How to Write an RFP for Corporate Real Estate Services

Your company has multiple leases for office or industrial space. You’re represented by a Big 5 Landlord Rep firm, and it’s not working out so well. You’re under pressure to improve it, along with a hundred other things that need improved. So you plan to create an RFP for RE services. I get it.

Perhaps 20 years ago now, I had a client meeting in Reno NV. I stayed in a hotel attached to a large casino, and heading back to my room I had to pass through the casino. It was a beautiful place, with marble walls and modern leather furniture. On a bank of slot machines sat a Lamborghini with a sign “Win this Car — $.25”. I’m not a gambler, but I reached in my pocket to check for change and pulled out my one and only coin. A quarter. I looked at the quarter, the car, and the fantastic casino. I put the quarter back into my pocket and headed for the room. They didn’t pay for that place by giving away Lamborghinis, they paid for it by gathering quarters.

Since that day, I’ve spent a grand total of exactly zero dollars on gambling, unless you consider the business that I help run a form of gambling. Gambling is an expenditure with an expectation of return, aka an “investment” and you should not invest in anything that does not provide the best available risk-adjusted ROI opportunity. While I’ve had friends tell me that the risk/reward ratio for the car was small enough to justify it, I tend to disagree.

Which brings me to the RFP Process. Because we provide corporate real estate services, we regularly get invited to participate in a Request for Proposal to provide our services. They’ll ask questions on our culture, company history, service offering, methodologies, financial structuring, internal quality assurance procedures, organization hierarchy with biographies of key executives and proposed account staff, compensation, client list, case studies of accounts similar to their own and how our thinking outside the box offers a unique solution. Typically, the required response could easily be mistaken for a small book.

It is an excellent way to assess the willingness of a real estate firm to invest time in responding to RFPs. Perhaps it is a good way to test for writing skills and check for graphic design capabilities. One thing that I’ve learned is that the Big 5 Landlord Representation firms have fantastic graphic designers who can create absolutely amazing presentations. I’d hire them for graphic design.

Aside from the above, what it does not do is provide a methodical way to measure the actual performance of the firm, understand their working strategy and how it applies to your particular situation, know who is really going to be working daily on your account or how much they really care about your issues, assess their ethical behavior, and experience their ability to mesh with your corporate culture. It also does not provide the responding firm with the best available ROI opportunity.

Imagine sending out similar RFP’s to a dozen or so candidates for a spouse. Would whatever response was written really be relevant for creating a long term relationship? Would anyone worth marrying need to invest the time to respond? Would your current spouse/sig other have responded? Rather, you would likely want to run the other direction from anyone who did actually respond.

We learned years ago that the effort required to respond to a government RFP for our services was not the best use of our resources. If you’ve ever read one, you’ll understand why the U.S. Tax Code contains over 4 million words. It also sheds light on why the government ends up paying $500 for a hammer — it is the only way that the responder can get a reasonable return for their time investment. Our firm stopped responding to them about 25 years ago.

We stopped responding to corporate RFP’s about a decade later, with a few exceptions that I think I can count on the fingers of one hand. We will very occasionally respond when it is for an existing client. Perhaps they are considering consolidating multiple relationships, or the executive team has had some turnover and they want a comfort level that we’re providing competitive services and pricing.

We won’t respond to an RFP for someone who hasn’t ever experienced our services. First, we just don’t need to and even if we did it is just not the most intelligent use of resources. Our graphics will not be more impressive than the billion dollar global real estate firms, and the content is not sufficient for actually evaluating performance. Think about being the recipient of the aforementioned RFP for a Spouse. Would you respond or, for that matter, even want to be selected by someone who evaluated a potential relationship with a document instead of experience?

Most of the data that you’d include in an RFP is available on the company website or with a Google search. The bios are on LinkedIn. Everyone has some people with 25+ years’ experience and can provide a list of references of clients that love them or they would not have survived this long. What is not there can be discovered by a conversation in person, preferably over lunch.

How to write that RFP? Skip it. Meet the principals. Are they like you, meaning would they make a good fit with your company culture and values? Do their objectives/strategies align with your own? Try them out. You don’t buy a car before test driving it, and you should not make a long term relationship with a real estate provider without giving them a test assignment or two.

I would not be surprised if that Lamborghini (which they probably change out every few months to avoid depreciation) is still sitting on that bank of slot machines, waiting for the next “investor”.

Playing Russian Roulette with Corporate Real Estate

When choosing professional services, there exists an old adage that the largest providers are the safe bets. “Nobody ever got fired for hiring IBM” was the well known saying implying that a large company offered at least the reasonable perception of reduced risk over smaller firms. In regards to technology consulting, those advantages may have been real or simply perceived. When choosing commercial real estate advisors however, often the risk increases significantly as the size of the provider firm increases.

What?

There is growing pressure for the commercial real estate industry to adopt the Model Rule of Professional Conduct adopted by the American Bar Association regarding Conflicts of Interest. This rule states specifically, “A concurrent conflict of interest exists if the representation of one client will be directly adverse to another client.” This prevents, for example, a law firm from representing a tenant in a real estate transaction and also representing the landlord.

An example of this adverse interest would be if a real estate firm represented both a landlord and a tenant in the same market. Doing so would put pressure on the firm to favor the interests of the most valuable client. In fact, the firm doesn’t have to even necessarily represent both parties for the conflict to exist. The other party might simply be a prospect for the firm. It is well known that institutional landlords often award lucrative listing agreements to the commercial real estate firm that brings the most traffic through their buildings. This would put pressure on the firm to steer tenants through those buildings most likely to award them such contracts. Worse, these firms that represent corporate tenants not only represent adversely motivated property owners, they may even have undisclosed ownership interests in the very properties being presented for consideration. Indeed, the two largest U.S. commercial brokerage firms were recently identified as also being in the Top 10 Largest U.S. Office Owners. Is their fiduciary to their tenant clients, or their shareholders?

Unfortunately, these exact scenarios are quite common in commercial real estate and there is no governing body similar to the American Bar Association to define and enforce professional ethical standards. While the real estate firms might contend that they “manage” the conflicts or construct a Chinese wall, why take the risk? The new FASB ASC 842 Lease accounting adds an additional layer of responsibility for a CFO to avoid such conflict as discussed in a recent article in the Huffington Post.

Fidelity recently learned this lesson the hard way when they were sued over their use of a Big 5 commercial brokerage firm with a potential conflict. In December 2016, the California Supreme Court upheld a ruling that CB violated the responsibilities of dual agency to provide undivided loyalty, confidentiality and counseling to both parties in a real estate transaction. Although the case was regarding a purchase transaction, the principles apply to commercial leasing as well and highlight the inherent obstacle to representing the interests of opposing parties, and the risk involved for those who put their faith in firms with potential conflicts. It is likely that this case will become the basis for similar suits whenever a tenant is adversely affected in a dual agency transaction.

There is a simple solution for a corporate office user to minimize this risk with their transactions: Get a No Conflict Assurance Statement from your real estate service provider that warrants that they do not and will not represent potential landlords within a 20 mile (or as appropriate) radius of any properties under consideration during their engagement or within one year after completion. Make sure that it applies to the entire company and not just a subsidiary or local branch, as most major firms are sophisticated enough to have independent entities acting as property owners or representing them. Hold them to the same standards as your corporate legal counsel. In the past, these conflicts were often ignored based on the “larger is better mentality” or personal relationships.

Don’t play Russian Roulette with your real estate advisor. It’s just not worth the risk.