There Is No ‘I’ In ‘Team’ When It Comes To Finding CRE Growth Opportunities Amid Inflation

 

BISNOW

March 13, 2023 Lee & Associates Elizabeth Reyn, Studio B Writer

Many commercial real estate and CRE-adjacent companies that have borne the brunt of rising interest rates have come to a reckoning: They need to cut down on costs or risk the bottom line.

Making these reductions can involve more than just selling an office space or limiting energy usage. It can also mean having to hand out pink slips, leaving employees scrambling to find their next opportunity.

Some companies, however — including CRE brokerage Lee & Associates — have been preparing for a more optimistic future, especially for their workforces. Lee & Associates has been providing a pathway for agents to become shareholders and equipping them with the resources they need to help clients and contribute to the growth of their respective office, CEO Jeffrey Rinkov said.

“Our focus is on the micro, with local offices taking the lead, so that they can develop client services programs and win more business,” Rinkov said.

Bisnow sat down with Rinkov to discuss how Lee & Associates has been navigating the current economic climate and how its internal staffing strategy has contributed to the company’s ability to keep an eye out for opportunities in new markets.

Bisnow: How have commercial real estate brokerages been impacted by inflation?

Rinkov: Increased input costs have caused CRE brokerages to assess the quality of the resources that they acquire and how the return on investment is managed and judged. Some asset classes have performed better than others, and it has caused brokerages to assess whether they’re allocating resources efficiently and effectively.

The impact of inflation may be less than the impact of current monetary policy that is being used to combat inflation, which is resulting in significantly higher costs of capital and debt. While this is presenting some challenges, this can also present distinct opportunities for CRE brokerages, and especially for Lee & Associates.

Bisnow: Can you explain Lee & Associates’ financial structure as it relates to shareholders and how this structure has contributed to continued expansion?

Rinkov: At the base of the financial structure are the agents who have reached the level of principal or shareholder, who own, make decisions for and share in the profit pool of the local offices. As a result, all of the revenue stays within these individual offices and we don’t have outside investors. The investor group, or the shareholder group, is a combination of local revenue producers that will share in that profit pool and the venture capital investors, which is that capital that we use to expand the company.

The dividend revenue, which streams from local offices to investors and into the funds that we've raised, has created a collaborative environment. This helps create incentive for agents to work together instead of compete. Since all of our revenue stays with the local office, there is a huge opportunity for the agent to be very specific about their practice and provide a high level of service for their client base within a local geography and multiple asset classes. This also gives them a leadership opportunity within their team and helps them graduate to shareholder status.

The Lee & Associates corporate group is responsible for managing and expanding the brand, exploring opportunities for further expansion and assisting with recruitment. We maintain a large volume of corporate contracts that support individual offices and provide economies of scale as well as provide marketing services and training to local offices, helping them increase their asset-class coverage.

For 44 years, we have raised capital within our principal group more easily and in larger quantities throughout our various offices throughout North America without incurring debt. This capital gets deployed in tandem with the local office principals and shareholders, and fuels our continued growth.

Bisnow: What are some of the benefits of inviting agents to become shareholders?

Rinkov: All of our shareholders across our platform have the opportunity to invest in our expansion funds. We have a fairly high target hurdle rate return, which is another way that agents can build wealth through Lee & Associates.

They also now have a say in the direction of their local office, where they can establish the resources and staffing needs for the office and how they will operate in their community and grow their enterprise locally.

Each group also identifies a managing director or president, who participates in quarterly meetings with our leaders from across North America. Together, they identify the goals, objectives and the pursuits for the company that the corporate group will tackle on a daily basis.

Bisnow: What steps can commercial real estate brokerages take to avoid layoffs in times of economic uncertainty?

Rinkov: To avoid significant amounts of layoffs, brokerages need to have a strategic staffing protocol from the onset. This requires looking into that next quarter, half year or next year, and keeping in mind that economic uncertainty is going to be present and pause on hiring if need be. Economic uncertainty is part of the cyclical economy that we all operate in. While some level of layoff is inevitable, depending on the depth of the economic uncertainty, you can stem that if you take a measured approach to how you're adding employees and resources.

Lee & Associates doesn’t mandate a certain number of staff members per agent, per broker or per shareholder because operating an office can differ depending on the needs of the local market. We provide resources to help each local market understand what a good staffing strategy is, but we leave the hiring decisions up to them and how they see their pursuit of success.

Bisnow: What is your vision for Lee & Associates in 2023?

Rinkov: Because we're privately held and have had a measured and successful strategic approach to staffing and our expansion, we're going to continue to grow. Our capital is not only robust but also effective, efficient and specific to our expansion plan, so our individual offices will continue to thrive. We will recruit brokers, grow local offices and continue to be attractive to senior brokers that are looking for a more entrepreneurial opportunity that includes equity, autonomy and ownership.