Imagine you are a major law firm with a large litigation department. Your biggest practice is products liability defense. You represent drug manufacturers, cigarette manufacturers and medical device manufacturers in mass tort claims. It’s a lucrative practice but you decide you really need to grow revenues. You decide that because you have acquired a lot of knowledge about how these manufacturers operate, you can now use this to also represent plaintiffs who have been injured by these products. Let’s ignore for a moment the fact that no law firm would ever consider representing both sides in a litigation matter and that no reasonable client would ever allow this to happen. The interesting question is, “How would this law firm attempt simultaneously to market these two conflicting services to two completely adverse client pools?”
While this may seem like a theoretical question, it actually occurs in real life every day in a different industry: commercial real estate brokerage. You see, the largest brokerage firms in the world, who are under constant pressure to grow their revenues from Wall Street and corporate headquarters, do exactly what our theoretical law firm is contemplating: they represent both sides of a transaction in a zero sum game. These firms represent both landlords and tenants in the same market even though their economic interests are completely opposed.
Obviously landlords in any given market want to (1) obtain the highest rents, (2) grant the least amount of concessions including free rent, tenant improvement allowances and promised building upgrades and (3) provide the fewest rights for expansion, contraction, termination, assignment and sublet and audits. The problem is tenants in that same market want the exact opposite. They want low rents, maximum cash concessions and broad rights to create operating flexibility. So how do the large brokerage firms market themselves to these two opposing constituencies?
The easy way to address this problem of course is to create completely different marketing materials for when you are pitching a potential landlord client versus a potential tenant client. As neither prospect sees what the other prospect receives, the marketing materials can take contradictory positions and be effective. However, what would the brokerage firms be saying if they knew everyone would be seeing their pitch? Lucky for us, we don’t have to guess. That’s exactly what happens on a brokerage firm’s website.
A review of the websites of the major brokerage firms reveals two very different approaches to this dilemma. Attached as an Appendix is actual language from the websites of four of the largest brokerage firms which clearly illustrates these approaches. The Appendix reflects some of the most aggressive statements made by these firms.
The first approach is to ignore the conflict and separately promise each client that they will take no prisoners and extract the best deal for them using their expertise and knowledge. A perfect example of this is Cushman and Wakefield. On the one hand, when you go to the “Tenant Representation” section on their website, they promise to compete the tenant’s requirement in the market and “pressure the landlord to offer the best terms”. Sounds great right? However, when you then go to the “Landlord Representation” section on their site, you see that they promise that they “will rapidly lease your available space to creditworthy tenants, at above-market rents, through effective positioning and aggressive negotiation.” Again, a wonderful promise. However, it may be hard to accomplish if they are at the same time using their landlord knowledge to pressure them for the best tenant terms. Jones Lang LaSalle likewise creates an almost comical tension. On the one hand, they tell tenants that they will use their knowledge of landlords to the tenant’s advantage in negotiations while on the other hand promising landlords that they will maximize their rental rates. That would be a neat trick if they could pull off both of those at the same time.
Because the promises made by these firms to landlords and tenants are completely in conflict, to which client will they keep their promise when they are across from each other at the negotiating table? In our law firm example, can you imagine their website saying on the one hand “We use our industry expertise to vigorously defend our clients and ensure that their exposure is minimized” while on the other hand saying in a different part of the website “We use our industry expertise, obtained through years of working with manufacturers, to secure enormous verdicts for plaintiffs?” That would be hard to imagine No one would stand for that. Why do they stand for it with brokerage?
The second public approach is much more benign. In order to avoid the clear inconsistency of the first approach, other full service brokerage firms simply list their service offerings and really promise nothing specific to either party. A perfect example of this approach is CB Richard Ellis, the world’s largest brokerage firm. When you go to the Agency Brokerage and the Occupier Brokerage sections of their website the most aggressive statement you will see is “We create a competitive advantage that impacts our clients’ bottom line.” You don’t see any real promise of maximized profits, extraordinary savings, aggressive negotiations or powerful advocacy, nor do you see them referencing how they will deal with the other side in the negotiations. It’s certainly a safe approach but not a very compelling sales pitch or value proposition for either side.
One thing becomes clear when reviewing the approaches and the language excerpted on the Appendix. While different firms may be more or less aggressive in their public pitch, they are all consciously even handed when discussing landlord and tenant services. If they make aggressive statements about helping the landlord, they will make equally aggressive statements about helping the tenant. If they are noncommittal on what they will accomplish for the landlord, they are equally noncommittal on what they will do for the tenant. The fact is, when you want to represent both sides in an adverse matter and both sides are going to see your marketing materials, you are forced not to show favoritism to one party over the other.
And therein lies the problem with full service brokerage firms. It has little or nothing to do with confidentiality. When it comes time to negotiate a deal, both of your clients are in the room and you’ve made conflicting promises to both of them. Each sees what their brokerage firm is doing for the other side and, therefore, the broker is compelled to treat both sides equally or, even worse, favor the larger client. You see, when it comes to executing the deal, you are no longer in the privacy of a pitch room; you are out in the open just like your website. And as we have seen, when brokerage firms are forced to show their true colors to the whole world, they usually end up splitting the baby in half. That means an average or “market” deal for both parties (perhaps explaining these firms are so obsessed with defining what “market” is) or a good deal for the large client and a not so good one for the smaller client.
Business would be great if we could be all things to all people. When you are making a private pitch to a prospect and no one else knows what you are saying, you can tell them any story you want and promise them exactly what they want to hear. However, when your pitch is public, your real value proposition is forced to come into the light. By looking at large brokerage companies’ websites, it is clear that they struggle with an irreconcilable conflict. While they may each choose a different approach to dealing with this dilemma, in the end they all end the same way: with compromise and evenhandedness as opposed to committed and zealous advocacy free of compromise. Tenants shouldn’t have to settle for half. They should make their brokerage firm choose a side and stick with it, just like their lawyers.
For more information contact Glenn Blumenfeld