Brokers Look for Greener Pastures In Office Shuffle
By DANNY KING
The commercial real estate brokerage business, coming off two boom years, has started to churn at unprecedented levels.
Dozens of sales and leasing agents have switched brokerages or left the business over the last few months in a game of musical chairs spurred by a lagging economy.
"In my 24 years in the business, I've never seen it like this," said Jim Kruse, executive vice president at Grubb & Ellis Co. "This business is a talent brawl."
Much of the movement can be traced to a leasing market that has been in slowdown mode for more than a year and a half. Following a two-year boom, the recent slowdown and resulting drop in commission dollars have given brokers enough time to consider greener pastures, either within or outside the industry.
"As the economy and real estate market slows down and they're starting to get paid less money, brokers pay a lot more attention to their environments," said Matthew Miller, principal at CRESA Partners, who also said the downturn weeds out younger, less established agents. "When there was a lot of money to be made, a lot of people got attracted to the business who had no business being in it."
Much of the movement appears to be from large to small brokerages. The exception is CB Richard Ellis, L.A.'s largest brokerage, whose broker count has increased by 18 percent since last fall.
Nearly a fifth of the agents at Grubb & Ellis Co. have departed since September, bringing down its brokerage staff to 124. Other cuts have come at Colliers Seeley International (five of 125 have left since September), Cushman & Wakefield Inc. (six of 96) and Julien J. Studley Inc. (five of 41).
Meanwhile, smaller firms like Insignia/ESG Inc. and CRESA are up 50 percent and 14 percent, respectively.
New York-based Newmark & Co. announced two weeks ago that it was bolstering its local presence, nearly doubling its Los Angeles County broker count to 19 from 10. One smaller firm, Staubach Co., has lost three brokers in the past month, and has pared down to 12 agents from 20 last fall.
(About 10 percent of the professionals brokering deals are state-licensed brokers. While each office must have at least one agent with a broker's license, the bulk of those negotiating deals are agents who pass a less stringent state test.)
The churn has stepped up competition among brokerages seeking talent, but the incentives offered in 2002 are far different than those of a few years ago.
Brokerage firms are touting the virtues of their firms' "platforms," meaning anything from management structure to support service to commission systems. Still, it all comes down to cash.
"Every company does something to make the transition easier," said one source, noting that a five-figure expense account and the provision of an assistant is not uncommon bait to get a broker to switch.
In announcing his firm's expansion, Jimmy Kuhn, president of Newmark, made no secret that all of the new hires were from rival Studley's three Southern California offices. For the firm's three managing principals, the incentives included a 40 percent share of the office's profits on top of brokerage commissions.
"Newmark's going to promise all sorts of things because they've got to start somewhere," said Bruce Schuman, senior vice president of Studley.
Larger firms like Grubb & Ellis promise a larger research and support staff to facilitate dealmaking. Smaller firms like CRESA or Travers Realty Corp. can sell a commission structure approaching 70 percent for the broker, compared to the 50 to 60 percent paid by the larger firms.
(Commission fees typically run between 2.5 percent and 3 percent. What the broker keeps and what goes to the brokerage depends on the deal negotiated with the firm, but will range between 50 percent and 70 percent of the commission figure.)
But the extravagant cash bonuses offered for top-line brokers in recent years to either switch or stay is no longer part of the equation.
"Nobody is really throwing around a big inducement unless they're giving pieces of the company away or a majority of the commission," said Kruse.
When Insignia/ESG was recruiting brokers for its Los Angeles operations in late 1998 and early 1999, top agents received seven-figure signing bonuses.
Last year, top Cushman Realty brokers received bonuses estimated in the six-figure range to stay on board after the firm's merger with Cushman & Wakefield. "John Cushman did have to deliver a company," said Kruse.
Cushman & Wakefield officials did not return calls seeking comment.
Without the big cash incentives to jump ship, most of the restlessness has come from mid-level brokers. One notable exception was the move by Bradley Cox from Cushman to Trammell Crow Co.
Other than that switch, which prompted the departure of Trammell Crow Principal Peter Best, industry professionals were hard-pressed to name a top-line broker that had switched firms in recent months.
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