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Current Season: First Draft Live
Between economic whiplash, shifting policies and market volatility that changes by the hour, you need industry insights that cut through the noise. That's exactly why we're launching First Draft Live, a new weekly series that breaks down what's happening, why it matters and what you need to know to do better business.
Join us live on Bisnow.com every Friday at 12:30 PM ET / 9:30AM PT for conversations with the industry's sharpest minds discussing the week's most critical stories, or catch the replay right afterwards — here on your podcast app of choice.
Okay. Welcome to First Draft Live. It's Friday, March 6. I'm Mark Bisnow's editor in chief coming to you live from New York. We've got a great program for you today.
Mark Bonner:Thank you to so many of our listeners and our viewers for tuning in. Before we get started, let me just remind everybody. This episode of First Draft Live is presented by Agora. Whether you're managing deals, raising capital, or growing your portfolio, Agora is your trusted platform for seamless real estate investment management. Visit agorareal.com to learn more.
Mark Bonner:That's Agora, real.com. Got a great partnership with, Agora going right now. Thank you guys so much for your support. Okay. Let's talk about some brokerage news because a few weeks ago, something unusual happened on Wall Street.
Mark Bonner:CBRE, JLL, Cushman, Wakefield, Colliers, Marcus and Millichap, and Newmark all saw their stocks tumble as investors suddenly wiped tens of billions of dollars from the sector's market value. They're still down as of this hour. The strange part of the whole thing is that nothing fundamental had actually gone wrong. After two brutal years for commercial real estate transactions, deal volume is finally starting to recover. Deal leasing pipelines are improving.
Mark Bonner:Capital markets are reopening and several of the largest firms have been reporting rising revenues. But investors weren't reacting to those earnings. They were reacting to a question. What happens to brokerage when AI can suddenly analyze deals and find buyers in seconds? If that becomes a reality, a lot of other questions start to follow.
Mark Bonner:Do commissions start to come down? Do brokerage firms need fewer people? And maybe most importantly, what do clients start asking? Because once AI enters the brokerage workflow, the question becomes pretty simple. If technology makes the work faster, why should the fee stay the same?
Mark Bonner:To help us think think through that shift, I'm joined today by Kyle Matthews, CEO of Matthews, who has argued that AI will absolutely reshape brokerage, but not necessarily in the places many people expect. Kyle, welcome to First Draft Live.
Kyle Matthews:I appreciate you having me on, Mark. Thank you.
Mark Bonner:And a quick reminder to to our our viewers. Drop your questions in the chat. We'll get to as many as we can. But Kyle, I wanna start with something you said as this dramatic AI scare self was unfolding. Because while a lot of the major brokerage CEOs were lining up to tell the public that the AI panic was overblown and that brokerage is still ultimately a relationship business.
Mark Bonner:You were making a pretty different argument. You wrote on social media that institutional brokerage may actually be the part of CRE that is most exposed to AI. As you put it, and I quote, the buyer pool is incredibly predictable. It's the same 20 or so clients who show up over and over and over again, which means an AI system could theoretically map that buyer universe pretty quickly. Whereas in the private client market, the buyer pool is massive, fragmented and much harder to identify.
Mark Bonner:So let's start here. Kyle, do you really believe institutional brokerage is more vulnerable to AI than people think?
Kyle Matthews:Yeah, I I do. I think perhaps, I I don't know if it's honest but perhaps I can be more even though we're very large, we're private. So, I serve a different master in that sense. Yeah, institutional brokerage if and when there's disruption in a traditional brokerage sense. And I think you and I are going to talk through what is brokerage today.
Kyle Matthews:But yeah, the institutional space is where the disruption from AI automation or Gentec AI will likely happen very much for the reasons I laid out in that post. And and, know, I've had a lot of conversations subsequent to the post just about I mean, you already see compression in in fee candidly over the last couple decades in the space. Everybody has a different definition of what is institutional. I use 100,000,000 and up. It's a very predictable buyer pool.
Kyle Matthews:They're very easy to get a hold of. They have acquisition teams. They have chief investment officers. They have websites. They have clearly defined parameters of what they're looking for.
Kyle Matthews:And again, you have seen fees compress in terms of basis points. But as AI, it's not if, it's when AI, but as it really continues to evolve, improve, especially getting to more of an agentic agent space. I could I could see some of the larger principles saying, hey, we could save millions, tens of millions a year in fee if we bring this in house but that they do or not regardless ultimately will likely lead to a compression of traditional brokerage fees in that space.
Mark Bonner:So, the defensibility for institutional brokerage has historically been information edge and they're humans, right? So assuming that this begins to take hold and starts to reshape the business model of brokerage, where do you think the next version of defensibility will actually sit?
Kyle Matthews:Well, I yeah. I I don't know if it's defensibility. I I I think more vulnerability. And this gets back to, you know, why I think the Sharps came for those company on the day did whatever that was two, three weeks ago is and I touched on it earlier like, what is a brokerage company? Well, brokerage to me traditionally was capital markets and capital flows.
Kyle Matthews:It's the buying and selling. It's the lending and the borrowing like traditional transactional brokerage and what's interesting really, Mark, over the last two decades is you you've seen this total shift in the the makeup of these in air quotes, brokerage companies revenue where, you know, twenty years ago, it was three quarters brokerage in capital markets and maybe a quarter contract revenue and it's completely flipped. In fact, I think I think CBRE's latest earnings was 80% what they define as resilient revenue and and not traditional, a non resilient, you know, brokerage revenue. So, resilient revenue, facilities management, project management, property management, valuation advisory and investment management fees, loan servicing. These are data heavy, repeatable document and or analysis driven services.
Kyle Matthews:And that has little to no moat towards what's happening with AI automation. And as a language models are improving the ability to effectively replicate or replace that entry level knowledge work. So that's where I actually think the biggest vulnerabilities for these, I don't even want to call them brokerage companies, these commercial real estate service companies who happen to do a little bit of brokerage. That's where I think most of the pain is going to be felt, not so much in the transaction space.
Mark Bonner:I mean, a lot of these CEOs got up and said, as this was unfolding a few weeks ago, this is an overreaction. We're well noted for this. We've invested millions and millions of dollars internally. Yes, some jobs will be affected, but a lot of that will mean that those jobs will evolve into new use cases to help the business continue to grow. I mean, they're publicly traded.
Mark Bonner:Right? They were trying to ease their investors.
Kyle Matthews:Right?
Mark Bonner:This is the middle of earnings season. Right? Did you believe that? Do you think they were trying to pull the wool over our eyes when they were saying everybody's freaking out and this is much ado about nothing?
Kyle Matthews:No, they would never do that. I think both, I think both can be true, Mark. Think it absolutely is an overreaction and I said as much. I think I followed up with a post that I'm not a financial adviser but I I said, hey, I think some of these stocks is a fantastic time to buy. So, I I absolutely think there is an overreaction happening and I think they're 100% our vulnerabilities and the nature and shape of how these services are performed over the next three, five, and ten years fundamentally will change and the companies that either as these as the technology solutions are are developed and that tech stack emerges, the companies that either buy or build it is the first step and then actually get adoption at their company which is the second and in many cases, harder step, they're going to thrive and and whether that's CB jail or whatever, obviously, Matthews, we're we're very excited about what we've been building but again, we're not public so putting us aside.
Kyle Matthews:I think the future is brighter than it ever has but then, companies that don't figure out the technology solution, the the stack, and or don't get adoption 100%. This is not overblown. This is a fundamental existential crisis, and it likely will lead to some major changes at the top of the food chain.
Mark Bonner:I found it ironic. I mean, you know, real estate is sort of a tech adverse industry, at least historically. I mean, that's the stereotype. You know, you and I've been I've been covering it. You've been in it for longer, longer, longer, even longer than that.
Mark Bonner:So when the AI hype started to pick up a few years ago, it was almost like the moment we're like, we're not going to miss this wave, right? And so the JLL's of the world, the CBRE's, all the big shops made major investments internally to develop their own learned language models and to improve their workflows. And so when they were having their big moment a few weeks ago with their earnings, which were all relatively very strong, considering the current economic environment coming off the post pandemic slump, it seemed ironic to me. Right? They had not missed the train on AI.
Mark Bonner:They had made the investments. They had recognized the opportunity and they made the investment. I mean, how did how do you make sense of that dynamic?
Kyle Matthews:Yeah, you know, I I say to call real estate late adopting as it relates to technology is an insult to late adopters. Real estate has at least from the almost 25 I've been in is almost non adopting. And in a way, I think a lot of real estate professionals thought that was the mode as, oh, real estate, like technology. This is and historically, commercial real estate is where venture capital goes to die. I mean, there's been tens, hundreds of millions of dollars of venture capital has been vaporized trying to to figure out that the enigma that is commercial real estate.
Kyle Matthews:But I I just think AI is is different. I will say yes, a lot of these companies have invested a lot of money in technology in the last couple years and you know, again, air quotes, AI but just because you put money into something doesn't mean it actually creates any value whatsoever and I can't speak to specifics. I don't I don't work at those companies. I'm not familiar but you know, I am in the industry. I talked to a lot of people and I think the biggest challenges a lot of these companies had just because they spent a $100,000,000 on some technology fund doesn't mean the technology really creates any value for the agent or the ultimate and and principal client and then secondly, the biggest challenge is adoption is most, if you just look at traditional brokerage, like, let's let's, you know, let's not kid ourselves.
Kyle Matthews:Most brokerage teams are isolated. They have their own database. They have their own way of doing things and most of those teams are led by a demographic of professionals in their 50s and 60s and just historically, when you're making a couple million bucks a year providing a service, being a broker, or whatever it is, you don't have a lot of incentive to change. So, even if a technology over the last couple of years, even if a company over the last couple of years has truly developed a technology that creates efficiency and automates things and allows you to be in more place than once or get things to clients quicker or better, there's just a lot of inherent resistance to any change because why, if someone's making a great living, why would they ever want anything to change? So that has been historically the moat for commercial real estate and the lack of adoption technology.
Kyle Matthews:And I think that's still going to be there certainly on the brokerage side. But again, on the contract revenues, on the resilient revenues, I do think there's much greater disruption and it's going to happen much sooner.
Mark Bonner:So look, some parts of the brokerage business rely heavily on repeatable workflows, research, underwriting, marketing materials, identifying potential buyers. Historically, those tasks require teams of analysts and marketing staff. Today, AI can do all of that in seconds. So from your vantage point, I mean, where does AI start to hit brokerage first if it's going to start to break the model?
Kyle Matthews:Yeah, I mean, look, another thing I think the Sharps and Wall Street might've missed is if you just look at the G and A, the expense load of a lot of these companies, it is those entry level knowledge workers, those analysts, the marketing, transaction management, some of the the jobs that to your point, AI, I don't I don't know if it if it just if it can do the job as well as people today but I wouldn't bet against the industry in two, three, four years. You just look at the improvements in the language models from three, four years ago when ChatGPT 2.5 came out. If those jobs really aren't necessary, I mean, think of the margin improvement to a lot of these companies. I don't know if the executive teams did a good enough job, like really counteracting the narrative, potential disruption of them as service providers with what will likely be at least in the short term, a significant improvement in company gross margins because of a reduction in workforce, if truly what takes place and if the technology truly is able to do that entry level work that you just touched on.
Kyle Matthews:But really the compression of fees, that's something you had mentioned. I want to touch on that. In my opinion, the compression of fees typically doesn't come from the owner. Mean, certainly some owners will be like, Hey, I could sign up for this AI solution and I could do this myself. So why are you charging me three, four, 5%?
Kyle Matthews:Sometimes most of it actually comes from brokers offering up lower fees because if to provide a service, it took a hundred man hours and now it only takes 20, maybe they won't bring their fee down by a factor of five, but they might cut it in half and it's still a wildly revenue per hour profitable venture for them. And it actually frees up their time to go try and generate and win more service business. And that's also why I think capital flows will materially increase because agents will have significantly more time to provide the services. I think you'll see a lot more transaction volume and the best examples I can place now. I believe AI is much more disruptive than these is with the introduction of email and then digital marketing blasts, property websites and social media, which are kind of four, the four major technological introductions that we've seen over the last two and a half decades in commercial real estate.
Kyle Matthews:In addition to the multiple listing services, the LoopNet and Crexies, we've seen average fees go down, but we've seen volume drastically go up. And we've seen the actual revenues, not only of companies, but of the top agents increase. The top agents today make disproportionately more than they did twenty five years ago because they're able to service so many more transactions at once. And I think AI is going to be that at an exponential rate.
Mark Bonner:Yeah, I mean, for decades, part of what made clients pay for brokers was the access to information, market knowledge, buyer networks, deal sourcing. But if AI makes some of that information easier to access, I mean, are going to begin to ask different questions, right? Maybe one of those questions is why do I need you? Right? And if I do need you, then why am I paying your large fee?
Mark Bonner:I mean, do you think that brokerage becomes a lower fee business over time because of these dynamics? Of which we don't even completely understand yet.
Kyle Matthews:Yes. And I think if you look at, in my opinion, the most commoditized service and brokerage like net lease, right? You've seen net lease fees from when I got in the business twenty four years ago, they were sixes, fives, maybe you saw a four. And today you see fours, threes, and sometimes twos. It's because the amount of time that it takes to execute that service has gone down because of the efficiency of property websites and digital marketing blasts and, you know, Zoom calls and all of that.
Kyle Matthews:And agents in the net lease space, the top agents at least, make significantly more today than they did twenty five years ago. So the answer to your question mark is yes, I see fees going down. But again, it's because the amount of time it takes a broker, a team or a company, the amount of man hours it takes to execute the service at a high level goes down materially, which what do they do with all that extra time? That's the question. Now, if they spend it outside the office, you know, living their balanced life, yeah, they might make less money, but most top performers take that time and invest it in generating new deals, new clients, new opportunities, new leads.
Kyle Matthews:And the more brokers kind of work through the market, generally speaking, the more volume goes up. And so in my opinion, twenty five years ago, owners paid brokers because of information. Well, why was that? Because it took so much time and capital for brokers to go get that information. If they don't have to spend that time and capital going and getting the information and information, in my opinion, yes, it absolutely is commoditized.
Kyle Matthews:Well, yeah, an owner's not going to pay a broker as much, but the broker's actually spending materially less time and capital on sourcing it. So I guess the net out, I don't know if it's the same, but the answer to your question, yeah, I see fees going down, but I see capital flows going up. And if anything, eightytwenty rule becomes the 90 five-five rule or something in that context is the best agents and the best companies will consolidate even more of what I believe will be a bigger pie. And there will be a greater disparity between the haves and the have nots.
Mark Bonner:Okay. If you're just tuning in, this episode of First Draft Live is presented by Agora. We're here with Kyle Matthews, CEO of Matthews. He's calling in live from Nashville, Tennessee. Kyle, let's go to a question from our audience.
Mark Bonner:What brokerage task roles are you working to move to AI over at Matthews? What specific roles and tasks are most at risk for you?
Kyle Matthews:Financial analysis, property marketing, digital marketing, those are the three main ones. Historically, people did those things for other people. And what we're seeing is, especially being on the frontier with AI for our space is the technology is there to at first automate that, you know, where any one property marketer, instead of doing 10 BOVs or OMs a week, they could do a 100 at a very high level. But eventually from an agentic AI, as we're developing AI agents is like they then go almost to managing AI agents. And so what we're doing is we've really challenged all of our people to go from being a property marketer or digital marketing specialist or a financial analyst to being at first I called them technologists, but I think the term now is a builder to actually professionally transitioning their careers to being a builder who happens to be specialized in property marketing.
Kyle Matthews:And so we've empowered all of our people to really like 10x their productivity through vibe coding tools and building applications. That's the most amazing part, Mark, about AI, especially with some of the recent innovations is before you had to have a computer science degree and you had to know how to code in order to build the software and the applications to make you more efficient. Right? And that's not the case anymore at all. And so all of our people have been empowered to become builders and build technology, simply put, that allows them to effectively 10x their productivity.
Kyle Matthews:And we're seeing that in real time at Matthews. And I mean, it's blown away. I've been blown away by what we've been able to do but that that the answer to your question, certainly, you know, any type of copy paste work, any type of document review work and and financial analysis. I think those are the first two. I think twelve months from now very few people will be still doing those by hand the way they were twelve months ago.
Kyle Matthews:I think those are the first to go.
Mark Bonner:You're using the word transition in your shop, right? And the word transition was used by a lot of the top CEOs that I spoke to two weeks ago for our story on Bisnow. But the fear that's in the market is about AI ultimately reducing headcount inside brokerage firms. That was at least part of the AI scare trade. Is that something to fear?
Kyle Matthews:Not if you, embrace look, in my humble opinion, it's happening. The technology's here and or if not here, will be here very soon to to truly replicate, automate, replace as a dirty word, but replace these jobs. But I don't think it has to replace the people if the people personally and professionally develop into a greater role of builder and or manager of AgenTic AI agents. Like before you might've been an analyst who could crank out 10 models a week, but fast forward a year, if you develop these skills now, either through a tool, an audit, you know, kind of an AI built automation tool, you can do a 100 models a week. Well, what if you're now managing AgenTik AI agents and you're almost like a quality control, almost air traffic control cop, you could do 500 models a week.
Kyle Matthews:It makes you incredibly valuable. And so that's what I've certainly, we've challenged our personnel here. I challenge anyone is it's coming. I can't sit here and tell you that this severity or degree of disruption. I don't know if it's going to be overblown in five years from now we look back and laugh or five years from now like, oh my gosh, like there was a paper that came out two weeks ago, Citriani or Cipriani that was incredibly dark.
Kyle Matthews:I'm not a doomer, but I'm also not a denier. I'm somewhere in the middle. I would say my bigger concern for commercial real estate industry or brokerage companies is actually the operations and fundamentals of commercial real estate. If unemployment in The U. S.
Kyle Matthews:Goes from 4.4% today to 12.4% because there just are less jobs available than the number of people seeking jobs. And so that's a greater concern of mine, but respectfully, I would say that's a little above my pay grade. You know, I know I know enough to be dangerous in technology. I know enough to be dangerous from a from a kind of macroeconomic sense but anybody who tells you this is what's going to happen, I I don't think that's that's that's that would be an accurate statement.
Mark Bonner:You There's a theory out there that this whole thing is going to democratize brokerage, meaning that the gap between the big companies and all the middle market firms is about to close. And so a question for my audience on that front is if the barrier to data collection and the time it takes to complete the work is lowered, will we see a fragmentation in the market? But secondly, couldn't two person brokerage team compete with a 100 person team? Is that possible, Kyle?
Kyle Matthews:Well, a two person brokerage team compete with 100 today because at the end of the day, it's a relationship driven business. And, you know, respectfully owners, especially in that private client middle market space, they don't hire a 100 person teams. Most of the time they don't hire two person teams. They hire a person. Now, maybe that person represents whether it's a two or a 100 person team.
Kyle Matthews:But if you give me one other person here and we're just a two person team and I go compete against a 100 person team, I could beat the hell out of the team all day. If I'm good at developing personal relationships, I'm competent and knowledgeable in my product type and geography. I read through emotional intelligence. I read the body language of the owner when I meet with them. Going back to the phone call, I'm good on the phones.
Kyle Matthews:And ultimately what drives decision making most time it's fear is I understand what is it keeps that owner up at night and what is it about this property or commercial real estate in general that they look to solve that fear with? Is it cash flows? Is it appreciation? Is it value add? Is it, is it legacy?
Kyle Matthews:And once, I do that through human interaction, that's generally when I'm hired to provide the service. And again, that's, I think the greatest moat that exists in commercial real estate, traditional brokerage is the human moat. Certainly these private clients, like they own less than five buildings, a $4,000,000 sale will likely be the biggest financial decision they ever make in their lives. The average demographics of a private client owner, it's in their sixties. They're not going to, forgive me.
Kyle Matthews:I don't see them use hiring an agent in the next decade to provide that service for the most important decision in life. I think it'll still be a human to human business. You can compete if you're a two person versus a 100 person. I will say, I think we're all still trying to figure out the actual costs from a tokenization of using all this AI. And so there still a little bit of a size moat, but what I tell you is if you're at a two person company today, if you're excellent at what you do, you can consistently beat a big company.
Kyle Matthews:We see it all the time. There's reasons they do or don't. So I don't know if
Mark Bonner:that's What do you make of this dynamic where, you know, if the lower end of the brokerage business, let's call it the analyst or the junior broker, If you need less of those people, then that's less people that you're training to be your future leaders, To move up the ranks, to get that experience, to learn from someone more senior like yourself, perhaps to take a leadership position within a major firm or to start their own firm in your case. Is that something that the industry needs to keep an eye on? I mean, everyone has said, including yourself, that humans, no matter what happens with technology or AI, at least in the foreseeable future, will remain a critical part of the brokerage model. But if you have less entry level roles, then you're training less people to be your future leaders. What do you make of that dynamic?
Kyle Matthews:Yeah, that's a real thing. I I think generally speaking, Mark, not to get too much in the weeds of brokerage, there there's, in my opinion, two separate models of entry level brokerage. There is the analyst role where generalizing here, you're an analyst for a team for two, three, four years. If they, if they like, as you develop competency in the product type, and if they like your personality, eventually you get invite, invited to the production side and five, seven, ten years, you start on the production side and over twenty, thirty years, you work your way up to be part of the team. That that's more along the lines of the larger publicly traded company.
Kyle Matthews:The way I got in was, you know, a little different back then, but it's kind of like you work for yourself day one. They provide you a base level training and you're assigned to market and you start cold calling day one. I don't think, I think the analyst role to your point, yeah, there certainly will be less opportunities from a traditional analyst where you're W2'd, you're bonus based on the team and you have this three, four year kind of immersion into the business, which is why a lot of people choose that. It's a safer, more comfortable entry level, the throw them in the deep end of the pool that the way I got in, which is you're cold calling sixty days out of train, you know, sixty days after you're hired, you're making call and your competency isn't as much as an analyst who's come out of a program for three, four years is less. I think those opportunities not only will continue to exist, they'll actually be more of them because that will become the entry level to commercial real estate is, look, if we can agree that the human to human thing is critical and it's not going away, especially in the entry level deal flow that really that 1 to $10,000,000 deal range, you'll probably see even more people enter the workplace through through that model.
Mark Bonner:Where do you think the industry is over hyping what AI can do? Right? You know, you're you're you're saying here that humans are still gonna be a major part of brokerage, that that relationship matters. But Yeah. Where do you think the industry is over hyping what AI can actually accomplish?
Kyle Matthews:Sales, leasing, debt origination, especially in that private client middle market space. I I I think ten years from now, an 99% of the business will still be generated by humans calling an owner, meeting an owner and building a relationship with an owner. I don't, I, I, now how they actually execute the service, how quickly they can turn around BOVs, how efficient their research reports are and how quickly I have, I have very strong opinions on how the nature of that relationship will evolve especially between the client and the brokerage platform but it will still be humans providing that service. I'd I'd I mean, I guess I do every day but I bet my bottom dollar on it.
Mark Bonner:Kyle, I'm getting the hook for my producers here, but do you have any final thoughts before we wrap up?
Kyle Matthews:No, I'd I'd we kind of touched on it. Both can be true. It's absolutely maybe an overreaction. And AI absolutely will fundamentally change the way brokerage. Sure.
Kyle Matthews:But certainly in my opinion, resilient revenue. And if we're talking public companies, look at the breakdown of their revenue, figure out which of those are repeatable, are data driven or document review. And I would say, yeah, like that I would say is super vulnerable from a margin compression standpoint. But at the same point, ten years from now, I think you'll still have brokers making calls and going to conferences and meeting people and doing deals over beers and and and around the golf and and I don't think that's going to go away.
Mark Bonner:Okay, that's all the time we have today. Kyle, thank you so much for being here. We really appreciate the insight And a big thank you to Agora for presenting this episode of First Draft Live. We'll be back soon with another episode. You can find, also find today's episode and all of our past conversations on your favorite podcast app.
Mark Bonner:This is First Draft Live. Have a great weekend, y'all.
Kyle Matthews:Thanks, Mark.