And the “confirmation bias” that keeps some companies stuck in the “old school”
By John Jarvis
CBRE Group is the world’s largest “full service” commercial real estate services firm, with 70,000 employees in 400 offices and 2015 annual revenues of $10.9 billion. Truly impressive. And problematic.
You see, CBRE’s business model is to serve both property investors and the companies that occupy those investment properties. They want to represent the buyer and the seller, the landlord and the tenant. It’s a good gig if you can get it, except, of course, for the inherent conflict. And now CBRE doesn’t just represent the landlord, CBRE is the landlord, via their property acquisitions as CBRE Investors and Trammel Crow Company.
CBRE isn’t alone. Jones Lange LaSalle, Cushman Wakefield, Colliers International, and Newmark Grubb Knight Frank are all companies built around this same full service model.
So why do companies that lease and buy buildings for their business operations continue to work with these full service firms in spite of the conflict of interest?
In part, this “old school” business model survives because the agents are good at what they do. They are bright and capable. They aren’t bad people. I think this is a really important point- it isn’t the people that are flawed, it is the business model.
And in part the model survives because we are all susceptible to a confirmation bias, defined as the tendency to interpret new evidence as confirmation of one’s existing beliefs. When I am talking with a business leader and they tell me that they already have a broker, from CBRE or JLL or XYZ, it can be a challenge to break through this confirmation bias. I am not going to tell them they are wrong, because they aren’t wrong. But there is something new. And we need to step back from the way we did business in the past in order to gain perspective on the changes that are happening around us today. Real tenant representation is gaining traction in a new and powerful way. Just one example- as of 2015, all commercial agents in California must disclose their dual agency. Our own Jason Hughes authored that legislation and worked tirelessly to get it signed into law. Now, if you work for a full service firm and want to represent a tenant or a buyer, you must disclose as a dual agent before you get to work. This concept of separating “fiduciary” relationships at full-service firms was just upheld at the California Supreme Court (Horiike v. Coldwell Banker), and it is suddenly a real problem for the full service firms.
At Hughes Marino, we are working hard to eliminate dual agency, to increase transparency and to deliver value for the companies that lease and buy corporate real estate. One of the reasons the old school model of institutional real estate and the full service brokerage firms has survived is that corporate America has never aggregated its collective bargaining power and pushed back against the property investor community that has traditionally made all the rules and controlled all the agents. But wait a minute, isn’t corporate America the one paying the rent, and effectively funding the entire industry? At Hughes Marino, as we gain market share we are challenging the status quo, leveling the playing field for corporate America and shifting power to the tenant side of the transaction where we believe it belongs. We are truly champions of the underdog, the companies that lease and buy their corporate facilities from institutional investors and property owners. We are growing because we add tangible value, and our message is resonating.
So I say meet with us. Get to know us. There is something happening, it’s important, and we want you to know about it. Your existing providers aren’t bad or wrong. We just think it is time that they need to pick a side. Everyone out of the murky middle.
This is our bold new vision for commercial real estate brokerage.
John Jarvis is a senior vice president of Hughes Marino, an award-winning California commercial real estate company specializing in tenant representation and building purchases with offices in San Diego, Orange County, Los Angeles, San Francisco and Silicon Valley. Contact John at 1-844-NO-CONFLICT or firstname.lastname@example.org to learn more.