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Brokerages Announce “Troubled Assets Units”

January 17, 2009

All the major brokerage houses have now rushed onto the bandwagon to announce the formation of new departments designed to assist lenders and owners of distressed assets. I even read that regional brokerage Cornish & Carey announced one the other day.

There is certainly plenty of blame to go around about why the industry is where it is today. You can point to the credit rating agencies, to Wall Street, and certainly to the investment managers and developers who ultimately were responsible for pulling the triggers. But I find it a bit disconcerting that the brokerage industry is taking so little responsibility for what has transpired.

Is it really sheer bad luck or timing that has led to millions of square feet of brand new, Class A office space sitting empty right now in Silicon Valley? Many of the projects which sit vacant today were being marketed well before the market tanked and credit froze up. The fact that those projects were unable to attract tenants even when the valley was experiencing unemployment rates south of 4.5% should tell you something about the actual market fundamentals and the contrasting data which was fed to developers and investors.

Developers, investors, and financiers very often use data about the market which they rely on their brokers to provide. Sure some of the developers are to blame as well for not doing their own critical thinking, but at some point their culpability ends where that of their own advisors kicks in.

Ultimately though things will find a way of working themselves out. But the difference seems to be that developers take responsibility in the form of a bankruptcy filing (that is unless they find some bailout money under the mattress) and brokers take responsibility by creating business units to help “solve” the problem they helped create. Is this an unfair attack? Perhaps, but only because it is a general observation and it doesn’t apply to every broker.

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Categories: Commercial Real Estate Investing | Market Data
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amoranz January 18, 2009

Nice comments. I recall working on deals over the past few years in the south bay and peninsula where our own brokers were giving us numbers that were outrageous. And these were about as close to household names as you could get when it came to the brokers.

When we asked them to substantiate the numbers, it was obvious that they were making this stuff up as they talked. Aside from self-interest, I don’t know what compelled them to think that they could lease office space at $3.50 NNN in San Jose when there was (and still is) millions of square feet of existing space sitting vacant for half that. Most of the companies that they claimed that they and their firms were representing were public. Public companies are beholden to shareholders and they, and others in their right minds don’t sign leases at twice the market rate.

First Lift January 18, 2009

It’s stunning that he landlord community often only takes the reccomendations made by firms that can only benefit from making the landlord and developer community feel good at the time. At some point the notion of conflict of interest will mean something in the commercial real estate world. For now everyone will continue to stare at the disasterous results of conflict of interest on Wall Street and be dismayed, yet not make the connection to their own world. . When the owners, brokers, and users of commercial real estate wake up and realize that the commercial real estate world currently is no different than the scenario where Moodys rates Mortgage Backed Securities things may change. Wall Street feeds Moody’s big fees and Moody’s gives crummy ratings and helps Wall Street go big and the cycle runs the economy into the ground. Developers and investors in commercial real estate often only ask the brokers that are selling property for advice, the brokers tell them what they want to hear so they can get a listing. Tenants ask brokers that also list space to give them advice. Those brokers are also asked to paint the picture for the landlord they or their shop represent. Who is getting the best advice or good advice? One day this will become important, until then the conflicts of interest are rampant…no one that knows it ( and everyone does) gets to complain when they get clobbered. You can’t blame the brokers when you are swimming in the water you helped contaminate. Users of space, investors and investment advisors are often publicly traded as we all know. Try applying thoroug transparency to your real estate dealing and advisors. Perhaps it will produce results for your stakeholders. What you have been doing to date is likely not!

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