Bisnow Special Report: The Art Of The Referral

When it comes to referrals, be clear about the scope of the work and fees before the hand-off. Make sure your body double can handle the gig. Stay in the loop. And be patient; some seeds take longer to grow.

Kay Younglove has worked on a multitude of complex deals since entering the vast galaxy of commercial real estate 30 years ago and oversees leasing and marketing for about 3.5M SF in assets.

But ask her to tell you the first thing that comes to mind on the topic of referrals and her answer is surprisingly simple: The lure of a quick transaction can be tempting, but in commercial real estate, the long view is best. “Some of the referral opportunities I’ve gotten were from seeds planted years before,” Kay, national director for JLL in Atlanta, says.

Sure, some lessons have been tough. Kay (a Bisnow Power Woman) remembers the sting she felt when a deal to lease one floor of Atlanta’s IBM Tower fell apart in 1992. The go-getter found a tenant with lightning speed, but before Kay could complete the transaction, IBM needed the floor back and killed the deal. “It was disappointing—unfortunate,” she tells us. “But I told them that if they needed someone again to please remember me and refer me.”

Two years later, when IBM decided to vacate the building, Kay got the referral to help them lease 26 floors. “It wound up being a very worthwhile opportunity,” she says. “Real estate will always be cyclical. So if you’re not taking the long view, you really need to choose another profession. At the end of the day, all you have is your reputation."

Even if a referral doesn’t work out at first, Kay says, do a good job. Be professional. And your referral business will continue. Moreover, evidence suggests referrals build trust, and trust can help a business thrive.

In a study published in the Journal of Marketing in 2011, Christophe Van den Bulte, study co-author and professor at the University of Pennsylvania’s Wharton School, found referrals can influence a company’s bottom line. The study tracked about 10,000 customers of a leading German bank for almost three years and determined the lifetime value of a new customer was on average 16% to 25% higher for a client acquired through the bank’s referral program than for one obtained through other means.

Keep Your Word

Like Kay, Washington, DC-based Freddie Lewis Archer, principal broker for Lewis Real Estate Services, has been in commercial real estate for 30 years, and says if you get a referral, it can be tempting to leap.

But with your reputation on the line, Freddie says, make sure you can commit and provide great service for the client before accepting the job. “If your heart is not in it or you don’t feel that you can perform, don’t take it on," she says. "You will do yourself, the prospect and the referring broker a huge disservice. You could end a relationship that may have just gotten started and could’ve blossomed."

Call A Specialist

To minimize fumbles, Joel Owens, principal broker for All World Realty (below), a Canton, GA-based commercial boutique that services clients nationwide, says refer the client to an experienced broker, and take the time to pre-qualify referred clients.

“As a specialized boutique, if I take on a referral, the client is working with me,” Joel, who has been in the industry for 13 years, says. “But the level of detail and experience you need to underwrite a $10M deal versus a $2M deal are worlds apart, so make sure you are referring to someone who knows what they are doing."

If your client is going to be working with the junior agent, Joel says, ask if the senior manager will be shadowing or stepping in if the less experienced broker needs help. And stay in touch.

“Make sure the person you are referring doesn’t drop the ball,” Kenneth Polsinelli, chief real estate officer for McKinley in Winter Park, FL, says.

Know Your Limits

Got a client who wants an asset outside your area of expertise? Resist greed, and find an expert. Joel focuses on large multifamily buildings and retail strip centers. “So if you come at me with office or industrial or hotels, I’m going to say that I’m not a good value for you,” he explains.

Freddie worked in office and industrial assets before coming to DC from New York 20 years ago. But her primary focus today is mixed-use projects. So when contacted by a retail client to consign some industrial space last summer, Freddie told the client the asset was outside her area of expertise and offered to find an experienced replacement.

If you’re good, finding another you is not going to be easy, right? But brokers who work at boutiques and smaller firms can enhance referral channels by joining professional associations.

In 1982, Kay was a founding member of Commercial Real Estate Women (CREW) in Atlanta. And Freddie is a member of the African American Real Estate Professionals, the International Council of Shopping Centers and the District of Columbia Building Industry Association board.

“I make sure to keep some contacts within professional groups so that when the need arises, I can pick up the phone and find a broker who handles that specialty,” Freddie says.

Just starting out in commercial real estate? Decide what you love to do, Joel says, go to work for a firm that specialize in that asset class, and get trained in the field.

There are lots of ways to develop recommendation streams. Kay, who joined JLL in 2010, says the referral business has been an added bonus of working for a large company. Don’t have a big backing? Stay in touch with people who recommend you often and be specific when letting them know the types of referral clients you would like.

Joel is a moderator on BiggerPockets, a Denver-based real estate social network founded in 2004 that has more than 1 million unique visitors a month and serves as a blog, message board and information directory to more than 500,000 members, real estate investors and industry professionals.

He regularly answers questions and has more than 10,000 posts in the BiggerPockets forums. And both Kay and Kenneth say their volunteer work with local nonprofits has fueled referral business.

Stay In Touch

No matter how you get the client or which side of the referral you're on, communication is critical, so stay close. “If someone refers us to perform a service for another client, for example, being respectful both in terms of that initial introduction and continuing to stay in contact with the referral person so that they always know what’s happening is critical to the process," Kenneth (above) says.

At McKinley, Kenneth says the firm has a process of continuous feedback so that at every point in time, the person who made the referral understands what you’re doing and what services you are providing.

Be Clear From The Start

Whether the referral is a simple introduction that warrants no more than a thank you brunch or is a hot lead with an established client with whom the referring broker has had a long-standing relationship and deep level of trust, be clear about the fees and the scope of the work from the start.

Below is a video Joel made providing three tips for referrals.

Having open and honest communication up front will prevent a lot problems down the road, Kenneth says. Depending on whether there is low, medium or high involvement on behalf of the referring party, Kay says referral fees can range from 10% to 20% to 30% of commission.

“If a client has someone they’ve been dealing with for years in California that is a retail buyer and they want to be referred to someone over here in Georgia and that buyer has experience with purchasing retail property and has closed a bunch of deals and has a history and good liquidity and net worth, that referral is worth a lot more money, probably 30%, because you are dealing with a more qualified buyer,” Joel says.

Not everyone is comfortable with leaning in. Kenneth’s best advice for bridging the gap between asking for and getting a referral is to treat every relationship, whether it works out or not, as if it’s not about economics.

When it comes to fees, discuss who is paying for what expenses and how expenses will be deducted before the commission split. “Brokers can incur expense in trying to make the deal happen. If the two sides are not clear up front, there can be an imbalance between the brokers. So be clear from the start,” Freddie, here speaking at a BOMA conference, says.

And, Freddie adds, even though men outnumber women in commercial real estate, female brokers should not be shy about asking for the same referral fees that the guys are asking for.

"They should not devalue what they are doing and what they bring to the table. Sometimes you have to walk away because the client wants to cut the fee or changes the deal. Sometimes you have to stand your ground. But don’t be afraid to stick to your guns,” she says.

Remember To Say 'Thank You'

When paying referral fees, Freddie sends a check to the referring broker within one week of receiving compensation from either the landlord or the developer.

“I stand by that policy, and I send a wonderful note with the check, thanking them for the opportunity and telling them that I hope that I can someday reciprocate,” she says.

Kenneth says people who take a long view and nurture relationships will outperform people who are transaction-oriented.

“Treating every relationship as a gift and an opportunity to expand both your network, your reputation and people’s understanding of how you conduct yourself is the most important thing,” Kenneth says. “There are some people in the business who will focus on maximizing their personal profit on a single transaction. Commercial real estate is a popular asset class right now. But when the inevitable cycle turns,” he adds, “people will need to rely on relationships, and at that point, those referrals really are going to matter.”

Michelle Hofmann can be reached at [email protected] or on Twitter @realestatewritr