SARASOTA, FL—For decades, the commercial real estate industry has been organized in a particular manner. Firms offering services to local clients (who may have worldwide operations) are organized in one of three ways: a single headquarters with many multinational branch offices; independent firms affiliated through franchise-like networks; and fully independent, stand-alone firms.

The second model is our subject of interest. Over nearly 25 years we have had the unique opportunity to view closely the operations and leadership of the six pre-eminent commercial real estate networks: GVA Worldwide, CORFAC International, ONCOR International, NAI Global, Coldwell Banker Commercial and TCN Worldwide. We fully understand their business model and associated idiosyncrasies. Additionally, we have an equally strong working knowledge, but less direct experience, with the franchised-like networks of Grubb & Ellis, Cushman & Wakefield and the other CRE providers similarly organized. Although many of the above firms have merged or been acquired, the above three basic models still remain as the organizing structure of today's CRE services.

Put simply and boldly, in their current state networks are ineffective in achieving their mission to promote a common indisputable industry identity and deliver a meaningful flow of transactions to the members' brokers on the street. We don't think they are doomed given the potential emolliating effect of M&A activity, but we think they, as currently executed, are so structurally flawed that their success will be comparatively limited.

The current platform on which the networks are grounded will not work in the long run. That was our forecast 15 years ago and it has pretty much come to pass.  The only truly non-common equity independent networks operating today are TCN and CORFAC; GVA has a strong company-owned London base whose lines of radiation often follow a non-common equity format.

Historically, networks arose as a defensive mechanism to stay competitive against well organized, clearly branded, full service companies that had offices in their markets… the big dog being CBRE, of course. Today you can add JLL and DTZ and anyone else who comes along to consolidate batches of smaller firms into a handful of global corporations. These are companies with defined strategic plans deployed on an international basis. 

Such companies are particularly good businesses and they have two huge advantages over the networks. They are commonly branded, and there is a central authority for making decisions and for assuring offices and broker-employees are held accountable in implementing those decisions through policy, procedure and systems for everyone's behavior all the time—everywhere.

Corporations have the advantage of scale on their side, too. No single firm, not even a strong network, can muster the resources to market/advertise, collect and analyze data and train its workforce the way a corporation can.  Indeed, it is access to these services at better levels that promoted independent firms to join in networked alliances.

The invention of the network was a great idea, an intelligent counter to the oligarchic shift to big national commercial real estate firms servicing big national clients. And the vitality of some of the firms in some of the markets of some of the networks is testimony to the fact that network affiliation can provide a competitive advantage and add to the bottom line. But success is idiosyncratic, dependent upon the strategic leadership of a firm's ownership and the enlightened self-interest of some of their brokers.

So the network is a clever way of being part of something bigger and getting some of the advantages of appearing to be a corporation without really being one—or subject to its stultifying rules and regulations—but not without some problems. 

As a consultant and “undercover sociologist,” Dr. Lowell Kuehn has witnessed the management of close to 75 independent firms, some of the best in the nation.  He can attest:  they're great to work with; their creativity, ingenuity and entrepreneurial spirit even inspiring, but they are unreliable and getting brokers to do anything consistently is a challenge beyond the best CEOs. It's just not built into the system and many principals and managers and almost every broker is resistant to conforming to any set of rules. 

Based on our experience, we contend two major adjustments need to occur for the networks to survive, much less thrive.

First, the member-firms need to leverage the two competitive advantages they do possess:  unparalleled client passion as derived from true independence with rugged individualism as an exponent and an ability to grow a client base without the wing-clipping constraints of an entrenched bureaucracy. No multinational corporation can match any local or regional firm in terms of customized local client services.  Networks must develop an effective system to manage the transaction information flow, “connect the dots” and push transaction opportunities back out to the brokers on the street. This is the most critical step to an effective network.

Second, networked firms each require a management structure that works reliably.  In other words, firms have to commit to and follow through on things like branding, sharing of data and information and training. More urgently, principals must find a way to motivate, encourage, incentivize brokers to engage the network, not just in name but through activity... yes, doing deals. 

This last point is the key to the future of networks, if there is to be a future, at all. As long as the network is an interest and activity pretty much of the ownership of the firms, it will never evolve much past what it is today. Once the network becomes part of its brokers' mindset, its future prosperity is assured. In the same way wars are won by soldiers, not by generals, each of a firm's brokers, any one of them, possesses the potential for explosive growth in production, for themselves, their firm and the network.

How do we know that?  Just look at brokers seriously engaged in their network. They do business with each other all the time, not because their managers demand it, but because they inherently know that the only way for them to increase their personal income is by expanding their domestic and international market share. A simple concept, but if network systems are not in place to establish trust, camaraderie and deal flow between fellow brokers, that concept can be elusive. In the absence of a technology-based network structure, enlightened brokers seeking expanded horizons will seek out like-minded peers, even when their corporation or network requires them to work only with affiliated peers.

The network that provides comprehensive tech-based broker tools and builds the data mining capability to “connect the dots” and pushes transactions out of headquarters to individual member brokers is the one that will survive and is the one that will pose the greatest competitive threat to the dominance of corporately organized commercial real estate brokerage.

David J. Matthes is CEO of Reagan Asset Management LLC and formerly president and CEO of ONCOR International. Dr. Lowell Kuehn, CEO of Pacific Northwest Consulting Services, is co-author of this article. They may be contacted at [email protected] and [email protected], respectively. The views expressed are the authors' own.