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A Note on Affiliation In the course of my consulting I have gained quite a bit of experience with commercial real estate networks: affiliations of independent firms who have voluntarily chosen to become partners under a common brand. These affiliates aim to support each others’ market initiatives and to transact business exclusively with one another when the occasion arises. Unlike national firms, who directly own or franchise local offices, affiliates operate with some degree of autonomy, but usually a lower level of support services from the “parent” company. As a matter of due diligence I require my clients to look carefully at the value of their present affiliation compared to other alternatives (including not affiliating at all) as part of their strategic planning process. What I’ve discovered is that the need to affiliate is not automatic and the benefits to be derived from affiliation no self-evident. Affiliation is a sensible strategy for some companies and not for others; all affiliations do not present the same advantages to the affiliate. Here’s what I’ve learned. There are really only two reasons to affiliate, generally dubbed offensive and defensive strategies. Offensive affiliation is based on the belief that being part of a network will increase business coming into one’s market from referrals from other network members and/or the assumption that a national brand will stimulate business from local clients who seek access to other regions or see a national firm as a safe choice. A few, but not all, recognize the obligation to send business out if the model is to work. Defensive affiliation is based on the notion that local clients expect their commercial real estate provider to have a connection to national business, that an affiliation is indicative of the firm’s professional stature in the same way that a website, blog or membership in the local Chamber of Commerce is viewed. Both see training and networking opportunities through conferences as a benefit In my experience with GVA, ONCOR and NAI the majority of members are affiliated for defensive reasons. The costs of their annual licenses are seen as a write-off for marketing. These networks are destined to under-perform, because the majority never make a commitment to use the interconnections to make deals. Too often they wait for business to come in or do little more than pay their dues, brand their signs and attend meetings. I, of course, have tried to make the networks work. To be honest, however, unless the affiliate is very knowledgeable about how to use its membership many of the benefits of joining under a common brand go unmet. One would think that the managers and owners of these networks would be frustrated by their continual underperformance. They are, but for most network owners the network is sufficiently lucrative in terms of annual subscriptions that the incentive to spark office-tooffice business is not that great. I’m not saying they wouldn’t want to get their cut of cross-office transactions, but that to achieve such a model would require significant more investment in advertising and support than they want to give. Much lip-service is paid to b-to-b business, but little is done to make it happen and when it does occur (usually through the initiative of a couple of entrepreneurial brokers) it is treated by network owners and operators more as “found” money than the by-product of a well thought out strategy. All this is preface to the more salient question: should a firm affiliate? The answer is that the choice to affiliate depends on the strategic direction of the firm and the degree to which the office is clear enough about what it is trying to do and attempting to become to take full advantage of the benefits offered by the network. That presumes, of course, that there are benefits to be derived from a particular affiliation. Put simply, a commercial real estate affiliation is not a marriage or friendship. It is pursued solely because it is in the strategic self interest of the firm as a business. And is not cynical to say that the owners of the network look out for their interest. I believe, however, network owners and operators have a much better idea of what their members can provide them then do the members have of the networks they join. If a potential member knows exactly what can be derived from the network then they can decide whether its annual fee to affiliate or a long term contract to brand makes sense. What can be derived falls into several categories: Direct business benefits: business across the transom from outside one’s market or from within one’s market. Indirect business benefits: visibility, reputation and credibility from branding and from the advertising and promotion provided by the network. Direct operational benefits: information systems, access to data, training, shared best practices, technology, tools, buying-power (derived from the economy of scale becoming part a volume consumer). Indirect operational benefits: the ability to recruit and retain brokers who would benefit from the services and connections the network provides. All this presupposes that: The firm has clients who seek or think they might seek out-of-market business. The firm has brokers who are interested in handling in-bound network business or finding partners for out-bound business. The firm needs the promotional power and credibility of a national brand. The network provides technological or training enhancements that leverage the firm’s internal resources. If any of those conditions hold, affiliation makes sense. If affiliation makes sense, the choice of the network comes down to which one provides the most value for the investment (fees, time, commission splits, autonomy).