Real estate development is full of industrious, intelligent people always searching for the next opportunity. With the residential real estate market continuing to flourish, commercial developers have begun to break rank and diversify their portfolios by dipping into the residential pool. As the number of defectors continues to rise, so too does the need for savvy agents to help guide these residential developers.
It’s more important than ever for agents to know the developer with whom they’re working. Whether the residence is a downtown high-rise or a single-family home in Elgin, knowledge of the developer, his traits, skills and weaknesses, is crucial. Although residential and commercial developers have unique approaches to the business, they offer a similar message: Better educated agents will get ahead, and they can help educate developers along the way as well.
Scott Maesel, partner at Century 21 Sussex & Riley, started the commercial brokerage division four years ago, which takes on projects with residential and commercial components. From both an agent’s and developer’s perspective, Maesel prefers to see commercial and residential players involved in the same projects.
“If you’re a residential agent who’s going to sell property with a commercial component, you should get an understanding of what value the commercial component brings,” he says.
Maesel sits on the Chicago Association of Realtors (CAR) board of directors, and stresses to his 15 full-time agents that they learn about all aspects of development to gain a fuller understanding of the market.
“We encourage our residential agents to pair up with commercial agents,” Maesel says. “That way, they can meet developers with the commercial agent and get an understanding of past transactions we’ve done.”
He adds, “It’s the experience level of the developers as well as the agents that will determine who needs to learn from whom.
“Joint ventures between experienced commercial developers and residential developers, both working together and learning from each other, is the best
scenario,” Maesel says.
IS THERE REALLY A DIFFERENCE?
The residential development market is extremely localized, with scores of individual builders constructing just a few homes each year. Commercial development relies more heavily on business and economics, so agents working with commercial-to-residential developers might find some fundamental differences in philosophy.
Building homes requires an understanding of what people want, from public transportation to the color of the walls, and because buying a home is much more of an emotional experience, residential developers identify with, and share in that experience. Conversely, most commercial transactions succeed because the decision to buy or sell is simply “good business.”
Mesirow Financial Real Estate Inc. made a name for itself in a variety of niche markets, including projects with corporations, university buildings, as well as a number of condominium conversions. The company received awards for projects such as the AT&T Corporate Center and McCormick Place, but they’re now developing residential projects like R+D659, the 237-unit West Loop condominium development on West Randolph Street in Chicago.
Miesrow Vice President Gavin Stein, and Managing Director Dominic Adduci, share the same building philosophies. They agree to base their decisions on whether or not to build on a lengthy process of research and market analysis that involves examining submarkets with the aid of third-party market research firms. The company then shares this information with agents so they have a better understanding of the decision-making process.
“Most of the time developers like us will build it to own it, so we’re more concerned with long-term quality of the building,” says Stein, who joined Mesirow Financial Real Estate Inc. three years ago.
Stein credits agents with having the best information about the market. “They’re actively selling other projects and educated agents notice everything from finishes to how to configure a room,” he says. “They talk with buyers everyday, and that’s been very useful to have a collaborative effort with brokers.”
“If you’re dealing with the retail component, you have to have a far better understanding of how the numbers will work,” says Belgravia Group founder, chairman and CEO Buzz Ruttenberg.
Belgravia, which has been active in Chicago for the past four decades on both the commercial and residential end of the market, has used 50 to 100 different brokers/sales people in past developments. Now, they hire only their own employees to interact with the brokerage community.
Longtime suburban developer Norwood Builders began building single-family homes more than 50 years ago. They’ve now branched into townhome and condominium developments in places such as Mount Prospect and Skokie. With commercial spaces owned and leased by different Norwood entities, their focus has turned to mixed-use communities with first-floor retail space and condominiums above.
“This has become au currant,” says Norwood director of sales and marketing Christine Kutt-Zolt. “We started doing [mixed-use developments] in the mid-1990s in Arlington Heights. Now it’s standard there.”
There is a fundamental difference in philosophy behind commercial and residential sales, according to Kutt-Zolt. “We have a very nurturing situation when selling a condo, but we employ a more pragmatic business model and equation when we’re marketing retail or commercial space.”
Realtor Mary O’Connor is currently working with JMB Realty Corp. in the pre-sale phase of her first office-to-condominium retrofit project at 900 N. Michigan Ave., where eight floors of office space are being converted into 48 luxury condominiums.
Some of the differences O’Connor has found in working with commercial developers is that they ask her opinion more than any residential developer and allow her a high level of involvement in every aspect of the project. She meets with the developers weekly to discuss everything from the rooftop garden to the furniture in the lobby.
“Commercial developers typically haven’t designed for residential needs,” says O’Connor. “The guys I’m working with have looked to me for ideas about floor plans, views and the unit size.”
O’Connor says JMB has asked her advice about everything from storage, the need for larger bathrooms and closets, and whether pantries are needed in the kitchens. “Buyers in this market typically entertain and require storage in their kitchens,” she adds.
Because O’Connor is able to assist with decisions as needed, her experience as a Realtor and working in the residential real estate market is invaluable to her employers.
“Commercial developers are looking to you for your experience as an agent in the residential market,” she says. Having experience with the target market for the property, knowing what they want, helps the developers build residences that will be appealing and sell quickly.
For R+D659, Stein says they relied on their relationships with agents for opinions on what people in the area want in a condominium development, from the sleek, contemporary look to a community swimming pool.
Many Chicago developers build projects in the suburbs and beyond, drawing brokers to a variety of neighborhoods.
“The playground is changing,” says Joseph Freed & Associates COO David Kirshenbaum. “An agent needs more arrows in his quiver than, ‘Here’s my condo, don’t you love it?’”
At Joseph Freed, a national real estate company, agents are expected to have an understanding of the area demographics, which often comes from having lived or worked in a given area. But Kirshenbaum, formerly the COO of LR Development in Chicago, says, “On a project in Des Plaines, is it critical to have people who have sold in Des Plaines before? No. Is it important they’ve sold in the northwest suburbs before? Probably.”
It is this need for experienced agents, versed in the nuances of the residential market, who are of inestimable value to the growing number of commercial developers that have expanded their reach to residential real estate development. Used to designing spaces that best work for retail and office spaces, many commercial developers are armed with plenty of know-how, but aren’t up to speed with what the typical person is searching for in a home. Therefore, the harmonious union between residential agents and commercial-to-residential developers is a perfect fit, as the market continues to grow and, with it, the need for teamwork between them to properly supply the demand. C.A.
Copyright 2006 Agent Publishing LLC
Mesirow Financial Real Estate Inc.
Chief Operating Officer
Joseph Freed & Associates
Director of Sales and Marketing
Century 21 Sussex & Riley
Coldwell Banker Gold Coast
President and Owner
Mesirow Financial Real Estate Inc.