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The Profile Of A Successful Brokerage In The Future Of Real Estate

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Unlike many retail and other service industries, real estate brokerages have avoided having to make big changes to their business models to meet the needs of their customers and employees. For the most part, residential real estate continues to be sold via real estate offices, skilled brokers and exclusive control of property listings. But, that is changing quickly.

Historically, real estate listing data was closely held by brokers. Then came the multiple listings service (MLS), which centralized the data, followed by internet websites that published the data. So, systematically, brokers have been losing their role as the keeper of the information.

Brokers, however, have remained relevant as advisers to their clients, so despite the listing data being publicly available, the broker continues to play an important role in advising clients, negotiating deals and facilitating transactions.

But it’s becoming a new world for brokerages. Technology, such as artificial intelligence (AI) and the blockchain, is introducing new efficiencies that can change some of the roles of a real estate broker. Real estate agents are increasingly organizing themselves into powerful teams and putting increased demands on brokerages for more services and facilities. And, well-funded startups are appearing with innovative business models (think Amazon or Expedia) that have the potential to challenge legacy brokerages.

This new world of brokerages is already here — but it’s not the end of legacy brokerage firms. Those that will survive the next decade or so will need to understand the necessary shifts in the industry and adapt to them.

While there will always be a role for real estate agents and one-on-one relationships with their clients, the brokerage of the future will be a company that:

• Spends more on technology and research than marketing and payroll combined.

• Deploys AI and sophisticated technology to anticipate and meet the demands of its customers.

• Creates (via AI and technology) a custom experience for each website or app visitor.

• Provides its customers with sophisticated tools that help them identify, locate, assess and purchase properties, aided — but not controlled or managed — by a real estate agent.

• Leverages the blockchain to optimize and secure all interactions and transactions with its clients, employees and partners.

• Understands the mobile nature of our society, and creates innovative and creative ways to market to and engage with a mobile client base.

• Offers different ways to hold real estate listings, such as keeping some as exclusives, sharing others as multiple-brokerage listings and offering certain types of listings via an online shopping cart model of listings.

• Becomes less reliant on physical offices for customer visits, while expanding physical offices as workplaces for its agents and teams.

• Supports and brands its various agent team structures, handling them as “companies within the company,” where the teams are co-branded with the company, rather than sitting under the brand.

As real estate is a high-value transaction, the human service element will never disappear. But, clients will demand to be more in the driver’s seat, while brokerages will spend more of their time studying, predicting and pursuing their clients. The change in brokerage is more of a shift than a revolution, but as with any shift, newer players can sometimes squeeze into the industry and displace the players who have been there for decades. The good news is that all brokerages, new and old, can play in this new space.

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The Chicago real estate market in one word: meh

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When it comes to real estate, Chicago isn’t one of the cool kids anymore.

The local real estate market ranked 49th out of the 79 biggest U.S. real estate markets in the annual “Emerging Trends in Real Estate” survey, down from 42nd last year and 19th the year before. The survey of investors, developers and lenders didn’t trash Chicago but found better investment opportunities in faster-growing metro areas like Dallas, Denver and Nashville, Tenn., which were all in the top 10.

Wherever they put their money, survey respondents were cautious about the direction of the broader market, wondering how much longer the good times will last. They’re not bracing for a bust, but they can’t see the market going much higher, either.

“ ‘Coming off a peak’ seems to be a theme,” says the report by PwC and the Urban Land Institute. “One major institutional investor whose base case is for a continuation of the upcycle acknowledged, ‘We are adjusting a little bit right now.’ But most interviewees express the opinion that coming off peak does not automatically mean a sharp correction. Plateau is a word often used regarding expectations.”

After a prolonged run-up in commercial property prices, the easy money has already been made, especially with interest rates on the rise. But as long as the economy continues to expand, demand for commercial space will stay strong, supporting occupancies and rent hikes. With the exception of retail, the major property sectors are in good shape in the Chicago area, though swelling development pipelines pose a threat to the office and apartment markets.

Investors also like Chicago because properties here offer better returns than those in other big cities, like New York.

“Chicago remains an attractive gateway market for investment, and interest appears to be on the rise as other gateway markets become increasingly expensive,” the report says.

But Chicago just isn’t as exciting as the top five markets of Dallas, Brooklyn, Raleigh/Durham, Orlando and Nashville, according to the survey. The Chicago area trailed Los Angeles (14), Washington, D.C. (18), Manhattan (32), and San Francisco (41). Based on interviews with 750 people and survey responses from 1,630, the report covered 79 urban areas. Hartford, Conn., came in last, behind Buffalo.

As investors perceive a real estate boom losing momentum, many will pull back to big markets, believing their money is safer there. But the survey suggests they are more focused on growth than safety.

“As the economy and real estate expansion prepare to stretch into another year, the market does not feel the need to get overly defensive and move into markets that are often perceived as safe havens in a down market,” the report says. “In fact, the opposite is true to a certain extent. An institutional portfolio manager offered, ‘At this point in the cycle, I am willing to go out a little ways on the risk spectrum, but the turnaround needs to be relatively quick. My thought is these faster-growing markets may be the best place to find those opportunities.’”

Property values have flattened out or even dipped a bit in Chicago over the last year. Last November, Lux24, a 73-unit apartment building in the West Loop, sold for $31.3 million, 10 percent less than it fetched in March 2016. And the city and state’s fiscal problems have made some investors wary of buying here, worried that they might be hit with big property tax increases.

But Chicago scored well compared with other Midwestern cities in the survey. The area ranked fifth, with an average rating of 3.67, among 13 Midwest markets, behind Minneapolis/St. Paul, Indianapolis, Columbus and Kansas City, Mo. Investors ranked the markets on a five-point scale, with 1 being “weak,” 3 being “average” and 5, “strong.”

But respondents had little enthusiasm for the area’s homebuilding market. The Chicago area ranked 66th out of 79 U.S. markets for “homebuilding prospects,” according to the survey.

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Goldman Sachs Unit Buys its First Stake in Real-Estate Management Industry

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In the years after the 2008 financial crisis, Westbrook Partners was known for buying stakes in hotels like the Ritz-Carlton in Boston.


Photo:

Pat Greenhouse/The Boston Globe/Getty Images

A unit of

Goldman Sachs Group
Inc.


GS -2.36%

that specializes in buying stakes in alternative investment managers has made its first purchase in a firm that’s dedicated to real estate.

The unit, Petershill, acquired this month a minority stake in Westbrook Partners, a 24-year-old firm with $11 billion of property under management in the U.S., Europe and Japan, according to Paul Kazilionis, Westbrook’s chief executive. Mr. Kazilionis declined to specify the size of the stake or sale price.

Westbrook is making the move to strengthen its balance sheet and to create a new ownership structure of the firm that adds Goldman Sachs and about a half-dozen senior Westbrook executives as equity holders. The firm had previously been owned entirely by Mr. Kazilionis, who has committed to remain as Westbrook’s chief executive for at least another 10 years as part of the deal.

Mr. Kazilionis, who was a senior executive in

Morgan Stanley
’s

real-estate business before helping found Westbrook in 1994, said the deal with Goldman also is appealing because his firm will be able to avail itself of Goldman’s resources.

“It’s local information flow that drives our business in these markets,” he said.

Petershill, named after a building in London, is part of Goldman Sachs’ asset management division and has invested in more than 20 investment firms since it started in 2007.

Its deals include a stake two years ago in Littlejohn & Co. LLC, which invests in middle-market companies, and an investment earlier this year in Clearlake Capital Group LP, whose target sectors include energy and software. Petershill also acquired a 15% stake earlier this month in private-equity firm Harvest Partners, which focuses partly on management buyouts and recapitalizations of middle-market companies.

Westbrook, which is based in West Palm Beach, Fla., has about 115 employees. It also has offices in London, Paris, Munich, Tokyo and five other U.S. cities.

In the years after the 2008 financial crisis, Westbrook was known for buying stakes in hotels like the Four Seasons in Miami and San Francisco and the Ritz-Carlton in Boston. Lately, the firm has focused more on “center of the alley” property types like office and rental apartment buildings, Mr. Kazilionis said.

Write to Peter Grant at peter.grant@wsj.com

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10 reasons to visit India Real Estate Show in Dubai

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The inaugural India Real Estate Show, being organised by Khaleej Times and Indiabulls Home Loans, is set to turn out to be a magnet for the NRI community here. Over 5,000 visitors are expected at the event to be held on October 26-27 at the Crowne Plaza, Sheikh Zayed Road. More than 50 developers from India will showcase their latest real estate deals to attract the investors.

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