Article By Matt Einheber, Principal at TitleEQ & Creator at TitleBox
Smart commercial real estate principals love finding the deal no one else knows about.
Yet there’s an obvious deal out there that’s routinely being ignored - something that residential real estate brokers have been taking advantage of for years while CRE entities have been missing out. It’s a stream of impressive profits being left untouched, staring commercial principals in the collective face. By ignoring it, CRE entities have been leaving quite a bit of money on the table.
Title and settlement services are not on the radar for most investors, sponsors, principals and other CRE decision makers. But for those willing to deploy the right joint venture, the opportunity for meaningful profits and a more streamlined operation can be huge.
You might be surprised at how big. Even smaller organizations can realize a passive seven-figure profit while simultaneously lightening their operational load. That said, it’s not an automatic win. There’s a lot to consider.
Vetting an operational partner for a joint venture
Title is a deceptively complicated business to operate. It’s anything but simple and is critical in managing debts and liabilities against real estate, protecting value and managing a high risk and logistically complex transaction.
Most title companies focus on residential transactions and don’t have the depth of knowledge to properly handle the more complex issues that are common to CRE. Very few have done much to make meaningful advancements in process, workflow and technology. In fact, it’s a bit of a surprise to realize how manual many title operations are… even some of the largest and best recognized in the space.
These reasons alone should be enough to convince professional real estate buyers that the title or closing vendor should be vetted and chosen carefully. There’s a lot of value in deliberately choosing a title company to work with regularly.
Introducing the prospect of a joint venture with a title operator usually brings up questions of compliance, profitability, operational competence, risk and more. Title is specialized enough that even most adjacent real estate pros don’t really know how to vet title firms or which common mistakes to avoid.
However, this choice brings with it risk with a disproportionately high reward.
The title industry is still largely a dusty, antiquated space with a great deal of complexity in its operations (in spite of its continued reliance on manual processes). It takes an experienced operator committed to leveraging things like technology or third party service providers (where warranted) to maximize efficiencies and build optimal profit margins. Where that takes place, an affiliated closing operation not only provides the principal with greater control over the entirety of the transaction, but will super-sized profits as well.
It's not just a simple matter of hiring the local title agency to build an affiliated arrangement. In many cases, moving without knowing how to properly vet your operating partner can be disastrous, and add time, tension and unnecessary expense (or delay) to your business.
Here are the most important considerations to properly vet a potential title partner:
Experience and track record
First, any operating partner you meet should, obviously, understand and have experience with title and closing. That sounds simple enough. They should also have significant supportive infrastructure.
A big point is that the potential partner should be familiar with the markets in which your closings will occur. If you’re planning on closing deals not only in Miami, but in Port St. Lucie or Georgia or New York for that matter, be sure that your potential JV partner is an expert in the requirements and customs of those markets. Everything, including laws, rules, customs, workflow and dollars, can vary widely from not only state to state; but county to county and even city to city.
Problem Solving
Potential JV partners should be the very best problem solvers. First principal thinkers. Investigators. Negotiators.
It’s the job of your title representation to figure out how to ‘get to yes’ when it comes to negotiating with underwriters, lenders, buyers and sellers.
If you’re an attorney or have ever been on the legal side of complex transactions, you’ll understand exactly what that means. The best title experts anticipate problems before they happen, create multiple possible solutions and know how to negotiate risk to protect you while delivering results.
These people are invaluable to your attorneys and your organization at large.
Technology and Solutions
There’s software to address almost every minor problem, but some of the biggest challenges come with choosing the right technology and best means of using it.
It’s arguable that this is the single most common and biggest challenge for any business today in any industry. It requires determining what will help and what is a waste of money, then getting those otherwise disparate technologies to work fluidly together, first serving the client experience and then improving internal efficiency.
This speaks to operational lift and profitability.
Probably every business out there is wasting money on a platform or an app that’s just not helpful enough. I frequently encounter tech solutions to simple problems that amount to overkill. The clunkiness of using multiple providers for a single process can be truly frustrating.
We all know that Proptech has been generally slow to catch up with other industries, and title is an exaggerated version of that. It’s not without reason, but times are changing.
The best title JV partners serve as curators of the most effective technology. Because the closing process can vary so widely, there is no “universal” settlement platform or tech stack. The best closing firms build stacks that easily accommodate their clients’ needs as well as effectively addressing compliance requirements as well as market requirements.
At the same time, there are instances in which a title company is better served by leveraging efficient third party service providers to maximize efficiency and minimize expense. These operators also understand when it makes the most sense to make use of a national or centralized resource, and when using local expertise could actually create a smoother process.
There are certainly problems technology can solve. There are many that are better served by humans, aided by the intel, focus and access that technology can deliver. Understanding how to find this balance, and keep the operation fluid and performing without getting distracted by shiny objects is the key. Plus, the practice of continuously reviewing potential new solutions is something we should all value in our own businesses as well as with any new partner.
Compliance
As it relates to CRE, title insurance regulations fall under the jurisdiction of each state’s insurance department.
Depending on the state, compliance can be reasonable and manageable, or can involve monthly/quarterly/annual audits, reporting, brick and mortar locations, data licensing by county, or other complicated requirements.
Obviously, while making a play at profits, it simply isn’t worth risking your core business interests over legal matters. Choosing a JV title partner with solid compliance expertise and which has the resources to manage them is not optional.
These are all factors to consider for CRE principals looking to capture additional revenue by controlling the closing process with an effective title JV. Those who aren’t sure where to start can begin by locating a seasoned title expert or third party consultant. It’s important that any “expert” understand how the principal works and what kinds of transactions and markets are most familiar to that principal. True “experts” also offer several options to consider, rather than leaning on one brand or firm for almost any situation.
Nobody intentionally leaves money on the table. Yet, for years, CRE principals have been happy to hand off an entire revenue stream to someone else’s “guy.” Perhaps that’s fear of the unknown. Perhaps too many principals simply don’t realize there’s true revenue to be had. The key is to partner with a firm that can build an operationally sound title organization and an efficient workflow. In doing so, CRE principals can potentially take what looks to be a pretty good year in the CRE market and make it great.
About Matt Einheber, Title EQ:
Matt is a principal of and the driving force behind TitleEQ, a national settlement services agency serving clients nationwide, and TitleBox, the developer of technology designed to streamline risk management in the title industry.
His experience with real estate transactions began in the early 2000’s in real estate finance, which led to settlement services and ultimately his move to start his first title company in 2005.
Since then, Matt has played an integral role in forging industry-shaping technology and business processes for the settlement and closing operations of title companies, underwriters, real estate brokers and agents across the country. Matt’s current focus is TitleEQ and its family of companies; the result of years of technology development and learned execution to approach real estate settlements in a way that’s very unique.