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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   November 2014

Keep Your Residential Peers Afloat

Commercial professionals can help home-mortgage businesses fix holes related to office space

Keep Your Residential Peers Afloat

It has been a good year in many commercial real estate markets. The value of existing inventory is generally rising, and commercial activity in most regions is healthy as well. For our brethren on the residential side of the real estate world, however, things are a bit different at the moment.

This has been a year of compliance for most businesses in the residential real estate industry. From mortgage lenders to real estate brokerages to title insurance companies, the focus has been on quality control and getting up to speed on a number of landscape-changing regulations and rules enacted by the Consumer Finance Protection Bureau (CFPB). Rules affecting how loans may be sold to investors and how lenders may and may not qualify borrowers, as well as ones involving lenders’ liability for the actions of their vendors, have made originating a residential mortgage costlier than ever for most mortgage-related businesses.

The result in the residential sector has been fairly predictable. When costs go up unavoidably for any business, it is fundamental to contain or cut back expenditures in areas that can be controlled. For many residential mortgage businesses, this means taking actions such as downsizing staff, implementing new technology or reviewing workflow for inefficiencies.

Surprisingly, however, for many residential mortgage businesses — especially small to midsized companies — a significant source of expense is overlooked: their own office space. Even the most sophisticated residential businesses, many of which are on top of their games when it comes to cost efficiencies, are often winging their own commercial real estate strategies, sometimes at great expense.

This results in an often-overlooked business opportunity for commercial mortgage professionals, who have a great opportunity to apply their considerable and unique experience to provide valuable office expenditure-reduction advice and services to their residential peers.

Look at the lease

Many small to midsized residential mortgage businesses, whether lenders, partners or vendors, leave little to chance when it comes to efficiency. This is true especially in today’s economic environment.

Yet the same risk-averse businesses often roll the dice when it comes to leasing commercial real estate for their office space. Many times, an owner, CEO or other executive — whose primary job has little or nothing to do with commercial real estate — will take on the negotiations for the company’s lease. Too often, this does not work out to the business’ advantage.

Many people, even ones with real estate expertise, who charge into landlord-tenant negotiations without the proper experience or training, are simply unaware of what can and can’t be negotiated. It’s common to accept a landlord’s initial offer, which is rife with otherwise-negotiable conditions favoring that landlord, without realizing they have options.

Commercial originators can help residential mortgage businesses 
answer compliance questions before they become a problem in an audit.

Similarly, a negotiator lacking commercial real estate experience probably doesn’t know a particular landlord’s tendencies, strengths and weaknesses. Nor will that person understand all of the important market conditions that experienced commercial professionals use to their advantage when negotiating, or know the right questions to ask, such as: “Is now the time to renegotiate a shorter or longer term lease?” or “How much responsibility should the landlord bear in a particular build-out?”

Mistakes or oversights in the lease-negotiation process may amount to thousands or even millions of dollars of wasteful expense to a business, which could have been avoided if an experienced commercial originator had negotiated with the landlord.

Office space: asset or liability?

Even for residential mortgage businesses that don’t have much face-to-face exposure with clients (for example, companies that specialize in warehouse or correspondent, rather than retail lending), the location and setup of commercial office space may serve as a significant source of wasted expenses or cost efficiencies.

An experienced commercial professional or brokerage can answer numerous key questions for a residential real estate business evaluating its office needs or considering renewal of an existing lease, such as:

  • Is the office efficient? The residential mortgage market has been volatile, often forcing businesses to cut staff only to ramp up again with the next volume spike. Commercial real estate professionals know how to get the most efficiency out of any given office space so that their clients don’t face counterproductive, cramped conditions or wasted space — or both at some point.
  • Is the office optimally located? Even if clients aren’t stopping by regularly, commute times, local traffic, utilities, proximity to amenities and other factors related to location may have a significant impact upon staff morale, productivity and, ultimately, the company’s bottom line.
  • Are the office furniture, fixtures and equipment optimal for workflow? How an office is furnished as well as situated may make a world of difference in productivity. An under-furnished or poorly furnished office could lead to an unproductive environment.

A garish or over-furnished office is an obvious source of wasted expense. Where’s the middle ground? Similarly, are staff members located for maximum productivity in the space?

All too often, these questions are an afterthought for residential real estate businesses, or they’re answered in ways that reflect poor planning. The result is inevitably wasted money.

Compliance in the workspace

The residential mortgage industry has, collectively, invested much time, expense and attention on compliance in recent years. Millions of dollars have been poured into the cost side of compliance, focusing on consulting, quality-control staffing, technology, training and more. Lost in this avalanche, however, has been the important role of office space in compliance.

Key Points

Considerations in
residential office space

  • Many lease details are negotiable
  • The space should match the company’s needs
  • Location matters even if customers don’t stop by
  • Furniture, fixtures and appliances should be optimized
  • Office and technology configurations affect compliance

For example, a company’s clean desk policy, an important component of compliance, may be compromised in an office with large windows near employee desks. Also, the location of and access to servers and computers are important considerations of whether or not a business has adequate data security to meet compliance standards, particularly regarding nonpublic information. Are unauthorized personnel, such as employees, contractors, customers or even the general public, able to easily access private information?

These are questions that should be answered in the planning stages of a company’s overall compliance strategy. If they’re not, they likely should be answered during the business’ next CFPB audit. Commercial professionals can help residential mortgage businesses answer those — and other — compliance questions before they become a problem in an audit.

•  •  •

Commercial real estate professionals work daily with sophisticated attorneys, developers and lenders. Many of their residential peers, who are otherwise-savvy business owners and executives, simply don’t have comparable experience and haven’t been exposed to the value proposition commercial originators can offer. As a result, these residential mortgage professionals may waste money on their office-space needs. At a time when many of these companies are desperately seeking relief from spiraling expenses, commercial mortgage professionals have an opportunity to show them that their biggest expenses are often right under their noses or feet, and there is something can be done to reduce them. 


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