Notorious R.O.B.

REonomy.com: The Next Big Thing?

Normally, I greet the news of yet another real estate search website launching with a giant yawn of utter disinterest.  Seriously, this space is starting to get pretty crowded.  Just among the major players, you’ve got Realtor.com, Trulia, Zillow, HomeGain, RealEstate.com.  Throw in Roost, Estately, Redfin, BlueRoof, and then the major brand sites like Coldwell Banker, C21, Remax.com, and so on not to mention the hundreds of thousands of local realtor websites and you really have to wonder if there’s room for yet another real estate search website.

But REonomy.com, a odd hybrid real estate/MLS/social network play that just launched last Friday (?) made me at least pause in mid-yawn.

Based solely on the tour (I haven’t had time to join the thing and testdrive it, nor do I really want to just yet), this is one slick puppy.  Seriously, go check it out.  You may be impressed, you may think it’s bunk, but you’ll probably have lots to think about.

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A really fun discussion on Twitter with Robin Greenbaum (@cobrokenation) led me to just do a very quick, very back-of-napkin, and likely very inaccurate comparison between two rental units.  As Robin pointed out, since comparisons are very difficult, depends on many factors, and the like, no matter what I come up with, this is likely to be wrong.

Nonetheless, I’m curious to see if we might see any interesting bits of data.

One unit is a 1BR at 22 River Terrace, a luxury rental building constructed in 2001:

22 River Terrace

Detailed info can be found here, but the vitals of the unit are:

Floorplan, 22 River Terrace

725 sq. ft., monthly rent of $2,880, 23rd floor but facing east (aka, no river views).  I know the floorplan is hard as heck to see, but it’s pretty standard fare for NYC apartments.

The second unit is located at The Verdesian, a LEED Platinum certified building located right by 22 River Place.  See the map here.

LEED Platinum certified, The Verdesian

The Verdesian is a newer building, built in 2006, and LEED Platinum is not given to just about anybody with a solar panel or two.  There was quite a lot of thought and technology devoted to the building.

The unit here is a 1BR as well:

Floorplan of 1BR at Verdesian

The vitals here are:

750 sq. ft, $3,065 per month, and east-facing on the 13th floor.  Clearly, the little alcovey “Den” area means a smaller living room, but the floorplan might be better for some, worse for others.  Who can say?

On a straight $$/sq.ft. basis, however, the difference is only $0.12 between the newer, eco-friendly unit and the older, non-green unit: $3.97/sq. ft. for 22 River Terrace vs. $4.09/sq. ft. for The Verdesian.  If we hold the square footage equal at 725, that means a monthly rental difference of $87.00.

To my untrained, unpracticed, and non-realtor eyes, this seems rather insignificant and would tilt the decision towards the Verdesian.  According to GreenbuildingsNYC.com, the Verdesian’s advanced systems, EnergyStar appliances, and various other design & architectural choices, means a 40% savings on electric bills for residents.

According to ConEdison, the average NYC resident can expect to pay $104.97 per month in electric bills.  A 40% savings on electricity alone is $41.99 per month.  Nearly half of the “green premium” (if that’s what it is) is taken care of simply from savings in electric bills.

Now add in the fact that The Verdesian is five years newer, and offers “Fresh filtered air, continuously humidified or dehumidified, depending on climate conditions” to every unit, and it isn’t clear to me that the green premium starts to head towards zero.

Again, comparing different units, different buildings, with slightly different amenities and the like is hazarding error.  But it does seem significant to me that the actual cost difference may be as low as $45 or so per month — less than the cost of a cup of Starbucks latte per day.

If this is true, then the green premium at least in the NYC rental market is heading towards zero, and renters really have to ask why they would go to a non-green building vs. a green building.

I for one would love to see some real comparisons by real professionals — realtors, appraisers, I summon thee!

-rsh

PS: Note that I am a heretic when it comes to anthropogenic global warming hype, so this has nothing to do with religious views on carbon footprints and such nonsense.

I had a roommate in college who was an architecture major as an undergrad.  He was such an insufferable snob — for example, in the entire year we lived together, he never watched any movie that wasn’t by Fellini — that my view of architecture and architects may have been unfairly colored.

Thankfully, I recently learned just how fascinating architects are, especially in the post-Green era.  So I started to dig around just a bit.

And I must ask… why aren’t architects blogging more?

I asked this question on Twitter and LinkedIn and got some interesting responses, but thought to expand on them here.

Seriously Compelling Content

Blogs are, of course, for those who work with the written word.  At the same time, there’s no denying that pictures and graphics liven up what would otherwise be a wall of text.  Architecture is inherently a visual medium, but one that requires quite a bit of explanation (via words) to appreciate it fully.

For example, look at The Visionaire, a new building by the Albanese Organization, designed by Rafael Pelli.

The Visionaire, by Rafael Pelli

That’s a beautiful building.  And a beautiful image.  There are more stunning images of gorgeous buildings in the world of architects.  Look at this image from Centerbrook:

Discovery Research Center, Dekalb Plant Genetics Corp.

Unlike artists, however, architects have to create buildings that people work in, shop in, play in, and live in.  There are layers upon layers of things going on that I had no idea even existed.

For example, solar path.  It makes perfect sense once it’s explained, but until it is, it’s one of those things that a normal person rarely (if ever) thinks about.

Solar path diagram

Architects routinely think about stuff like this, as well as all of the engineering that goes into a project.  I heard Stephan Kieran of KieranTimberlake spend a good 5 minutes talking about a wall.  With cross-section diagrams, showing heatmaps.  I rather think he could have gone on for a good half-hour just about a wall.  Maybe more.

And all of it is fascinating, because so much of it is simply a brilliant exercise of human ingenuity.  Intelligence, applied.

Plus, architects write.  Centerbrook has published a freakin’ book.  And here’s the whole list of their publications.

And last, but not least, non-architects are genuinely interested in architecture.  It is an art form, after all, and one that impacts the average person’s life in subtle and not-so-subtle ways.  Every New Yorker knows that a part of his identity is tied up with the skyline, the buidings, the iconic ones like Empire State, and the forgettable brownstones lining 11th street.  Every homeowner lives every day with the result of decisions made by some architect or three.  People are interested in architecture.

The whole heady mixture says to me, “Blog!”

Thankfully, some architects are starting to get into the blogosphere.

KieranTimberlake has a blog.  Unfortunately, KT seems to use it mostly as a repository for press releases, which makes it basically useless.  I learned through LinkedIn that Modative has a blog, and it’s quite good.  (I’ve linked to it in a new blogroll category.)  Most of the other architecture blogs appear to be written by critics, academics, journalists, and so on, rather than by practicing architects.  If you know of blogs by architects, please send along the link, or post it in the comments.

Effective Marketing?

Turning to the topic as a marketer, rather than a new kid-in-candy-store enthusiast, I confess that I am puzzled why more architects wouldn’t blog.  It strikes me as almost the ideal marketing vehicle for the profession.

Perhaps the bigtime developers who hire architects for the most part grow up in the industry and know all the architects they’ll ever want to know.  Maybe the plethora of design and architecture magazines makes it unnecessary for architects to market themselves.

If you’re Skidmore, Owings & Merrill, maybe blogging just isn’t something you need to do.

But what about all those who aren’t already world-famous architects?  How would a potential client know to hire you?  What does he judge you on?

I ask because I genuinely do not know, never having hired an architect, nor having been one.  But since architecture is still a services-based profession, where one’s intelligence, wisdom, judgement, aesthetics, philosophy, and temperament all come into play, it seems to me that letting people know who you are, how you think, what interests you, and what your design philosophies are would be an excellent way to let like-minded clients find you.

Sharing knowledge, sharing insight, and being a genuine, authentic person are proving to be the most important method of marketing in the post-Cluetrain world.  Architects have knowledge, have insight, and are human beings — get on the cluetrain!  Let the world know your views on things.  Talk about projects as an insider.  Let us see that you’ve put in hours of thought into just how sunlight should strike the window at a precise angle at 3PM on a Friday in April.

Let us behind the curtain.  We may have no idea what you’re talking about, but we will recognize that you do.

So architects of the world, unite in blogging and social media!  You have nothing to lose but your aura of mystery.

-rsh

Here is the house / Where it all happens - Depeche Mode

So it turns out that in addition to ruling the world from the Skull & Bones tomb, Yalies also get involved in real estate from time to time.  There’s even a group called Yale Alumni Real Estate Association (YAREA, pronounced Y-Area) that just held its annual conference.  I was invited, so… I went.

Since the theme of the conference was on “Green Real Estate”, and this was an area about which I was more or less wholly uneducated, the day turned out to be one of the most enlightening of my career in real estate.  A blogpost is really not the place to describe everything I’ve heard and learned, and the people I’ve met, but I do want to touch on some of the high points.

Green Capital also means y'know... the other Green

Green Capital

It turns out that in the world of real estate high finance, green is more or less a requirement.  Panelists such as Cherie Santos-Wuest, the Director of Global Social and Community Investments for TIAA-CREF, and Victoria W. Kahn, Managing Director of ING Clarion, made it clear that for them to consider investing in real estate projects, those projects have to meet certain green standards, such as LEED.

Considering that these folks have billions-with-a-B dollars under management, and make eight and nine-figure investment decisions… one would do well to take notice.

Which makes me wonder whether large-scale residential developers, such as Lennar or Hovnanian, ever put together a green subdivision.  And by that, I do not mean — and the folks at the conference do not mean — slapping solar panels on McMansions and calling them “green” houses.

My thought is that while this development is still limited mostly to high-end commercial real estate projects, I see the requirement to be much more environmentally conscious filtering down the ranks first to regional banks then local banks.  It might not be tomorrow, or next year, but I could see a time in the near future when your local S&L will be demanding that the local developer putting up a spec home include rain harvest and greywater recovery systems.

Green Ain’t Mainstream Until It Can Move to the Suburbs

One thing that was very evident — primarily because one of the panelists on the Green Cities panel said it — is that there is a very strong hostility to suburbia.  The green movement is the urbanist movement is the green movement.

The reasoning is extremely solid.  Cities cut down on transportation from one building (your house) to the next (your office, the store, etc.).  Cities enable walking or biking to locations, or public transportation, whereas suburbs are inherently built for the car culture.  Indeed, one might say that the American car culture would be impossible without suburbia, and that suburbia was made possibly only because of Henry Ford and his progeny.

Having said that… unless there is a wholesale change in American culture, most families and people are going to head to suburbia at some point in their lives.  Homeownership is the American Dream, and for whatever reason, owning a co-op ain’t really the same thing psychologically.  Also, people tend not to feel the need for more space and a backyard and such until they are expecting their second child… but once they do….

Plus… let us face facts.  Living in the city — in any city — is far more expensive than living in the ‘burbs on a per-square-feet basis.  I would have loved to have stayed in New York City with my two kids, but the equivalent space I have in my tiny little house in Millburn would have cost not double, not triple, but quadruple in NYC.  To me, it seems a simple matter of supply & demand.  Cities have less land; more people want the convenience of city living; ergo, prices will be high.

My sense right now is that this movement is here to stay, whether you believe in the whole Anthropogenic Global Warming thing or not.  (For the record, I do not, and I think Al Gore is a buffoon.)  Because there are other economic benefits to green buildings — lower energy costs, less water usage, and better health are all great things to have even if you think carbon footprint is something to be maximized if at all possible.

But equally clear at the moment is that the green building movement is still restricted to large commercial developments or large multifamily projects, and remains a fairly small niche.  Until it can cross the gap into the suburbs, impacting single family residences and suburban buildings, and leave behind the elitist disdain for suburbia, I don’t think green buildings can be a mainstream phenomenon.

Costs of Green Technology Must Come Down

A big part of the equation is the cost of green technology and green building techniques.  I got to listen to what was one of the most fascinating discussions about Green Buildings by some of the premier practitioners of the craft.  Architects such as Mark Simon of Centerbrook, Stephen Kieran of KieranTimberlake, and Rafael Pelli of Pelli Clarke Pelli gave presentations on some of the techniques they used on their green building projects and… let me just say that my respect for the architect profession increased by orders of magnitude.

The amount of thought these talented architects put into things like designing a wall — a topic to which I have never given a moment’s thought — is simply amazing.  And the impact of that design is similarly amazing.  I wish I had slides of Stephen Kieran’s presentation where he showed that a properly designed wall has three times the impact of solar panels on energy efficiency.

Kroon Hall, Yale University

This intellectual work has to make its way into the mainstream of American homebuilding industry before the crossover can truly happen.  We’re starting to see it with EnergyStar appliances, and with double-pane windows and such.

But technology like geothermal heat pumps, dual-flush toilets, greywater recovery, rainwater harvesting, and of course the photovoltaic cells have to all come down in price and become far more widely available.  I was privileged to take a tour of Kroon Hall, the new home for Yale’s Forestry and Environmental Studies Department, and the building is simply a marvel.  I wanted almost all of the features in that building in my house — and keep in mind that once again, I do not believe in AGW — but the cost is still exorbitant for single family homes.

Last, But Most Important… Consumer Demand

Today, the consumer demand for green buildings is simply… meh.  In other words, all things being equal, people would prefer to be in a green building.  But all things can’t really be equal when you’re investing in green technology.  Yes, for large multifamily or for big commercial buildings, the savings in energy alone could probably pay for the investment.

But as yet — and based on like, no evidence, but plenty of anecdotes — consumers aren’t willing to pay a significant premium for green homes.  There has to be a relatively short horizon for payback on any investment for consumers to take green buildings really seriously.

Having said that… the Green Building trend is here to stay.  And it will accelerate and continue to do so.  Even after the whole global warming fraud is exposed as pseudo-science, the green building trend will stick because so much of what it proposes is common sense: use less energy, use less water, be smarter about designing buildings, and don’t stuff your home with dangerous chemicals if you don’t have to.  As prices of technology come down, and smart architectural and materials design continue to filter downwards from the big commercial projects, I think consumer demand will be there.

I think I got a glimpse of the future last Friday.  And the future is green.

-rsh

Something to consider from the world of commercial real estate, Brokerages Retool Rainmakers:

With office leasing and investment sales volume reaching new lows across the country, big brokerages are retraining idled dealmakers to become service providers rather than cowboys intent on roping the next mega deal. Brokerages have enormous fixed costs and in this challenging economy they are under pressure to provide tailored client services, such as mortgage workout programs.

And:

Betsy Peck, chief administrative officer for brokerage in the Americas with Chicago-based Jones Lang LaSalle, oversees the company’s training programs. “Understanding the multiple levels of service that can be provided beyond the transaction is clearly something that clients are looking for as they look into outsourcing and expanding their reliance on some of our professionals,” says Peck. “We try to anticipate the next client need. You’re not selling a service unless you’re listening to the client.”

Now, as I’ve pointed out before, on the whole, commercial real estate is to residential real estate as investment banking is to used car sales: totally and completely different industries in many respects.  There are indeed services in the CRE world that does not exist (yet) in residential world, such as portfolio management and capital markets work.

However, as residential real estate practitioners begin to talk more and more about professionalism, about need for local expertise, and how such expertise can be turned into money, I think the worlds are getting closer together.

First point to note is that even CRE firms cannot transform cowboys into consultants.  The personality type demanded of a rainmaking deal originator is so different from the personality type demanded of a consultant that “retooling” one to become the other is futile:

Rather than focus on training individual brokers, Lipsey has identified training that works best in team environments. “Let’s say a broker sold a property two years ago and now the mortgage is greater than fair market value. That broker can go back and say, ‘We’ve got some services for a fee that we can provide you until things get better.’ The broker brings the work in and the work is performed by the junior broker and the technician [researcher/analyst], and the bill gets submitted.”

So the cowboy remains a cowboy: he’s just roping different kinds o’ steer.  Rather than trying to sell properties or lease space, the cowboy-rainmaker is still out there beating the bushes for services deals.  The work itself, however, is to be done by the “junior broker” and the “technician”.  Not much retooling here; more of a change in the offerings menu.

The second point to note is that this can, and probably does, work in residential real estate as well.  Highly relevant is this post by Chris Johnson at Bloodhound Blog, especialy this part:

But I said I am a rake.  I cared about my clients–to a point.  To the point that they didn’t trouble me, expect anything, or need sympathy, I really cared.   I’d return phone calls, and the noisy ones could compel me to make a flyer or whatever.  I looked around and the sheer volume of work that other agents were doing astonished me.  I figured–deliberately–that a higher churn was acceptable if I didn’t have to mess around with e-neighborhoods and stuff like that. The path, then, was to burn through people.

Now: at some point, I’ll post how to use a Rake to be part of a team.  Best use of me would have been to join a mega agent and prospect more.  If that had fed a team somewhere, or if I’d built service people…the love of prospecting is a lethal way to sell.

Is this not the ideal rainmaker personality you would want?  Why burden such a pure cowboy mentality with the need to ‘make a flyer or whatever’?  Just have “technicians” do that, especially since some of them take the same attitude towards making flyers, marketing listings, or staging houses that Chris takes to making phone calls, and unleash both parts to do what each likes to do.

Individuals cannot be ‘retooled’ quite so easily, as if they were a piece of machinery.  There are skills, experiences, and personalities that suit one person to a particular kind of work, while making him unsuited for a different type of work.  But firms, teams, and organizations can and should be retooled constantly to adapt to changing market conditions and changing consumer expectations.

-rsh

So it appears that commercial real estate isn’t going to escape the imploding economy after all. (H/T: Peter Pays Paul) This is probably not the best time for NAR to be talking up commercial real estate. But that’s another story, for another time.

This is the time to look on the bright side of the coming CRE bust.

As Calculated Risk points out (quoting Reuters):

U.S. office vacancy rose to 13.6 percent, up 0.5 percentage points from the second quarter, its largest one-quarter jump since the second quarter of 2002. The third-quarter vacancy rate was the highest since the second quarter of 2006 and was 110 percentage points higher than its recent low of 12.5 percent set in the third quarter of 2007.

And as we all have heard, U.S. unemployment has hit 6.7%. While that’s pretty good compared to places like, say, France (7.7%) or Germany (9.1%), it is a 15-year high for the United States.

So uh… just where the heck is the good news in all this?

There has not been a better time to start a company in the past decade.

Think about it.

Unemployment is relatively high, which means labor costs will be lower, and you can find some really talented people at very attractive cost.

Commercial real estate is getting hammered, with higher vacancies and delinquencies and the like, which means that you can probably drive rents to historic lows as well if you’re looking for office space, or retail space for your new concept.

If you’re an investor, and you’ve got cash (or rock-solid credit able to overcome higher lending standards), you probably can pick up some incredible deals on commercial properties. Sure, maybe wait it out some more, wait for more landlords to get truly desperate, but… I suspect that the whole fear-driven atmosphere will make it pretty sweet for those who keep their wits about them and have cash to back it up.

So, in the immortal words of Monty Python,

If life seems jolly rotten
There’s something you’ve forgotten
And that’s to laugh and smile and dance and sing.
When you’re feeling in the dumps
Don’t be silly chumps
Just purse your lips and whistle – that’s the thing.

-rsh

I was recently asked by Inman to provide some opinions on a variety of topics, and one of my responses is as follows:

5. What technology trends will change the industry in the future?

Enterprise CRM, married to truly effective, and measurable interactive marketing technology.

In the alternative, third party systems that replicate all or most of the value from a brokerage system may create a whole new paradigm: the Swarm. This is Trulia’s play, in my opinion. I am, however, not certain that these third parties have enough profitability to truly compete with the big brokerages and the power they can bring to the market.

So after I wrote this, I got an email asking what in heaven’s name I was talking about. Swarming? And what’s the connection to Trulia? [Update: My responses have now been posted at Inman News.]

I started to write out an answer, and quickly came to realize that this is one of those things that got stuck in my head years ago, continue to influence me, but that I never really discussed.

So here it is.

BattleSwarm

Swarming is something I borrowed from the U.S. military, where it has been in active discussion (and even quite a bit of implementation) since the 1990′s.

I was first introduced to the concept by an op-ed entitled “Swarming — The Next Face of Battle” by two RAND Corporation strategists, John Arquilla and David Ronfeldt. Their central thesis was that warfare had been revolutionized by advances in information technology and networking, and that threats facing our military in the battlefield were asymmetrical: terrorists, guerilla actions, and so on. (For a fuller background into even the origins of this strategy, you might consider reading this essay that introduced the concepts, but never formalized it into the “BattleSwarm” doctrine.) Arquilla and Ronfeldt:

Swarming is a seemingly amorphous but carefully structured, coordinated way to strike from all directions at a particular point or points, by means of a sustainable “pulsing” of force and/or fire, close-in as well as from stand-off positions. It will work best — perhaps it will only work — if it is designed mainly around the deployment of myriad small, dispersed, networked maneuver units. The aim is to coalesce rapidly and stealthily on a target, attack it, then dissever and redisperse, immediately ready to recombine for a new pulse. Unlike previous military practice, battle management is now mainly about “command and decontrol,” as networked units all over the field of battle (or business, or activism, or terror and crime) coordinate and strike the adversary in fluid, flexible, nonlinear ways.

Right about now, you’re wondering… this is all very fascinating (not really), but what the heck does this have to do with real estate?

Swarming and Commercial Real Estate

Well, a few years ago, I was on a consulting assignment for Coldwell Banker Commercial (which led to my being hired there) on strategies for commercial real estate. Given the nature of CBC at the time (still true to this day) as a national franchise of relatively small, independent, local offices lacking central command and control of larger competitors such as CBRE or Cushman & Wakefield, I thought that the BattleSwarm doctrine might work for CBC as corporate strategy.

Taking down a major corporate real estate assignment is an enormous affair, involving many experts from diverse fields. A firm like CBRE can actually put a whole team into play with various specialists in finance, insurance, land use, taxes, architecture, and so on and so forth to convince a Fortune 500 company to give it the assignment like “Find me 2,500 retail outlets across the United States”.

I thought the only way that CBC could compete is by implementing some sort of a Swarming strategy, where independent offices could smell an opportunity, quickly communicate it along the network, and coalesce rapidly to bring the full range of services that CBRE can offer, but without the CBRE pricetag, in an ad-hoc team created specifically for that assignment and that assignment alone.

As the Sr. Director for Interactive Marketing for CBC, I actually implemented some of the elements of that long-ago strategy, such as an internal social network, long before FaceBook was a phenomenon. I can’t take credit for the idea, though, because it was from brilliant minds in the American military.

Swarming and Trulia

So when I quickly dashed off my response to Inman, I must have subconsciously brought up Swarming. Since the question had to do with what technology trends will change the industry, I saw (and still see) things as a crossroads.

Either the Big Brokerages will master enterprise CRM and marry that to effective, measurable interactive marketing systems, or Third Party Platforms will evolve to provide all of the services that Big Brokerage currently provides.

The latter enables Swarming in residential real estate.

Now, that happens not to be as important as it might be in commercial real estate (because few assignments are big enough to warrant a team of specialists), and elements of Swarming already occurs in residential real estate.

For example, a listing agent who reaches out to a staging specialist she knows, then a painter to repaint the house, a photographer to shoot photos of the house, a home inspector to check out the house, and an attorney to review land use regulations — all of them part of her private network of contacts — is effectively creating an ad-hoc team to service the client.

Nonetheless, if the Third Party Platforms become dominant in the industry, that will enshrine the Swarm as the norm for delivery of services. Consider what services an agent — who is an independent contractor — receives from a broker, for which she pays the broker a share of the commission.

Branding, a nice website, liability insurance, office space, source for yard signs, copy machines, etc.

With advances in technology, I see no reason why a Third Party Platform could not provide every single one of these services to an agent. Even insurance could be delivered as a buying cooperative; if Trulia has 150,000 agents “in its network”, can it not negotiate with insurance carriers for group discounts or group policies or whatever? Of course it can.

Lead generation is already handled by each agent; the existence of a network simply amplifies that. Lead management and routing software already exists. The network as a whole can establish quality standards through things like agent ratings, refusal to work with known bad actors, training offered (for a fee) by network members, etc.

All of this can happen with nary a Big Broker or national franchise in sight. The technology already exists; it’s a matter of integrating it together, and putting in effective processes.

If Third Party Platforms get robust enough, then even the biggest firm can simply be taken down by a Swarm of networked independents attacking it from all angles. With lower overhead made possible by the technology (provided by the Third Party Platforms), an independent can compete with Big Brokerage on every listing assignment on price, with no compromise on quality of service. Indeed, an ad-hoc network of experts could provide a higher level of service to a customer than a Big Brokerage could and at lower cost (4% commissions, instead of 6%, for example).

Meanwhile, Big Brokerage faces enormous pressure on its top line revenues as top-producing agents have every incentive to either (a) leave and join the Swarm, or (b) demand far higher splits and services to stay.

Case Study?

That sounds nice in theory, but is there any evidence to suggest that this will actually happen? There are hints.

In commercial real estate, at this point, I can make a pretty strong argument that CoStar is far more important to a practicing agent than the firm to which he belongs. At the lower end of the market, a pretty strong case can be made that a commercial agent can make a very fine living without affiliation with a national brand, or a local brokerage, but could do very little without Loopnet.

I personally know of multiple examples where a top producer flat out told his broker that if the brokerage does not renew the CoStar contract at exorbitant cost, he will leave, taking millions of dollars in GCI with him. The rest of the services, including the brand name, that the brokerage provided him were worthless in comparison to CoStar.

And those companies, as yet, do not offer the full range of services to its members that a brokerage offers. Once they add robust research, and robust network-driven marketing services… watch out.

The Future is Unknown

Of course, all of this is speculation.  Only the reality of what happens over the next few years will resolve things.  It is likely that the actual future will look quite different from what I’m predicting.

Nonetheless, for students of strategy, the whole Swarming doctrine is an interesting read.  How a network impacts power, force, and maneuverability is not something relevant only to military forces. And I highly recommend checking the theory out… if you’ve got an evening or two free….

-rsh

Eric Blackwell of Bloodhound picks up on this story that Zillow has entered into a relationship with a number of newspapers and asks a series of pointed questions. The comments section has some hot and heavy action going on therein, and it makes for an entertaining read.

I saw this deal cross the news earlier as well, and thought it was interesting on many fronts. For one thing, unless I’m very mistaken about the nature of the deal, it simply means a co-marketing arrangement where the partners simply add ammunition to their sales teams:

The agreement expands the network to include display non-real estate related advertising. Greg Schwartz, vice president of advertising sales at Zillow, said the Web site will focus on “moving-specific” advertisers like home improvement and furniture companies in search of national coverage. Meanwhile, newspapers, such as the San Francisco Chronicle, for example, can offer a furniture retailer additional coverage through Zillow’s San Francisco channel.

So a ad sales guy sitting in the LA Times office can sell a million impressions on Zillow.com, and a Zillow sales person can sell Home Depot on a package deal of Zillow ads plus say 150 newspaper ads.

It isn’t clear whether this covers only online, or print also, but either way, all we’re talking about here is a “Hey, you can sell my stuff, and I can sell yours” deal. Makes a lot of sense to me without a tremendous amount of downside.

Now, David G. from Zillow goes on to say in the comments of the Bloodhound post above that:

Today’s announcement relates to a large advertising network advertising for reaching real estate consumers but there are also technology and content aspects to these partnerships. Later this year, Zillow will begin to power the online real estate sections of our newspaper partners’ websites. And listing content is already pushed to Zillow via newspapers that are selling featured listings on the site.

This tidbit is interesting as well. Because as it happens, there is an almost exact parallel on this play that might prove illuminating (or not).

Cityfeet.com did this exact play in commercial real estate a few years ago. They went out and signed up newspaper partners, powering the online real estate sections of these newspapers for commercial real estate search. I’m guessing that Cityfeet couldn’t get the online residential real estate sections, because those were too closely connected to major revenue centers for the newspapers. That Zillow was able to wrest those away from the newspapers is extraordinary. And extraordinarily interesting as commentary about the newspaper business.

It appears that newspapers are headed for some sort of a cliff.

That's a double black-diamond slope, son!

The news industry is panicking, to say the least:

The new bad news is the decline in online revenues.

In the best of times, online never contributed more than 10% of most publishers’ total revenues, but with double-digit growth, it was the sole bright spot in the middle years of the decade, holding the promise that interactive revenues might some day make up the losses on the print side.

Unfortunately, most of the growth in the online revenues was due to “up-sells” from print classified listings. As the volume of print listings declines at an ever-faster pace, that means there are fewer opportunities for online “up-sells.”

Considering that real estate advertising in newspapers fell by a whopping 36% in Q2, if online advertising also fell for newspapers, it isn’t clear that there is a sustainable business here for the dead-tree media companies.

So… Cityfeet couldn’t wrest away residential real estate sections from newspapers. Zillow did. In large part, this is because Zillow is many times larger and better funded than Cityfeet ever was.

However, let’s pause a moment and consider this.

• Newspapers lose 36% of real estate ad sales.

• Newspapers lose online ad sales for first time in years.

• Newspapers do a deal with Zillow that is essentially “We take 50% commission for selling your ad space, Zillow.”

• Zillow stands ready to “power newspaper real estate sections” — meaning all of that traffic probably goes to Zillow.

This looks like a total abdication of the real estate space by the newspaper industry, at least to me.

While that’s a big win for Zillow, I have to sound a cautionary note.

Cityfeet, you see, sputtered along for a couple of years before getting bought by Loopnet for $15m. (Since Cityfeet at the time boasted 100 newspaper relationships, including the big names like New York Times, Boston Globe, and the like, that means each relationship was worth about $150,000. Maybe. It isn’t yet clear that Loopnet has made back its $15m investment in Cityfeet.) The reason, quite simply, was that the brokers and agents who listed on Cityfeet were not seeing a lot of traction. Newspaper readers and newspaper website visitors tend not to be serious consumers for commercial real estate.

Now, given the differences between commercial and residential real estate, this may not be a problem for Zillow. 80% of commercial buyers/lessees do not start their search on the Web, for one example. But this should sound some warning gongs:

“This partnership allows advertisers with our papers to reach not only local real estate consumers who live in particular markets, but also consumers who may be moving to particular markets, via their searches on Zillow.com,” Lincoln Millstein, senior vice president of Hearst Newspapers, said in statement. “This is a significant opportunity for advertisers to target a very large number of consumers on the verge of major home-related commerce.”

Um, Lincoln… I don’t know how to break this to ya but… I doubt that visitors to Zillow.com can be described as being “on the verge of major home-related commerce.” Maybe Zillow has statistics that prove me wrong, which I would welcome, but going to a Zillow or Trulia or any of the major consumer real estate websites strikes me as merely the first step in a fairly long journey that may or may not end in “major home-related commerce”. If by “being on the verge”, Lincoln Millstein meant “within three to six months” then his expectations are properly set. If he means more like, “a matter of weeks”, I think he might be disappointed.

And his advertisers might be disappointed. Will consumers remember seeing some ad for a mortgage product on Zillow.com three months later as they’re finally sitting down with their realtor and going over mortgage paperwork? I really, really doubt that one.

As with all prognostications, I might be dead wrong on this one. But all in all, I’m not sure I see this major win here that the newspapers and Zillow would like us to see. Time will tell, but the trends are not encouraging for either party.

-rsh

I don't understand these numbers!

I need help. Someone explain these numbers (PDF) to me, like I’m six years old.

I mean, I think I have a pretty good education. I think I have a pretty solid record in business operations, marketing, and overall management. I think I know how to read 10-K’s and spreadsheets and so on. But these numbers have me scratching my head.

The Census Bureau did a study in April of 2007 on residential vacancy rates.  The real estate bubble supposedly burst in 2005.  According to this GAO study, from Q2 of 2005 to Q2 of 2007, foreclosure inventory “rose sharply” by 55%.

So… uh… where are all these people living then?

Look at from Homeowner vacancy rates from Q2 of 2005 in the chart above.  It goes from 2.2% to 2.8%. That 0.6% vacancy rate presumably means that some 1.2 million Americans lost their homes (300m population, 68.4% homeownership rate, then 0.6% of that number in additional foreclosures).

Meanwhile, the rental vacancy rate goes from 9.6% to 10.1%?  And it went up every single quarter since Q2 of 2005?

Three possible explanations:

1.  Foreclosures were happening for the most part on investment properties.  Those people who owned foreclosed homes have primary residences; they just walked away from their “quick flip” properties, having lost a bundle of money.  But they are not homeless and do not need an apartment.

If true, then the whole “homeowner rescue” legislation is a crock of steaming dung.  “Speculator rescue” is more like it.

2.  Developers built so many rental units from 2005 to 2007 that despite the increased demand, vacancy rates went up.

One would think one might have heard a thing or two about this.

3.  There are now legions of homeless people on the streets of America.

One would think one might have heard about an additional million homeless people.

So which is it?  Or is this the magical mystery vacancy rate number?

-rsh

This post by Joe Ferrara made me laugh out loud.  Seriously, I don’t know where Joe finds such interesting nuggets.  You want to check it out.  Don’t believe me?  Okay, here’s a peek:

Like I said, you want to check out the post.

For some reason, this reminded me of the rather interesting conversation that Joe, Jessie Beaudoin, and I think Jeff Corbett and Henry Davidson had at the ActiveRain party at Inman San Francisco.  If I’m forgetting anyone, it’s because of our mutual friend Jack‘s lingering influence.

Nakedlistings.com

Yes, the URL is parked courtesy of GoDaddy.com.  I wonder who bought that…  (Jessie?  Was it you? You did threaten to do just that at the party, hehe.)

The concept is simple.  It will be a direct analogue to nakednews.com (NOT SAFE FOR WORK).  Each listing is a ~60 second video in which an attractive woman talks about the property, while taking her clothes off.  I know that every single reader is going, “Are you insane?”

The key to nakedlistings.com working is that it only deals with commercial real estate listings.

As much as I like and respect commercial real estate and the top-notch professionals who work in it… let’s face facts, shall we?  I don’t know that I’ve seen a more macho, more male-dominated industry outside of Wall Street trading floors in the early 90′s (and restaurant kitchens, incidentally).  Things that would shock the average corporate person happens all the time in the rough and tumble world of commercial real estate.

Therefore, nakedlistings.com would absolutely work in commercial real estate.  Consumers generally don’t look for commercial properties; only professionals do.  The vast majority of those professionals (CREW – Commercial Real Estate Women – says 23% of commercial brokers are women, but I think that’s a significant overestimation) are men, and men of a certain type, who would sit through a 60 second listings presentation simply because the presenter is stripping as she talks about column spacing and loading dock heights.

So you heard the idea here first.   You are hereby free to take advantage of it, as I have no desire to explain to my United Methodist Church pastor parents what I do for a living were I operating nakedlistings.com.

Now, there is a serious point here.  Allow me to dig it up.

In marketing, especially in real estate marketing, there is a very serious tendency to focus on the product and the service provider (i.e., the agent).  But few real estate marketers think very hard about the audience.  Listings flyers are produced that betrays a real lack of thinking about whom said flyers are targeting.  One page rinky-dink flyers for a $15m alpine mansion is just one example.  Agents and brokers have websites that were obviously constructed from some off-the-shelf template from a cut-rate agency, yet they work and operate in high-end neighborhoods where the median family income is over $150,000 a year.

If nakedlistings.com can work, it’s only because it starts with identifying a specific audience segment that would be receptive to what is otherwise crass and offensive.  The Lush campaign that Joe Ferrara discussed might work because it did similar audience segmentation and identified a group that would respond to the sex-based marketing.

Think about the audience.  It is likely to be important.

-rsh