Are property agents to blame for upward only rent reviews?

In negotiating commercial leases, many landlords and tenants employ property agents (brokers) to act on their behalf; typically these people are chartered surveyors. The aim of this paper is to explore the role that these brokers play in the shaping of commercial leases in the context of the current debate in the UK on upward only rent reviews. This role can be described using agency theory and the theories of professionalism. These provide expectations of behaviour which show inherent tensions between the role of agent and professional, particularly regarding the use of knowledge, autonomy and the obligation to the public interest. The parties to eleven recent lease transactions were interviewed to see if the brokers conformed to the expectations of agency theory or professionalism. Brokers that acted for industrial and office tenants behaved as professionals in using their expertise to determine lease structures. However, those acting for landlords and retail tenants simply followed instructions and behaved as conduits for their clients, a role more usually associated with that of an agent within the principal-agent relationship. None of the landlords’ brokers saw themselves as having responsibilities beyond their clients and so they were not promoting the discussion of alternatives to the UORR. The evidence from these case studies suggests that agents are not professionals; to behave entirely as an agent is to contradict the essential characteristics of a professional. While brokers cannot be held entirely responsible for the lack of movement on the UORR, by adopting predominantly agent roles then they must take some of the blame. However, behind this may be a much larger issue that needs to be explored; the institutional pressures that lead to professionals behaving in this way.

Influences on secured lending property valuations in the UK

A significant part of bank lending in the UK is secured on commercial property and valuations play an important part in this process. They are an integral part of risk management within the banking sector. It is therefore important that valuations are independent and objective and are used properly to ensure that secured lending is soundly based from the perspective of both lender and borrower. The purpose of this research is to examine objectivity and transparency in the valuation process for bank lending and to identify any influences which may undermine the process. A detailed analysis of 31 valuation negligence cases has been followed by two focus groups of lenders and valuers and also questionnaire surveys of commercial lenders and valuers. Many stakeholders exist, for example lenders, borrowers and brokers, who are able to influence the process in various ways. The strongest evidence of overt influence in the process comes from the method of valuer selection with borrowers and brokers seen to be heavily involved. There is some also some evidence of influence during the draft valuation process. A significant minority of valuers feel that inappropriate pressure is applied by borrowers and brokers yet there is no apparent part of the process that leads to this. The panel system employed by lenders is found to be a significant part of the system and merits further examination. The pressure felt by valuers needs more investigation along with the question of if and how the process could dispel such feelings. This is seen as particularly important in the context of bank regulation.

Influences on secured lending property valuations in the UK

A significant part of bank lending in the UK is secured on commercial property and valuations play an important part in this process. They are an integral part of risk management within the banking sector. It is therefore important that valuations are independent and objective and are used properly to ensure that secured lending is soundly based from the perspective of both lender and borrower. The purpose of this research is to examine objectivity and transparency in the valuation process for bank lending and to identify any influences which may undermine the process. A detailed analysis of 31 valuation negligence cases has been followed by two focus groups of lenders and valuers and also questionnaire surveys of commercial lenders and valuers. Many stakeholders exist, for example lenders, borrowers and brokers, who are able to influence the process in various ways. The strongest evidence of overt influence in the process comes from the method of valuer selection with borrowers and brokers seen to be heavily involved. There is some also some evidence of influence during the draft valuation process. A significant minority of valuers feel that inappropriate pressure is applied by borrowers and brokers yet there is no apparent part of the process that leads to this. The panel system employed by lenders is found to be a significant part of the system and merits further examination. The pressure felt by valuers needs more investigation along with the question of if and how the process could dispel such feelings. This is seen as particularly important in the context of bank regulation.

Broker use and the cost of liquidity in commercial real estate investment

Purpose – Commercial real estate is a highly specific asset: heterogeneous, indivisible and with less information transparency than most other commonly held investment assets. These attributes encourage the use of intermediaries during asset acquisition and disposal. However, there are few attempts to explain the use of different brokerage models (with differing costs) in different markets. This study aims to address this gap. Design/methodology/approach – The study analyses 9,338 real estate transactions in London and New York City from 2001 to 2011. Data are provided by Real Capital Analytics and cover over $450 billion of investments in this period. Brokerage trends in the two cities are compared and probit regressions are used to test whether the decision to transact with broker representation varies with investor or asset characteristics. Findings – Results indicate greater use of brokerage in London, especially by purchasers. This persists when data are disaggregated by sector, time or investor type, pointing to the role of local market culture and institutions in shaping brokerage models and transaction costs. Within each city, the nature of the investors involved seems to be a more significant influence on broker use than the characteristics of the assets being traded. Originality/value – Brokerage costs are the single largest non-tax charge to an investor when trading commercial real estate, yet there is little research in this area. This study examines the role of brokers and provides empirical evidence on factors that influence the use and mode of brokerage in two major investment destinations.

Diversifying into technical clothing manufacture as entrepreneurial learning: a situated learning theory perspective

Purpose – The purpose of this paper is to demonstrate analytically how entrepreneurial action as learning relating to diversifying into technical clothing – i.e. a high-value manufacturing sector – can take place. This is particularly relevant to recent discussion and debate in academic and policy-making circles concerning the survival of the clothing manufacture industry in developed industrialised countries. Design/methodology/approach – Using situated learning theory (SLT) as the major analytical lens, this case study examines an episode of entrepreneurial action relating to diversification into a high-value manufacturing sector. It is considered on instrumentality grounds, revealing wider tendencies in the management of knowledge and capabilities requisite for effective entrepreneurial action of this kind. Findings – Boundary events, brokers, boundary objects, membership structures and inclusive participation that addresses power asymmetries are found to be crucial organisational design elements, enabling the development of inter- and intracommunal capacities. These together constitute a dynamic learning capability, which underpins entrepreneurial action, such as diversification into high-value manufacturing sectors. Originality/value – Through a refinement of SLT in the context of entrepreneurial action, the paper contributes to an advancement of a substantive theory of managing technological knowledge and capabilities for effective diversification into high-value manufacturing sectors.

Do laws influence the cost of real estate brokerage services? A state fixed effects approach

A FTC-DOJ study argues that state laws and regulations may inhibit the unbundling of real estate brokerage services in response to new technology. Our data show that 18 states have changed laws in ways that promote unbundling since 2000. We model brokerage costs as measured by number of agents in a state-level annual panel vector autoregressive framework, a novel way of analyzing wasteful competition. Our findings support a positive relationship between brokerage costs and lagged house price and transactions. We find that change in full-service brokers responds negatively (by well over two percentage points per year) to legal changes facilitating unbundling