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This has been a challenging year for real estate investors, including those in the multifamily market. Apartment building sales plummeted in the first quarter of 2023, falling 74 percent year over year according to data from CoStar, and marking the lowest sales quarter since 2020.
Meanwhile, the Multifamily Housing Council has tracked five consecutive quarters of lower deal flow in a loose sales market. Buyers want discounts, sellers want capital to reinvest in better-performing assets, and the bid-ask divide grows wider.
In unsettled economic environments, strong relationships between real estate investors and brokers matter even more.
Investors want the first look at desirable properties, comprehensive data, and clear communication. Brokers seek investors with access to ready capital and the ability to close quickly. Relationships, built over time and successful deals, can help repair the gap that economic conditions have stretched.
Of course, buyers and brokers view deals differently. But they don’t have to be adversaries. Investors skilled in relationship-building often merit the first calls, especially in markets where a short list of brokers portfolio the hottest properties. How can investors best cultivate these relationships? Let’s start, or actually close, with dinner.
Make deals face-to-face
Digital deal-making is essential in today’s real estate market, where virtual showings and closings are common.
When possible, however, investors and brokers should schedule in-person meetings, particularly at closing. I still enjoy the traditional practice of the closing dinner, at which buyers and brokers seal their deals. It lifts the closing from pro forma translation to celebration. Numbers cede to fellowship, clearing a path to future deals.
Even in a digital marketplace, investors and brokers should make time for personal interaction. Relationships rarely begin without a property to transact, but cultivating those relationships helps both parties make smoother deals. Spending time together in person, especially at a closing dinner, opens both sides to working together again.
Be a communicative broker
What investors need most is accurate and timely property information.
In multifamily housing, good brokers provide occupancy reports, rental rolls, property cash flow, income and expense data, maintenance and management requirements, regional rental trends, and other information necessary to make an informed bid.
Better brokers deliver this information before investors ask. The best brokers initiate contact with investors they know will find specific property data compelling. Meanwhile, brokers who stall or withhold information find investors reluctant to take their calls again.
Further, brokers educate themselves about a buyer’s credit needs and buying appetites. They don’t push properties that require unwanted leverage or risk. Brokers also communicate the seller’s perspective honestly to honor the value of everyone’s time.
Sometimes, the bid-ask divide is too far to bridge no matter how smooth a broker’s pitch. But brokers who press either side to bend too much risk losing not only a deal but also a customer. Deals collapse sometimes; buyers and sellers understand that. Honest communication gives both parties the opportunity to defer, with no hard feelings, and try again later.
Be a principled investor
Honest, accessible brokers stand out in multifamily real estate, at least in my corner of the market. The same applies to investors. Brokers steer sellers to those who negotiate reasonably, act in good faith, and close on time. Investors who don’t risk degrading their reputation and thus their ability to buy properties.
Shrewd investors don’t have to be disreputable. They close on time at the agreed price. They don’t raise late-process issues as a means to seek price adjustments. They don’t make big deals about minor concerns, such as an inspection issue. They don’t over-negotiate, dismiss a seller’s reasonable requests, or object to minor contract language changes. They’re cooperative while being firm.
High-maintenance buyers lose their marketplace standing quickly. Real estate can be a small world, and brokers can conveniently lose the phone numbers of tedious buyers who obstruct the process.
Consider the hybrid approach
Investors and brokers don’t have to be mutually exclusive. Each party can learn from the other, and even move into a hybrid role that covers both sides of the deal.
Many investors have their broker’s license (I’m one of them), giving them another perspective on real estate. Even those who don’t use their licenses professionally can benefit from the institutional knowledge and leverage they provide.
Meanwhile, experienced brokers naturally might want to test the market and become investors. Brokers with expertise in particular markets often become successful investors as they gain more experience in the business. By working for a commercial investment firm, a skilled broker with initiative can buy smaller properties, generate income, and then scale their investing further.
Brokers should augment their hybrid approach by employing tech (such as on-demand showings, real estate apps, and digital documents) while reinforcing the importance of personal service and expertise. Investors, meanwhile, can access real-time information to make better-informed property assessments and offers. Technology doesn’t have to alter the investor-broker relationship negatively. In fact, tech can enrich it.
Successful real estate investors and brokers ultimately share a common goal and vision. They have clear plans, understand markets, build a network of clients and agents, identify promising investment niches, and accept (but don’t fear) risk. As a result, their relationships shouldn’t be adversarial. Sure, their interests conflict, and deals don’t come without friction. But buyers, sellers, and brokers work together in real estate. So let’s make that work congenial instead of confrontational.
Market forces have made real estate deal-making more difficult. Investors and brokers can help bridge the gap by employing a few simple tools. Brokers must communicate, and buyers must perform. That way, everyone wins.
Michael H. Zaransky is the founder and managing principal of MZ Capital Partners in Northbrook, Illinois. Founded in 2005, the company deals in multifamily properties.
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