![Sample our Built Environment journals, sign in here to start your access, Latest two full volumes FREE to you for 14 days]({"type":"image" , "src" : "/sda/5926/TOC-Subject-Sample-2021-Built-Environment.jpg"})
ABSTRACT
This paper focuses on how brokerage practices in the markets for commercial real estate investment assets and residential development land in England generate different possibilities for and patterns of opportunistic behaviours. Drawing upon previous research and analysis, the paper examines the nature of the brokerage market in both sub-markets. An interactionist model of the determinants of ethical judgement in the context of the brokerage sector is created. Based upon an interview survey of brokers and principals, the findings of an exploratory empirical study are discussed. Whilst there are challenges in defining, observing and measuring opportunistic behaviours, it is concluded that a number of different unethical practices have become routine rather than exceptional in the markets for institutional-grade real estate assets and residential development land.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1. The terms agents and brokers are used interchangeably here. Broker is more widely used in the US whilst agent is more widely used in the UK.
2. Information on remuneration tends to be private and sensitive. I have been told this information by someone that I trust who has worked at the heart of one of the large global real estate advisory firms.
3. RCA identify CBRE, JLL, Cushman & Wakefield, Colliers International and (Newmark) Knight Frank as the major global firms. It is estimated that in 2018 they collectively had a 60% market share of transaction brokerage for institutional-grade real estate assets.
4. Direct investment refers to purchase of actual real estate assets. It is distinct from investment in listed and unlisted funds or companies that own real estate assets. In some cases, the distinction can be difficult to make – especially in cases where investment in a single building occurs through a Special Purpose Vehicle.
5. There is no consistent terminology. The term ‘land agent’ is sometimes used to describe managers of rural estates but also sometimes used to describe intermediaries in the land market who can act for buyers and sellers of development land. The term ‘development agent’ is commonly used to describe an intermediary in the land market who typically acts for either buyers or sellers of development land.
6. Some of the description of the operation of the brokerage sector here draws upon knowledge gained during the research as well as existing literature.
7. Writing about Eastdil Secured, a largely US brokerage firm, Adam Pincus described this point very well writing … ‘While the winning bid on any given deal is the one that matters most in the moment, the so-called bridesmaids, or the losing bidders, are also hugely important to most investment sales brokers. The reason is that once a bidder tries in earnest to win a deal, the seller’s broker knows exactly what they can pay and exactly what kind of asset they want. This inside information feeds on itself, providing Eastdil and their main competitor, CBRE, a continuing advantage in the marketplace for the biggest deals’ (Pincus, Citation2011).
8. In the English commercial estate market, a notable exception to this pattern is Eastdil Secured. In this market, Eastdil specialise in selling assets and arranging real estate finance. They have a significant presence in London. When selling, there have been rumours (possibly originating from competitors) that Eastdil may pressure buyers to secure finance through Wells Fargo (the owner of Eastdil Secured) or use Eastdil to arrange financing. Adam Pincus also referred to this criticism.
9. An informal tender involves interested buyers submitting bids in writing by a specified time and date. The seller does not have to accept the highest or any offer. For the buyer, their offer is not legally binding until contracts are signed after a period for legal and technical due diligence.
10. In the Netherlands, Nelen (Citation2008) refers to this type of advantage from the perspective of developers. He states that ‘[O]nce a project developer or real estate agent is able to receive this kind of information earlier than his competitors, he has a major head start. It is obvious that in such a cultural setting key players are inclined to push back frontiers in order to obtain access on time to vital information. Of course, close contacts between real estate agents and high ranked public and private officials may easily turn into corruption and collusion’. More recently in the UK, there has been some concern about the undue influence from planning consultants, development agents and ex-politicians acting as lobbyists for developers on current politicians (see Booth & Jones, Citation2018; Booth, Citation2018).
11. A special purchaser is formally defined by the International Valuation Standards Committee as a particular buyer for whom a particular asset has special value because of advantages arising from its ownership that would not be available to other buyers in a market. Typically, it is the owner of a neighbouring asset or legal interest where value can be added by merging the interests.
12. Most of the respondents had worked for a number of firms throughout their career.
13. Propex is a commercial product providing a secure database for institutional real estate investors in which to receive, log and store all introductions.
14. However, the volume house builders get emailed details of lots of sites. Typically, when a planning application is made for housing on a site by a land owner, independent land agents will try to introduce it to land buyers working for volume house builders.
15. For instance, when selling land, a number of local authorities have explicit policies regarding the treatment of late bids. Typically, due to the overriding duty to obtain best value, late bids will be accepted.
Additional information
Notes on contributors
Pat McAllister
Pat McAllister is a professor of Real Estate at the Department of Real Estate and Planning, University of Reading. His research interests are focused on international real estate investment, valuation and real estate development.