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Plight of the Middleman

For so long, so many in the real estate industry could make a killing as an industrious middleman. These middlemen aren’t developers, owners, bankers or property managers—the folks that actually conceive, invest their own money in, and take care of properties. No, I’m talking about the investment advisors, investment bankers, consultants, deal brokers, mortgage bankers, lawyers, appraisers, et al, who made big bucks in the trading arcade.

By Jonathan D. Miller | Updated on September 29, 2011

For so long, so many in the real estate industry could make a killing as an industrious middleman. These middlemen aren’t developers, owners, bankers or property managers—the folks that actually conceive, invest their own money in, and take care of properties. No, I’m talking about the investment advisors, investment bankers, consultants, deal brokers, mortgage bankers, lawyers, appraisers, et al, who made big bucks in the trading arcade. The advisors and investment bankers would cook up plenty of deals with brokers, mostly trade between themselves using client money blessed by the client consultants, finance transactions through mortgage brokers, and hire on lawyers, appraisers, and various others to help consummate the transfers. Ka-ching, ka-ching, ka-ching!

These middle men hordes essentially took big fees out each transaction without adding any economic value. Buildings would trade hands multiple times without significant improvements. Ownership would change, leverage would change, and the middlemen took their cuts every step of the way. If ever there were an unsustainable business model this was it—as soon as investors and lenders figured out that they couldn’t make money if rents didn’t increase and occupancies didn’t stay high, they stopped buying and financing. And without deals, the middlemen couldn’t leech out their lucrative takes.   

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