLS systems that include a unilateral offer to compensate and cooperate, most brokers want to establish an understanding that they will be paid by the seller/landlord rep prior to showing a property. The Texas Real Estate Commission’s “About Brokerage Services” form is mandated to inform potential clients about the possible absence of a fiduciary relationship.

Duke: Thanks for bringing commercial brokers into this discussion. I’m still not sure why you are so focused on Data Standards or the lack thereof. Within the Texas Gulf Coast – Houston marketplace we have standards and consistent data and terminology. Perhaps our data record is not fully populated in all cases, but we get the most complete data possible and organize that information in a consistent manner. We are able to best serve this brokerage community by conforming to their conventions and we do not try to force our brokers to adopt terminology or business practices from another market. People who create and compile information tend to be less concerned about data standards than those who want to access and use someone else’s information. Between different markets there are only a few, non-critical, differences and inconsistencies in terminology or data elements. These differences in data address the differences between those markets and should not be treated as a problem to be solved or stamped out.

Coy, Thanks for your kind words. Nice to see the Colliers’ team growing. Not many CRE firms can say that.

I work with smaller brokers with those “proprietary” systems. Believe it or not, most of them take data collection and standards seriously – they’re in smaller markets and it’s a huge competitive advantage to have current listings (not just their own) and generate market data from it. We have no CoStar and only one market has a local commercial MLS so it’s LoopNet or DIY.

But to the original post on standardizing data – good luck with that!

Part of the problem is these systems are developed in one area of the country and they don’t realize things are different elsewhere. There *are* market differences – land in acres or SF, monthly or annual lease rates (and per SF or total), for example.

Another problem is definitions/terminology. One developer I worked with kept referring to an APN – had no idea what he was talking about but it turns out it’s what we call the Tax (Map) ID in our markets. And you can’t always find agents in the same market agreeing on definitions. They have very spirited discussions here on things like what a flex building is, clear height vs. ceiling height, is Full Gross the same as Gross, etc…

Don’t even get me started on property uses. We have the worst time trying to wedge our building major use (plus secondary uses and subuses) into all these aggregator’s (and they’re all different….) “property types”.

Once you get past all that, there’s still the “sharing” issue. First, a lot of brokers believe that you only want to give up enough information to make someone call. Annoying for sure, but if you really want to know, you’ll call.

Second, while most brokers are willing to push their exclusive listings, no one is going to give up information they have on non-exclusive listings (that’s what’s in those “proprietary systems” – along with all the competing broker exclusive listings) when there’s no way to get paid. The companies I work with – on average, 60% of their deals are done with a competing broker or involve space/a building that no broker has an exclusive on. Unless you can ensure a listing fee/can’t bypass the listing agent and go straight to the owner/landlord, why would you share this kind of information?

Duke,

Your right if you dont get participation form the major firms, that is a huge blow. Lickily CoStar was prepared to prevent that sinerio. They have national agreements in place with the largest firms in the county with automatic uploads for firms like Cushman, JLL, CBRE, Marcus, Grubb and many others. This woule eliminate missing a major group of lisitngs in a certain market. The other factor is that there is no advantage to NOT giving CoStar your data. It is free to put info on CoStar. It always has been and always will be free to get your lisintings into the database. You just have to go through a researcher at CoStar so they can input it into a standard format so it can be verified. And brokers understand that if they want to be visable to firms like CBRE, they HAVE to be on CoStar.

Paul,

Every market has a local board and database. I think the local board will have a harder time getting participation from ALL firms than CoStar would. CoStar Coexists with all these differeent board systems in each market.
CoStar provides so much more insight than just listing infomation. They have software built in to help forecast, trend, look historically, and really manage the data to allow each person to get what they want out. That has taken 25 years of software development to establish. I can not see a new service on the block with that type of R&D to be able to offer a platform that is comparable for much less.

I think the local board systems can compete for 2nd optionwith a loopnet or Excellegent, but not with CoStar….but CoStar does have a price tag to have access to this type of information. And if the broker does not know how to utalize and leverage this type of data, it is useless to have such accutrate data.

Duke,

I wrote a post on the lack of transparency a couple weeks ago. Hate to do a link to my own blog here, but I think it’s appropriate (squarefeetblog.com/commercial-real-estate-blog/2010/01/29/the-irony-of-silicon-valley/) not because of what I wrote, but the comments that ensued below.

Unfortunately, many in the industry continue to walk down the same path.

Bigger picture though, I think these problems all stem from the association/board level. The databases are merely a side-show. The residential market is extremely strong and tight-knit, from the local organization/board all the way up to NAR. My local commercial association/board charges a $100 a year, has a golf tournament, and an awards dinner. Just look at their website for a good laugh (asvb.org/). The second most seemingly important link on the site pertains to the self-inflicted awards dinner and the calendar of events also includes a golf tournament.

Click on the “our area of service” to see the highly sophisticated mapping technology used to outline the service area of the association while you are at it.

With that sort of budget and set of priorities little will get done. This will require new leadership which can convince member brokers/companies to invest – by way of increased dues – into technology, lobbying, etc.