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THREE Reasons Why CRE will NEVER be Disrupted


I read with great interest, a post today in Real Estate Tech News entitled From Online Listings to Brokerage…A New Model. If you are unfamiliar with Real Estate Tech News, shame on you! How on Earth is Michael Beckerman supposed to buy Mama a new pair of shoes? I won’t steal Michael’s thunder by giving you the punchline, but, as you can gather from the preamble, the post revolves around the D word…disruption. The post was well researched, thought provoking and everything I have come to expect from anything gracing Michael’s pen. I along with Jeremy Neuer, Duke Long, and Coy Davidson added our own brand of commentary at the end of the post, which I encourage you to review. So much has been written, blogged, buzzed, tweeted and all manner of media-ing socially about DISRUPTION in the CRE trade that I thought it incumbent upon me to relay my three reasons that Commercial Real Estate will NEVER be disrupted. 

Commercial Real Estate is not a Commodity. I really believe that in order for an industry to be disrupted, a certain commoditization must be present in the product offering. A share of Apple stock is the same, regardless. A hotel room, a simple will or LLC, a rental car…easy to commoditize and compare. Find a consumer electronic item at Best Buy? Scan a code and compare the EXACT product. Commercial real estate is not a commodity as no two spaces are identical. Some segments of the business are SIMILAR in their availabilities…a small incubator industrial space that has 200 sf of office and 1000 sf of warehouse or a small office suite with reception and three privates…but here is where the business gets tricky. If an occupant simply compares three industrial spaces of 10,000 sf in Anaheim, California…at least twenty or thirty variables could occur…power, loading, zoning, owner motivation, clear height, percent of office, layout of the office, sprinkler calc, etc., etc. AND each of these variables can DRAMATICALLY affect pricing. Consequently, an experienced tour guide is needed to navigate the inventory and provide counsel.

The Revenue Models for the CRE Disruptors are BROKEN. Too many of the new technology ideas that I see want to place the “paying party” burden upon the practitioner. If the offering doesn’t generate any new business for me, why should I buy it? Keep in  mind that 100% of commercial real estate practitioners are commissioned only…no one pays us unless we transact a deal. How many multiple listing services do I need? How many CRMs can I manage? In my opinion, there is only ONE tech company that actually generates leads for brokers and then takes a slice of the completed deal…thus sharing the risk…and that is Digsy. The rest of the tools simply try to make me more efficient…which I suppose is indirectly putting coins in my coffers by allowing me to find more hours in the day to make deals. 

Commercial Real Estate is too COMPLEX. To believe that a site will emerge similar to Zillow, Redfin, or in the present state of commercial real estate is just rubbish…see commodity above. A four bedroom house in the city of Orange, California has very few variables…lot size, age, number of bathrooms, owner motivation, condition, price…not much more. These variables can be graphically articulated through images or virtual walkthroughs. Much of the baseline information is public record which is also easy to compile and share. Most of the resi market is a sale market…not a leasing market. Well over half of the commercial real estate market is leasing transactions. Sales comps are readily available and a matter of public record. But how do you make a market if you don’t have access to lease comps? Compstak and CoStar are trying but is their information that helpful? I haven’t even mentioned tenant improvements, environmental concerns, financing, zoning, etc. that are a part of EVERY commercial real estate deal.

So let those much wiser than I continue to fret about the disruption of our industry and nibble at the fringes of our business. I’m just going to cold call.


By: Allen Buchanan

Principal, Lee & Associates


(714) 564-7104

Connect with Allen:   Twitter     |     Youtube     |     LinkedIn     |     Blog



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