Guest post by Tom Silva, Silva Brand
Is branding important to real estate? Most of us give it lip service but think that it is dwarfed in importance by the deal terms around a real estate transaction – T.I. dollars, lease terms, CTL financing and cap rates. The prevailing opinion in our industry (which I’ve heard verbatim numerous time) runs along these lines: “branding is all fine and good but it’s not going to lease my building or create value.” Well, actually it is. Here are a couple of examples from the last few weeks:
At the end of 2014, Hyatt Hotels Corp. sold five of its select service hotels for $53 million, part of the Chicago-based company’s growth strategy. The kicker? The new owners paid to retain the Hyatt Place brand. In fact Hyatt did the same thing when it executed a $590 million portfolio sale to a company organized by Lone Star Funds last fall. All 4,950-key properties will maintain the Hyatt Place and Hyatt House brands.
“We are now leveraging that brand equity to recycle capital while maintaining a long-term brand presence in multiple markets,” said Steve Haggerty, global head of capital strategy, franchising and select service for Hyatt.
But surely, brand only applies to hotels and retail? The corporations don’t see it that way. This was validated by a recent survey of 123 corporate real estate leaders conducted by CoreNet Global. The results show that 77 percent believe that brand is a critical driver for their business, yet only 54 percent said the workplace plays a critical role in supporting it and only 15 percent said their facilities reflect their brand “very well.”
So brand is now a real estate issue. Investing in your brand is not just a nice extra. A strong brand delivers significant returns, boosting both perception and your bottom line. How? Strong brands create enormous value through their influence on three key stakeholder groups: customers (tenants or buyers), your employees and the capital markets (private investors, REITs, sovereign wealth on the equity side; banks, insurance companies, mortgage REITs, CMBS, mezz lenders on the debt side). They influence customer choice and create loyalty; attract, retain, and motivate talent; and lower the cost of financing and raise valuations.
But how does brand work in the real estate industry?
The confusion for many people comes when traditional branding agencies don’t understand real estate and treat branding as if it is merely a design and copy-writing function. They need to recognize that there are four fundamental levels at which brand applies to the real estate industry: organizational branding; shell & common area branding; interiors/workplace branding; and leasing & disposition branding. For this column, I will focus on the first and often most significant type of branding in our industry.
Branding your organization
If done right, organizational branding drives huge spikes in the valuation of a company. Brands account for more than 30 percent of the stock-market value of companies in the S&P 500 index, according to Millward Brown, a market-research company. And the same applies in real estate.
When companies look to sell or procure financing, their brand has a profound impact on the process. In December, Cushman & Wakefield chose to buy Massey Knakal Realty Services, the investment sales and mortgage brokerage, in its entirety for $100 million. Cushman could have simply created its own investment boutique or hired away star brokers, but it wouldn’t have had ownership of the Massey Knakal brand that has dominated investment brokerage in the city.
And when DTZ, ranked number one in China for investment sales and number three in London and the U.K, wanted to compete in the United States, it didn’t simply set up DTZ offices on both coasts; Instead it went after a middle-market powerhouse so it could leverage its brand equity. Cassidy Turley’s local market penetration and reputation in the United States now give DTZ instant credibility across more than 30 major U.S. markets and will be the third-largest commercial brokerage in the world, a legitimate rival to Chicago-based JLL and Los Angeles-based CBRE Inc.
In the real estate industry, organizational branding is the most familiar expression of branding. To do an effective job, branding agencies need to work with the leadership at companies (whether real estate companies or their users) to help them understand their competitors, their clients and the currents in their industry (for real estate this might include cap rate movements, interest rates, incentive packages, capital stacks) in order to construct the brand.
It is very much like building a building. We distill the key components of a company’s strategy: mission, vision positioning statement, unique selling proposition, brand values, brand personality and brand promise. It seems extraneous, even unnecessary, but without it you can’t create meaningful messaging and a visual expression that can do what a brand is supposed to do. What you will end up with will be generic, undifferentiated from your competitors and, worse, not aligned with the goals and abilities of your team. Ultimately, branding is strategy, it is positioning your company as a living business asset to create identity, differentiation and value.
Tom Silva is founder of Silva Brand, a brand consultancy and marketing agency in downtown Chicago. For more information about Tom or Silva Brand, please check out www.silvabrand.com.