Newly licensed real estate agents and veteran residential pros who are contemplating a career in commercial real estate may envision greener pastures and the potential for even greener commissions. But although commercial endeavors offer diverse opportunities, the greener pastures metaphor doesn’t describe the terrain in full.
“The first year in commercial real estate, I didn’t make a dime. You have to have money set aside — or someone ready to support you,” says Cynthia Shelton, CCIM, CRE, senior managing director of investment sales with LandQwest in Orlando, Fla. “I have many residential friends who make more than commercial” brokers.
Commercial commissions, like those in residential transactions, are negotiable and vary widely. In rare instances, they are as little as a half percent and as high as 10 percent. According to the National Association of REALTORS®’ “2015 Commercial Real Estate Member Survey,” the median sales transaction volume in 2014 for members who had a transaction was $2,916,700. Conversely, NAR’s 2016 Member Survey found that residential sales agents reported median transaction volumes of $1.8 million.
The difference could be related to education levels, however. According to NAR’s commercial member survey, 70 percent of commercial members possess a bachelors’ degree or higher and 28 percent have earned the Certified Commercial Investment Member designation.
Brains, Brawn, and Designations
Part of commercial real estate’s allure is that it spans many diverse sectors, including land, office, retail, property management, industrial, hospitality, investment, and development. Brokers typically focus on one commercial sector, given the complexities and learning curves associated with each one.
Shelton, who earned her real estate license in 1975, worked in a small market in Washington and says that “because it was a small community, you had to do a few commercial deals” on top of the residential work she was doing. She’d taken all but one class toward earning her CCIM, but, given the small market, she lacked enough deals to qualify for the designation. CCIM candidates typically submit a portfolio documenting sales volume over a five-year period and must meet certain criteria to earn the designation. Learn more about portfolio submissions here.
“I was sitting on the fence and struggling with, ‘Do I do residential or commercial?’” With her husband’s job transfer in 1984 to Florida, Shelton lost her residential referral base, but saw her opportunity to “jump into something that I really wanted.”
Shelton works the retail sector, where she sells predominantly shopping centers, and offers this advice to other fence-sitters: “If you are in a major metropolitan area, you can jump ship and make it work.” But ensure your financial house is in order and be prepared to weather a commission drought, cautions Shelton, who watched one shopping center listing fail to close five times over three years.
Although some firms are hiring salespeople with backgrounds in finance, Shelton recommends joining a team and serving in an assistant role for six to 12 months. And be prepared to work for free or on a draw (an arrangement by which the agent receives training and a small monthly salary, paying the firm back for the training after earning the first commission). “It’s like going to college. You are paying to learn,” Shelton explains.
When real estate pros looking to make it in the industrial sector ask for career advice, Geoffrey Kasselman—SIOR, executive managing director in Newmark Grubb Knight Frank's Chicago office, where he leads the company's North American Industrial Practice—recommends finding a way to become indispensable. “Develop a legitimate professional specialty or niche or skill or ability,” he says, “that few if any others have. Your employer will always need and value you, and so will your clients.”
The fastest way for new commercial agents to separate themselves from internal and external competition is dogged determination, persistence, relentless pursuit of excellence, and “being prepared to work your butt off all of the time,” Kasselman says. “A strong work ethic is the fastest path to success. Simply outworking the competition has resulted in some of my biggest wins.”
Managing Properties, Portfolios
Lori E. Burger laughs when she recalls how she spent her first year after crossing over from residential to commercial: cleaning apartments. “There’s no job that’s too small for you,” she says. Today, as senior vice president of Eugene Burger Management Corp., headquartered in Rohnert Park, Calif., Burger has helped manage the firm’s portfolio of properties that includes apartments, condominiums, single-family homes, and mobile home parks, as well as 2 million square feet of commercial, office, and retail space in California and Nevada. Her humble beginnings aided her when her firm acquired properties and she needed to communicate with the staff charged with cleaning and renovating the units.
Burger recalls when she was hired, she was told by the executive vice president that she needed to earn her Certified Property Manager designation. “It was not an option,” she says. She earned that designation in 1982, and in 2015, she served as the national president of Institute of Real Estate Management, which confers the designation. She recommends the designation — as well as attending IREM, local real estate board, and apartment association meetings — to those interested in entering the property management field.
Burger notes that many young agents who are interested in joining her company are highly skilled, want to forgo an entry-level position, and are seeking higher starting salaries than her firm is willing to pay. If Burger were hiring or mentoring, she says she would look for a candidate with building and maintenance skills: “A general contractor would be a likely candidate.”
Earlier in his career, Bryan Atherton could have been Burger’s ideal prospect. Atherton, CCIM, commercial real estate investment broker-owner of Atherton & Associates in Shelton, Conn., leveraged his carpentry skills to bankroll his college education and earn a finance degree. Atherton also found success as a residential real estate agent but “did not feel gratified in using my math skills,” he says, adding the residential schedule didn’t fit his lifestyle in the long run: “I knew I was going to have a family and weekends were going to be important to me, so those two variables were important to me.”
Looking back, Atherton says his background helped him transition to working with investors: “The residential gave me the ability to do a lot of deals and to understand personalities and negotiation skills.”
Similarly, Dan Sight was an accounting major comfortable with numbers when he began working with a firm in Kansas City, Kan., and completed his CCIM coursework in two years. Thirty-three years later, Sight, CCIM, SIOR, is president of Sight Commercial Realty, a boutique brokerage that specializes in commercial real estate and buyer-tenant representation in Kansas City, Kan. Reflecting on his career, Sight says, “I credit the CCIM classes for my success in the business as a broker as well as an investor.”
If you have a true affection for the land — maybe you’re an avid fisherman or hunter or have a background in farming and ranching — the land sector may be your niche. Bob Turner, ALC, founder of Southern Properties, had that connection when he entered the sector 23 years ago. He observed others in the field and took classes on subjects as varied as how to remember phone numbers and sales techniques.
Now Turner is the 2016 president of the REALTORS® Land Institute and licensed in three states with a territory of 300 miles. “You’ve got to play in a bigger pond. It’s nothing for me to drive 150 miles to look at a farm,” he says. “There are times when I am not in my office for a week or 10 days.”
A myth that Turner dispels is that land commissions are larger. He says they’re similar to residential commissions, but the final sales price may be larger, resulting in a bigger paycheck once the deal is closed. A $300,000 to $500,000 sale is a small transaction, while a large transaction would consist of a $10 million to $20 million deal, though it’s not particularly common. “On a $20 million sale, you can earn $400,000 to $500,000. Those don’t come along every year,” he says, adding that he has invested two years on a large transaction that has yet to close.