People often ask me why we started CompStak, or where the idea came from. I typically give the same answer, "it came out of my experience as a commercial leasing broker . . . I saw an opportunity to create transparency in commercial real estate information and decided to jump on it." I'll use this series of posts as an opportunity to give the full story around how CompStak came to fruition, as well as to discuss where I see real estate technology going.
To start, I'll offer up some of the challenges of the industry that we identified and believed could be overcome with great technology. Here's the format: The Problem, The Solution, Why We're Not Solving it, and Who Is Solving It
1) Small Tenants are Underserved
When searching for space for their businesses small tenants typically need more help than anyone else. They may have never searched for or negotiated a lease before, they don't have a real estate department, and they are pulled in so many directions that it's hard for them to focus on finding new space. They may not have existing relationships with commercial real estate brokers, and if a broker reaches out to them, they don't know how to evaluate their qualifications. And yet . . . this isn't the big problem. The big problem, is that great and experienced brokers don't want to work for them! As a broker, time is your greatest asset. To make money in commercial real estate, you need to focus on the assignments that will provide the greatest long term return. Sometimes this means taking a small assignment because it will eventually lead to a large assignment, but more often than not, this means avoiding very small deals completely. Nonetheless, leasing commercial real estate is quite complex, and small tenants need representation at least as much as large tenants do. So what happens to these tenants?
a) A good broker takes their assignment, but can't focus on it because it's not a money maker.
b) A good broker takes the assignment and turns it over to the most junior person in the firm. He/she means well, but is not experienced, and can't provided the highest level of service.
c) A "space chucker" takes the assignment and tries to make it worthwhile. This is a broker that sets up as many space showings for a customer as possible, as quickly as possible and hopes that something sticks. He/she doesn't focus on showing the right space, or respecting their client's time. They're most concerned with turing the deal around as quickly as possible and making a quick buck.
d) An unqualified broker takes the deal. Perhaps they work for a small shop that allows them to keep virtually all of their commissions, but provides them with no resources. Since they have a great split with the "house" they can make some money on the deal, but they simply don't have the resources to provide a high level of service - no research, analytics, financial analysis, or sometimes even access to all of the listings.
e) The tenant finds some space online or by walking the streets, and negotiates their own deal with the landlord. They have no idea if the rent they're paying or the terms of the deal are fair, but the Landlord tells them that they're getting a great deal because there's one less brokerage commission.
A comprehensive resource site for the small tenant. This site provides the tenant with listings for all of the available space in their market. These listings have pictures, floor plans and details similar to residential listings sites and allow tenants to evaluate potential spaces BEFORE touring them. The site also includes advice for tenants, market intelligence, research tools, and other resources so that a tenant can feel confident when hiring a broker, and finding and negotiating for space. To make sure they're well represented, the site includes access to a network of trusted brokers that can help these tenants. Since the tenants will be doing a lot of their initial research and space searches on the site, this means less work for the broker, allowing them to devote their time to helping their client negotiate the best deal possible.
Why We Didn't Do it
The online commercial listings space is dominated by a couple major players (and will soon be dominated by one). There are many companies trying to get into this space, and we believe the barriers to entry are somewhat high. The incumbant player(s) very tightly control their data and make life difficult for their competition.
Gathering a critical mass of listings and keeping listings up to date is challenging. Most real estate firms do not have APIs that allow you to easily obtain their listings, and while most firms would be happy to get their listings out wherever they can, there is a hurdle in gathering listings from many firms in a very fragmented industry.
Presenting listings in a way that is useful for tenants provides a challenge. Current listings typically include no more than a floor plan of the space (if that). Many do not have asking prices or details. Brokers are expected to know about the buildings, the types of space in the buildings, and call the brokers representing spaces to get details. Potential tenants expect and deserve much more, including pictures, space details, neighborhood information, video walkthroughs, etc.
No matter how much value a consumer facing site provides, given the lack of transparency in commercial real estate information, it is hard to provide enough value to a tenant to allow them to adequately represent themselves. Including brokers on the site is a good solution, but towing the line of making it worthwhile for brokers (even for VERY small deals) without making the brokers feel that you are trying to disintermediate them is challenging.
Who's Doing This Now
Just launched, 42Floors has developed a beautiful interface that allows consumers to find office space on their own. They've gone to great strides to encourage brokers and brokerage firms to provide listings, and they have made life easier for the listers by manually inputting listings for them, and building the software that will allow for 42Floors to automatically gather listing data as well. 42Floors even sends out their own photographers to take pictures of spaces for the site. As they continue to build the site, there will be more resources for tenants as well.
Not yet launched, TheSquareFoot will be provide educational tools for tenants so that they understand how much space they need and how the leasing process works. They will also have listings, and will connect users with Tenant Rep brokers. Until then, they are helping tenants find brokers to connect them with great space.
Launched in 2008, similar to 42Floors, Rofo lets users find space through listings, and has built systems to automatically gather listing data from real estate firms. Rofo users can request more info. on properties and a real estate broker will reach out to them.
In my next post, Problem 2 - Commercial Listings