One of the areas Peter Lee Associates explores as part of our Real Estate Services research program, is the basis on which investors award a mandate to a particular firm.
In an earlier article, we spoke about how accounts prefer to deal with firms that have a global footprint – the access to clients that a foreign parent offers is seen as an advantage to 70% of investment executives responding to our questions, particularly those in the capital transactions and leasing areas. As one would expect, such parentage carries little weight when it comes to selecting a firm to undertake a valuation assignment or to handle property management. But that influence aside, why does an investor make the decision to go with one firm rather than another?
One impact of the GFC has been the demise of many experienced and market savvy hands. Numerous firms and industries have taken the decision to employ younger people in the business and, with the aim of reducing costs, have let some of their more experienced and serious campaigners go. In real estate, it seems that to do so, is to do so at your peril.
In our Real Estate research we focus on four business segments – Capital Transactions, Leasing, Valuations, and Property Management – and across these, ‘experience’ is the single most highly valued attribute required by investors. When we break out the top three factors for selecting a firm, experience stands out even more – amongst Property Management respondents 94% tell us it is one of their three main criteria and for Capital Transactions it is 83%. Surprisingly, fewer respondents using Valuation services rate experience highly but, even so, almost 60% still cite it as one of their top three factors.
When you lose experience, you run the risk of reducing the strength of your relationships. Respondents in Leasing (42%) and Property Management (29%) areas also cite relationship strength as one of their top three factors in selecting a firm; and Capital Transactions people place it fourth with 33% citing its importance. Only for Valuations does it seem to be less important, but perhaps that is more due to the compliance/governance matters that impact choice of provider in the sector.
So, when you next contemplate downsizing by chopping into the older members of your team it might be worth sleeping on the decision. If you lose experience and, by doing so, negatively impact on the relationship you have with your clients, you run the risk of not only cutting your cost base but also damaging your revenues – and, when you think that you are cutting costs because revenues are not strong, that is possibly not the outcome that you were hoping for.