Cool new things we love / Innovation / Technology

The Evolution of the “Comp”

Remember the “telephone game” when you were a kid?

You’d whisper, “I had ham and eggs for breakfast this morning,” to the person to the right and by the time it made its way around the circle the last person would say, “Santa has ham for legs and just installed new flooring.”

telephone

Well the same thing happens when real estate comps are traded.

In commercial real estate brokerage the lease comparable or “comp” is a summary snapshot of a transaction that includes all the relevant deal points such as the rental rate, square footage, length of term and concessions. Simply put, it is one of the most accurate real-time indicators of what tenants are willing to pay to lease space in a market at a specific point in time.

Comps are traded predominantly amongst brokers, landlords, lenders and appraisers, however there is no central repository for this information.  Each party or their respective company or firm maintains their own proprietary database where this comparable information is kept; and this comes with its own challenges.

With such a fragmented method of assembling, compiling and maintaining this data it’s impossible to warrant its accuracy.  For example, I’ve received comps for the same transaction but from different brokerages, and they have all had conflicting information – inconsistencies in the lease expiration date, tenant improvement package, rental schedule,etc.

Also, there are severe limitations to only being able to search your own firm’s database.  What if the data you need existed somewhere out there but your firm didn’t have it?  Well then you’d just have to hunt around until you found it, which can be very time consuming.

CompStak is a new, crowd-sourced model that allows CRE professionals to contribute lease comps and then earn points for what they’ve submitted.  They can then trade the points that they’ve earned for details on other comps that are more relevant and important to them.

This is huge for a few reasons.  First, having a centralized database that everyone contributes to encourages data integrity and market transparency.  Simply put, verified, accurate data benefits everyone involved.  Second, being able to magnify the scope of a search by accessing a much larger, more robust database makes me a better-informed broker and ultimately, allows me to provide better service to my clients.

CompStak is currently available in San Francisco and Manhattan, with plans to eventually go national.  Personally, the service has already proven its worth in at least two recent transactions and I look forward to their continued success.

Hopefully now when I  say, “three months free with $25 per square foot in TI’s,” it doesn’t get translated into, “tree trunks free with $25 in bacon flavored toothpaste”.

Related news: Commercial Real Estate Tech Company CompStak Makes Bay Area Inroads

14 thoughts on “The Evolution of the “Comp”

  1. Love the premise of Compstak! Would love to know when the plans are to bring it to the Atlanta market… Thanks!

  2. CompStak will have the same problems in obtaining 100% accurate information. While along the way a few comps may be reliable, overall the CompStak system will not be very accurate. Nice idea tho.

    • Ian,

      I don’t think it will ever be possible for anyone to have 100% accurate information. I do believe, however, that receiving data points from many different sources will improve the accuracy of their comps. Right now brokerages keep comps close to their chest, so they’re not comparing notes with other brokerages to verify the accuracy of their data. This is only possible with a large, centralized repository.

      Mind if I ask why you think CompStak’s data wouldn’t be very accurate? I’m interested in hearing your thoughts.

      • no matter what way you look at it, the majority of property owners don’t want their internal dealings with tenants shared with the world. same thing goes for tenants.no savvy broker will risk a relationship with a client over a comp, therefore the broker will typically provide information about a transaction that is in the 80% range of being correct. i have seen high profile top producing brokers with national companies provide comps that where 60% accurate (and less). also, large transactions are typically done under confidentiality agreements that lease information will not be shared.

        getting brokers to share comps internally in a company is tough enough, not a very good chance the comp will be shared correct with the rest of the world wide brokerage community.

        if compstak information is not 100% accurate, the reports and data they generate are nothing more than “estimated” information. along the way they may gather a good comp here and there, but overall the data will not be very accurate.

        i do like the compstak concept, but taking the approx value of a lease ( from a newspaper, company report, internet research) and dividing it by the square footage of the premises, does not produce a comp under any circumstances that is “valuable” to the world of commercial real estate.

        • I agree with you that brokers are notorious for sharing incomplete or inaccurate comps, which is why I believe in CompStak’s crowdsourcing model since it creates the opportunity for many people to contribute to the data and improve its accuracy.

          I also think this works because brokers are willing to share so long as they’re able to receive. I’m more than happy to give an accurate comp if I’m getting the same in return.

          It’s important to make the distinction however that CompStak isn’t planning on using arbitrary information (such as info from a newspaper) to populate their database, but firsthand knowledge from the active brokerage community. Granted, there will be certain transactions that will be incomplete due to an NDA or confidentiality on the terms, but those deals aren’t as frequent as ones whose information isn’t a secret.

          So getting back to your examples…. if a broker provides information that is incomplete or inaccurate, there will be plenty of others out there who will correct it in order to get more points that they can trade for other comps.

        • Hi Ian,

          Thank you for your comments. We care about data accuracy as much as you do. Ben is correct- we do not source information from newspapers, only from brokers, appraisers and researchers. Our data has been proven accurate many times, and it is getting better and better as our community grows and we get more versions of every comp.

          • compstak is a good idea and has the potential to provide a good service. i hope you do well with the business.

  3. HI Benjamin,
    Great post here. Getting commercial real estate comps has always been difficult. Even when you have great comps it doesn’t mean that your specific client will get the same deal because as you know their financial situation may be weaker than the tenant who got that deal or market may be different (e.g. the Austin market is getting more competitive each month!).

    Costar and other comps to me are almost worthless. They charge us to have access to their database but then call me asking for some FREE comps 🙂 Most of their comps are not that accurate anyway.

    Residential realtors have it made when getting comps. In Texas when you list a home on the MLS they are then required to post what it sold for so ALL residential realtors have access to solid comps. Commercial realtors have to rely on their network to gather information.

    • Hi Nathan,

      I’m glad to hear I’m not the only one annoyed by CoStar! After the close of each transaction, we’ll get a call from some kid with no manners in CoStar’s San Diego headquarters, asking for the comp and offering nothing in return. The model just doesn’t work and the comp data they charge us for is terrible.

      But I’ll trade all day with CompStak. I’ve already traded so many comps that had no value to me, for comps that did. It also comes in really handy if you’re helping a client with a renewal, because you can do a search for all deals done in that building and you can go into the negotiation with guns blazing because you’re armed to the teeth with information.

      So Austin’s picking up, too? So much focus has been on San Francisco and Manhattan lately that I’d like to hear more about other US markets…

  4. Ben or Danny – I love the consept of Compstak, but just wondering whether you think if enough tenant’s brokers come “armed to the teeth” with comp information as Compstak grows in noteriety, do you think that landlords will make it a point to put strong confidentiality provisons in leases to try to minimize the loss of negotiation leverage? Do you think that will slow the exchange of information through Compstak?

    Thanks for your thoughts.

    • Hi Larry,

      I don’t think so, for the very reason that any efforts made to limit the flow of information or reduce transparency, actually hurts everyone – tenant reps AND landlords.

      Landlords want access to this information just as badly as tenant reps do, so it doesn’t behoove them to try and limit this sharing of information.

      This type of information has always been historically difficult to enforce, as well. Comp information always seems to find it’s way to the brokerage community even when there are “gag” restrictions in a lease.

    • Hi Larry,

      Thank you for your thoughts. Here is what I’m thinking: CompStak is not the first company to collect commercial lease comps- we are just the first ones to use the crowdsourcing approach. I agree with Ben that the comp info has always been out there, and I don’t expect that landlords will change their policies just because of CompStak.

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