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Real Estate Business Goes Online Slowly
Commercial Brokers Get Competition from Startup Web Sites

By JOHN HOLUSHA, New York Times

May 31, 2000

In an age when almost anything can be bought online, one of the main exceptions has been commercial real estate. With its complicated procedures and time-consuming negotiating process, the industry has only slowly adapted to the lightning-quick demands of e-commerce.

``E-commerce is so fast,'' said Julie Benezet, the director of global real estate for Amazon.com. ``It is so unlike real estate, which lumbers along like a mastodon.''

That is changing, but the shape it will take is still far from clear.

``There is no one in our industry who is not struggling with e- business,'' said Frank A. Robinson, a vice president of corporate real estate at McKessonHBOC, a San Francisco health-care supply management company that oversees 20 million square feet of space. ``It is going to change the way we do real estate processes, and the ones who don't get it right are going to be roadkill.''

Some real estate executives are already using business-to-business services in their daily operations.

``We are using e-commerce to do things more quickly and with fewer people,'' said Scott Leibold, a real estate manager at AT&T Corp. ``For example, we can use the system to reserve a conference room and order the food that will be served during the conference at the same time.''

But many executives say the big savings may come from changing the way transactions are conducted, especially sales and leases.

That will mean changes in how brokers operate and are paid. Until recently, a big part of brokers' stock in trade was their knowledge of the market. In tight markets, they know which spaces are likely to come on the market. In markets glutted with space, they know which landlords are willing to make financial concessions to lease space.

But that information is becoming more accessible to anyone willing to pay a price. Two national service companies, CoStar and RealtyIQ, collect information on property and transactions and make it available to online subscribers for a fee.

Brokers are also expensive. The standard fee for an office transaction in New York is one-third of the first year's base rent, paid by the landlord. In a deal for 10,000 square feet at $50 a square foot a year, the broker's fee would be more than $160,000, with commissions often split among several brokers.

Top brokerage executives acknowledge that there may be some erosion of their business, particularly in markets for small office spaces.

``I don't think anyone is going to sign a lease for 100,000 square feet of office space without a real estate professional advising them,'' said Stephen B. Siegel, the president of Insignia/ESG, a national brokerage and real estate services company. ``But there may be a part of the market, maybe up to 10,000 or 15,000 square feet, that could become a commodity and trade on the Internet.''

Nevertheless, at least one company is trying to circumvent brokers by using the Internet, offering a big cut in commissions as a lure. The company, TenantWise.com, in New York, offers to negotiate leases online at www.tenantwise.com, charging only 20 percent of the standard brokerage commission. M. Myers Mermel, the president and co- founder, compares the venture to online stock trading. He calls it ``the Schwab or E-Trade of real estate.''

On the site, which has been active only a few weeks, landlords can post property at no charge.

2000 San Francisco Chronicle
 

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