Whether you are an investment sales, leasing or a debt broker, the question of split vs. value is a relevant question that needs deeper introspection.
| In this article, we will analyze the value proposition of different brokerage platforms vis a vis each other; especially as it relates to debt brokerages.
By way of a quick background, I started my career in corporate/real estate investment banking at some of the largest banks including CIBC, then worked with a large national mortgage banking firm (focused mostly on multi-family assets) and eventually was hired by JLL where I was a top broker in 2016 across the entire country and EVP / Practice Lead for JLLs Debt Capital Markets business between 2013 and 2017. In 2019, we got investment/support from Colliers International and TechStars (One of the largest VC networks out of Denver, Colorado) to build a technology and data enabled CRE Debt Advisory / Brokerage Platform. Over last 4 years, we have built an amazing platform for Debt Brokers - FINNEO - to help them scale faster. FINNEO is also being utilized by clients direct. Often times, larger clients prefer to do their deals using the platform directly with light advisory assistance but the smaller and unsophisticated clients need full advisory assistance. We are equipped for both.
If you are a "successful" broker/advisor in your field, congrats! You are the Top 1% of talent in your field/industry. Without a doubt, you have the perfect combination of skills in sales/marketing/pitching/relationship management and quantitative skills + market knowledge. Now the question in your mind is and should be:
| What's the best platform for me to leverage my skills and scale faster?
The splits in the CRE Brokerage business vary, and they vary a lot (From 25%-90% to the Broker/Advisor). And the reason for that predominantly lies in the value that the Brokerage or the Firm offers to the Broker/Advisor. Perhaps it's easy to fall into the temptation that the Firms offering higher splits to the Broker offer higher value as well? or that why should a Broker with a Firm when he can put up his own shingle and keep 100% of the commission?
In reality, it's not as simple as that but generally speaking:
| Split should be inversely proportional to the Brokerage Value to You.
Let's do some further analysis below.
Any successful broker/advisor across the continent working in the CRE world has primarily four platform options and let's visit them one by one from a value/split standpoint. The reason they have been lumped into these 4 broad categories is because there are a lot of similarities within each of these categories:
Large MNC (multi-national companies) Full Service Firms: There are around 10 Firms in this space and they offer sales, leasing, debt/equity, property management and other affiliated services to their clients. In terms of value, these MNCs offer a well recognized brand and fancy offices along with a global foot print. Total employee base at these companies can be well over 10,000 but that comes with bureaucracy and politics. You can expect to get slightly discounted rates to several software and data services that you may want to subscribe to. For e.g., You can subscribe to CoStar or Reonomy for data, a Deal Path software for deal management, a Sales Force for CRM, Hubspot for email marketing etc. These softwares are not integrated with each other and as such the user adoption is very low once you peel the layers of the onion. These MNCs are excellent places for young professionals to start their careers at. You get training and free coffee! These firms will also offer discounted conference passes (but You pay for those through your revenue/expense formulas). One additional benefit is that the Broker gets to work with a wide variety of talent pool that leads to a good learning opportunity especially in early formative years. However, that is offset by more bureaucracy and restrictions imposed by brokerages often times. As a broker, you are also more prone to run into client conflicts with other brokers resulting in turf wars and lack of collaboration. These Firms are full of Brokers with astronomic egos and some can find it difficult to work with them. Perhaps those egos have been rightfully earned over time and with a demonstrated track record. But that doesn't help you, does it? Large Firms are all keen on providing more value to their Brokers but the general consensus, after talking to a multitude of their Brokers is that, often times there is a lot of talk but not enough substance behind it. In a nutshell, if you are an established broker at these firms with tenure and perfect political alignment, it's going to be a great place for you to work at.
National Firms (with correspondent or insured MF mortgage banking model): There are several firms in this space and for the most part they act as lenders and have a large MF book and a servicing platform for insured MF lending. These firms also broker deals alongside their insured MF lending business. The splits at these firms tend to be lower due to them acting in lending capacity but these Firms do offer a higher level of "job stability". From the perspective of these firms, lower splits to Brokers are justified because the Firm is drawing the clients in (as they are lenders) and the Advisor is simply acting as an underwriter and a deal runner. While these Firms offer a commission draw to reduce the uncertainty, the upside earning potential for a Broker tends to be limited as they are not able to effectively scale their true brokerage business. These Firms are not set up for Brokerage business due to lack of proper infrastructure. Their main focus tends to be on growth of their "loan book". Also, it's harder to win brokerage mandates with clients on exclusive basis at these Firms as these shops lack the tools required for Brokerage. The clients will always ask the question, are these Firms really getting the best deal for the client or are they favouring their internal fund because of additional revenue in the form of servicing and other trailer fees? These Firms are more bureaucratic and policy driven than the Large National Brokerage houses primarily because of their lending focus and management tends to exert a higher level of control on their Brokers/Agents who are considered more as employees than independent free agents. These Firms tends to be archaic and traditional because of their roots in lending but offer stability with modest upside.
Local Brokerages / Boutiques: Typically, these firms are owned and operated by a handful of retired bankers or individuals who left larger firms to start their own Firms. They do not have any other service lines i.e investment sales, leasing or lending arms/platforms. They act as pure debt brokers. The principals of the Firm tend to have historic relationships with few key clients/lenders and they mostly nurture them for repeat business. For new professionals joining these firms is very tricky because of the conflict of interest i.e the principals themselves are doing deals. The owners of these Firms are good at what they do but these Firms are not set up for scale and lack infrastructure that a Broker would need coming in from the outside. However, they have a local office in the market they operate in and "boots on the ground" offers a level of comfort to a Broker. These Brokerages will have minimal technology and data solutions but offer a more comfortable way for an individual broker to come in, learn the business and set up their own shop eventually.
Individual (on your own): This is the ultimate dream of an Entrepreneur. You are your own boss, congrats! But you are on your own and it can be a very miserable place to be alone especially in the CRE Brokerage world. While for residential mortgages or house sales this model works, it can be very difficult to do any meaningful business by being on an island all by yourself. You get 100% of what you bill but you still have to pay all the over heads and expenses needed to set up a brokerage including regulatory fees, marketing, legals, accounting, book keeping, data, subscription and more. This is a good option for a retired banker who wants to enjoy golfing and likes to be a lone wolf! But one would argue that it's tough to compete in this industry unless you come with a pack of wolves. Imagine, going to make a pitch to a client as a lone broker when the other team after you is coming in as a group!
Historically, these are the 4 main options available to a Broker/Advisor in this industry and based on my experience there is no "one size fits all" approach here. It really depends on what an individual wants to achieve and which platform offers them the best value to help them scale faster and leverage their skills better.
| At Finneo, we are the only company across the continent to have introduced a 5th option to the Brokers who are considering an alternative.
The cover image above helps to illustrate our value proposition vs. traditional brokerage (1-4 options above). Finneo is for the Brokers/Advisors who exhibit following characteristics:
Entrepreneurial and independent mindset but looking for a supportive and collaborative platform,
"Experienced individuals who know how to Broker deals" on their own and will be successful at any of the 1-4 above but are looking for something bigger to help them scale better/faster,
A team based approach to pitching and executing on deals,
A preference for Equity/ownership models,
A culture that fosters high level of transparency and communication,
Data and Technology solutions that are seamless and accretive to business,
We offer weekly sales calls, bi-weekly all hands calls, multiple training calls during the week, lender production calls each week and several other venues of learning/networking through golf tournaments, seminars, webinars and casual barbecues or ski days.
Brokers/Advisors in the industry should carefully weigh what works best for them and which platform offers them the best value for splits.
| Each platform has it's own pros and cons.
Each Firm has it's own value proposition but ultimately what matters to a Broker is the bottom line and that is drive by the number of exclusive financing mandates sourced on "doable deals" by the Broker. And that in turn is determined by clients. So, let's wrap it up by considering a client's perspective of the Broker value.
Following are the key questions that a client will consider in determining which platform is best suited to deliver superior results for their financing:
Does my broker have access to the entirety of lending market? (please don't bring excel spreadsheet of lender names to the pitch!). How is he different than the previous broker who called me with a similar pitch?
How well versed is my broker with the supply side of the money? Does he have up to the minute information on the lending market?
If my broker is advising me that they have access to a data platform eg Co-Star or RCA to source lending data, how is that different than me getting that access on my own? Why don't I just get my VP Finance a subscription to those data platforms instead of paying huge broker fee?
I expect my broker to shop my deal around with multiple lenders. Does he/she have the necessary tools to manage the volume and the RFP process that goes beyond excel spread sheets?
What is the level of transparency that my broker will offer me? What is the frequency of reporting?
How do I as a client know if the "reporting" is truthful and honest? Will I have a view into the lender responses, notes, emails so I can feel more comfortable in the process and my broker?
Every broker that comes to me seems to have the same "spiel", how do I know that you are different? What's your value proposition? What's your edge over the competition?
Do lenders like dealing with You, do you have the right level of lender response rates? How can you prove that to me?
Can you as my broker show me analytics on how much time lenders are spending on my deal and can you assure me that you are giving up to the minute information to all of the potential lending partners so they can make an educated and timely decision on my financing?
Are you able to get my financing package out to the market quickly? Are you able to handle the enormous volume of communication that will be needed in the event that certain changes are needed to the package during the RFP process as the deal metrics constantly change (with lease up etc) and reports have to be constantly updated? How do I know that you are effectively shopping around or maybe you are just bringing me the first solution you found?
Is my broker preparing a thorough and detailed financing package with proper attachments that can be easily accessed by the lenders? Or are you simply flooding lender inboxes with multiple emails/attachments or worse giving them link to a data room that they can't readily access?
How are you as my broker going to manage my funding conditions, do you have a collaborative and transparent platform for all stake holders to ensure timely funding?
Debt brokerage business is tough and crowded. The industry is inundated with numerous individuals with varying levels of skill set and long daisy chain referrals.
| From a client's perspective all brokers over promise and under deliver.
As such it has become very difficult to earn a client's trust by simply saying "we have relationships with the lenders" or "we have been around for decades" or "Our firm (other brokers) have done billions in funding".
| A prudent and astute debt broker should always do a careful analysis of the platform and it's value (both for the broker and the client) and constantly reflect on if it's the best option in the market for him/her to scale their business and get superior results for their clients.
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