For Managers
Best Practices
Going Commercial
Adding a commercial division to your residential sales company can add dollars to your bottom line; here’s what you should know before you leap.
When two large independent residential real estate companies in the Miami area decided to merge two and a half years ago, a great opportunity to expand into commercial real estate presented itself. Here, a senior executive of the newly blended company recounts his experience establishing a new commercial division--insights that could prove valuable to brokers, managers, or owners who might be looking at the advantages of adding a commercial arm to their successful residential business.--Editor
BY TOM BYRNE
In May 1998, following my company’s merger with Esslinger-Wooten-Maxwell Inc., REALTORS®, (EWM), a 35-year-old residential real estate company in the Miami area, I accepted the newly created position of president of the commercial division.
As head of my family’s 25-year-old company, Byrne-Rinehart & Co., I had participated in commercial real estate sales as an extension of service to our clients. These usually were clients in the high-end market who had real estate needs involving transactions such as office and investment properties.
Traditionally, the residential salespeople in both companies believed in their right to sell commercial real estate. Out of respect for that practice, we decided to allow it to continue after the merger. We felt confident enough in our relationships with our clients that we could capture our clients’ commercial business.
But we soon discovered that so long as our residential salespeople were selling both residential and commercial, we could never successfully compete in the South Florida commercial real estate venue by focusing only on the commercial needs of our residential clients.
South Florida has been a magnet for large multinational businesses. Major corporations have been steadily moving to South Florida, including Volkswagen of America, Philip Morris, and many more.
First things first
The immediate challenge was to create a successful commercial division within the larger residential company; we handled that with the stroke of a pen--so we thought (see Diagram 1). The second challenge was to attract and retain top commercial brokers even though our new commercial division was part of a highly visible residential machine.
Right off the bat, we lost our focus and ran into obstacles we hadn’t anticipated. I spent my first days fielding commercial questions from our residential professionals and trying personally to follow up on commercial leads. It quickly became apparent that those activities were distracting me from the main mission of establishing a new commercial brokerage.
First, I shouldn’t have competed with our commercial agents. Our main company asset, the continual flow of commercial leads from our residential pros, was of no benefit to the new commercial division if I chose to work those leads in direct competition with my own commercial sales force. That early decision not to compete with our commercial agents was crucial to our development as a commercial organization. It also freed me up to recruit top professionals in commercial specialties we didn’t have covered.
The recruiting paid off, and we added several top commercial professionals to our existing group of pros. For the first time, our company had “specialists” in several commercial categories, including tenant representation, business sales, and hotels.
The response has been dramatic from both inside and outside the company. Residential professionals throughout the company began referring quality commercial leads on a daily basis, for which they were compensated. Our commercial presence in the community grew overnight.
Marketing ourselves
But although the awareness of our commercial division grew, it was unclear to the community who in the company was selling commercial and who was selling residential. Any of our licensed professionals could hold themselves out as commercial specialists. We weren’t emphasizing the commercial experts in the specific market areas who were best qualified to handle commercial leads.
The need to distinguish our existing commercial professionals and our new specialists from our residential pros became obvious. We couldn’t be everything to everybody. We determined that only our full-time commercial professionals, now up to 25 in number, would be marketed as commercial brokers. The goal was to let everyone, both inside and outside our company, know that we had a true commercial division.
We had to go back to the drawing board to handle the challenge. The original idea of creating an EWM Commercial Division within the residential company was no longer working. It was more important to differentiate the commercial division as a separate entity (see Diagram 2).
Now the commercial division has a life of its own. It meets as a separate group, has definable office space, and trains separately, and this year, for the first time, we hope to have an independent awards ceremony in addition to the annual companywide get-together.
EWM still permits residential associates to participate in commercial sales, as they have in the past, but it’s now clear where the commercial professionals can be found. Only full-time commercial experts work for the EWM Commercial Division, and only those pros are promoted as commercial specialists throughout our company and throughout our market area. Those who choose to specialize to even a greater degree are permitted to sell commercial businesses--not just the properties the businesses are located on.
Ideally, the EWM commercial model should provide a structure joining the commercial division with residential in those areas that benefit both specialties, such as referrals and back-office staffing, while differentiating the qualities of both to allow the highest degree of recognition.
Effects
Within our company as a whole, the dedication to commercial real estate has propelled us into previously unheard-of large commercial sales. It has also been remarkable to witness the interaction between the residential and commercial sides as well as to see the increase in dollar volume.
Today we have 25 commercial professionals working throughout our nine offices with 450 residential sales associates. In 2000 we had individual commercial sales in the amount of $16 million, $10 million, and $8 million. The commercial division sold in excess of $150 million in commercial properties last year, compared with more than $1.3 billion in overall sales, including residential.
Our commercial salespeople still work in the residential office in their area, and although we plan to consolidate soon in our own separate building, we’ll ensure that a sufficient number of commercial specialists remain in the areas of highest commercial activity, such as Miami Beach and Coral Gables.
In our present setup, the managers of the individual offices benefit as well from the commercial specialists in their office. Each office is credited with the commercial sales, which enhances its combined weekly production and therefore its overall performance.
Recognition
My getting involved in the commercial real estate community has helped EWM’s visibility. Participation in local real estate-related organizations and commercial and industrial groups has helped raise awareness in the business community of EWM’s commitment to commercial sales.
That kind of recognition puts a face on our commercial division and helps attract professionals who appreciate the commercial niche we’re developing.
The development of the commercial division has elevated EWM’s overall status with enhanced marketing, specialized recruiting, new management, and, most of all, the recognition of our commercial professionals. Everyone in the company has been empowered to react to our customers’ and agents’ commercial needs. The commitment to commercial has set in motion what we hope to be a very profitable part of our now full-service real estate company.
Tom Byrne is president of EWM’s Commercial Division and is a stockholder of Esslinger-Wooten-Maxwell Inc., REALTORS® , in Miami. He is a licensed attorney and has been in real estate sales since 1980. You can reach him at byrne.t@ewm.com.
