Will Investment Sales Brokers Ever Embrace Online Marketplace Platforms?
As commercial real estate tech startups storm the market at an increasingly rapid pace, investment sales brokers are looking to online marketplaces to help close more deals, faster.
But industrywide adoption is proving difficult.
While companies like Zillow, CoStar-owned LoopNet, Ten-X and New York City’s StreetEasy can help brokers close more deals, there are perceived downsides to using the platforms.
For one, the trading of commercial property is still largely viewed as a hands-on business, sources told Bisnow.
"From a macro perspective, [the] real estate brokerage is still an analog business in a digital world. I think clearly brokers are using technology, but technology has not been a disrupter yet,” Cushman & Wakefield Chairman of New York Investment Sales Bob Knakal said.
Hurdles To Adoption
Online marketplaces are also not conducive to trading trophy assets or closing multimillion-dollar sales, according to sources. One managing director of a New York City investment sales team told Bisnow the deals he and his team facilitate are too large to market online since they broker sales in the $100M and up range.
In addition to this challenge, online brokers must be wary of where and how often properties are being posted online, MetaProp NYC co-founder Zachary Aarons said. The longer an asset is listed online, coupled with the number of sites it is posted to, can distort the perceived value of a property for buyers and make it appear distressed.
“If it lingers on a website or on multiple websites, that could be a signal that something is wrong with it. You’re going to start seeing more of that in commercial,” Aarons said. “In residential … [you] have all these properties that come off and back on the market. A broker will make subtle changes to the listing to make it seem like a totally fresh, new listing. [You’ll] start seeing more of that creep into commercial as more people start using these marketplaces and list properties online.”
Recent layoffs at Irvine, California-based Ten-X have also raised questions about the viability of online marketplaces — particularly when it comes to the trading of commercial assets.
Ten-X laid off 10% of its workforce in a move to right-size business operations following missed sales projections in 2017. The layoffs came six months after the company was acquired by private equity firm Thomas H. Lee Partners for $1.6B. Sources familiar with the matter told Bisnow the majority of the layoffs occurred within the company’s commercial division — which missed goal by about $10M last year. This means about 25% of the 300 to 400 employees who worked within Ten-X’s commercial department were let go in February.
In an effort to triple commercial sales by 2020, the company has revamped its platform to create a single point of contact for its customers to make the process more efficient for buyers, sellers and brokers, Ten-X Chief Commercial Officer Maureen Waters told Bisnow.
“That means from onboarding an asset, through the marketing period, to the sale and closing, they will have one point of contact that they can rely on to help simplify the process,” Waters said. “We’re also planning to launch new customer tools in the coming months that will provide enhanced experiences for customers as they use our platform. We aren’t quite ready to talk publicly about them yet.”
A Viable Tool?
According to sources, the viability of online marketplaces depends largely on the assets being sold and the brokers using the platform.
By taking the traditional investment sales process online, brokers can eliminate excessive loads of paperwork and reduce the need for in-person meetings. Negotiations are handled online, allowing all parties involved in a deal to consult each other any time using any device.
"Online marketplaces have been a great tool for advertising and exposure of our listings,” said Joe Koicim, New York Multifamily Group co-founder and a top-producing broker at Marcus & Millichap’s Manhattan office. “However, at the end of the day, the broker you hire has to have the track record and the relationships to close the deal."
While Zillow is known for smaller building sales like townhouses and apartments, marketplaces like Ten-X are used to trade all assets, including retail, industrial and multifamily.
In most cases, commercial assets trading on Ten-X fall within the $1M to $10M value range, according to sources and current listings on the company website. On occasion, deals nearing $100M can be struck, but that is a rare occurrence.
“The reality is a lot of stuff people are selling are not [trophy assets]. Brokers may have a few of those properties every year, but their bread and butter is the 40-unit multifamily building, and there is nothing wrong with that. I don’t see how an asset like that wouldn’t benefit from being online,” Aarons said.
Michael Fay, an investment sales principal and managing director at Avison Young’s Miami office, said he was an early adopter of Ten-X, and that the platform has accelerated close rates, opened the door to a larger pool of buyers and streamlined more deals for him and his team.
“We use the platform quite a bit. We constantly use it for different properties — not only for distressed properties, which is what a lot of people use it for. We use it for stabilized assets [and] for different ownership groups that want to have a more for-sure systematic process,” Fay said.
Great In A Pinch
Ten-X differs from the Zillows and StreetEasys of the world in that investors can complete sales electronically on its site, similar to exchanges like Crexi and CommREX.
Fay said Ten-X’s online auction option streamlines the selling process in a format that takes two months instead of the traditional six. In addition, buyers interested in purchasing through Ten-X’s marketplace are required to put down a 10% deposit that is nonrefundable, limiting potential retrades.
In situations when time is of the essence — like when a property is maturing and in need of refinancing or a new buyer — going through a third-party online marketplace can be a quicker solution and can streamline the due diligence process.
During due diligence, potential buyers take time to study up on a property to ensure it is worth the risk. The process includes securing financing, inspecting the asset, securing an insurance policy for the property and more. Fay said with Ten-X, that process can be cut in half.
“The reason we use Ten-X as opposed to a traditional marketing program [is because] ... we market the property for 45 to 60 days in advance of the online auction, and everyone does their due diligence ahead of the auction,” Fay told Bisnow last year.
The ‘Gamification Effect’
Aarons said another benefit to online marketplaces is the “gamification” effect. Buyers bidding on assets online can be goaded into making higher bids by seeing competing buyers trump their bids in real time.
“There are only two benefits — one is the gamification element, [which] causes people to react irrationally. Two, you have more access to buyers. When you do it offline, it’s everybody in your Rolodex, but when you do it online, it’s everyone in the world,” Aarons said. “It’s pretty hard to argue for or against either of those.”
Online marketplaces also give individual buyers and sellers the opportunity to trade assets without having to use a middleman, not that Koicim is worried the virtual platforms will eliminate the need for brokers.
"Listings don't sell themselves online, the story of the deal needs to be told and sold,” he said.
There has also been a lot of competition entering the online marketplace space as of late, as players fight to become the go-to service, Knakal said.
“I firmly believe that at some point within the next 10 years, that technology and different technological platforms will play a much bigger role in the commercial brokerage process, particularly in the sale of investment properties,” he said.
CORRECTION, MARCH 15, 11:31 A.M. ET: A previous version of this story misspelled MetaProp NYC co-founder Zachary Aarons’ name. The story has been updated.