You don’t need to look much further than two local brokers who’ve recently made big moves to get a sense of the changes afoot in the commercial real estate brokerage business.

Myron Sokolsky left his desirable job as vice president at Grubb & Ellis Co. in January for a fresh start at boutique Conroy Commercial. Earlier this month, Melika Jahangiri joined Keller Williams Commercial after tumult at the local Sperry Van Ness operation forced her hand.

On paper, Sokolsky, 69, and Jahangiri, 28, might appear worlds apart. But they have something in common: Both sought out greener pastures during a time in which the commercial real estate brokerage business is, to put it nicely, in flux.

“It’s bittersweet because I loved Sperry; it was the first company I worked for and I grew there,” said Jahangiri, a multifamily specialist who is now managing director of Keller Williams Commercial’s West L.A. office. “But it was a slow and painful demise. It was really unfortunate.”

The recession has made the last two years the hardest in memory for many brokers across Los Angeles County. Companies – large and small, public and private – have been forced to cut costs. That’s come in the form of layoffs, reductions in services and the cutting of commissions.

Of course, with less money coming in the front door, costs needed to be slashed. During the real estate boom, brokerages loaded up on everything, from talent to offices to bonuses. Now, a lack of easy credit has slowed sales to a crawl, while lease signings are less lucrative as financially stressed companies sign smaller, shorter-term deals.

Brokers have been forced to adapt – or move on. There has been a shift by brokers to the representation of tenants, who have an advantage over landlords in the soft market. There has been a slow but steady migration from larger companies to smaller boutiques, where brokers can either specialize or, conversely, spread their wings. The business has also turned nastier with brokers fighting among themselves for every last dollar.

Take Sokolsky, who worked for Grubb & Ellis for nine years, but was the only retail expert in the firm’s West L.A. office. He grew tired of the company and was wooed by Conroy Commercial, which only has five brokers and focuses on retail, allowing him the chance to diversify within his niche. At Grubb & Ellis, he never had the chance to work with landlords; his business was confined to tenants. That’s not so at his new job.

“Certainly we are all working harder than we had been,” he said, “but I am totally invigorated.”

Layoffs

It’s inevitable: When the brokerage business is hurting, people lose their jobs. While most companies were reluctant to disclose the number of layoffs over the last two years, several large firms admitted they have occurred.

Grubb & Ellis, Jones Lang LaSalle, Colliers International Property Consultants and CB Richard Ellis Group said that there have been layoffs since 2008.

Boston-based Colliers was aggressive about it. The company went through a significant round of layoffs in August 2008, just before the recession kicked into high gear. It laid off 33 brokers and 30 other employees in the greater L.A. area, said Martin Pupil, senior managing director for Colliers. Many of the people who were let go were “nonproducing brokers” who joined the company after the 2005 acquisition of brokerage Colliers Seeley, but it was still difficult.

“It is never fun to let people go but it had to be done to position us going forward,” he said.

But downsizing early allowed the company to be more opportunistic in 2009 and hire available talent. The company added 32 brokers in the greater L.A. area last year and now has 140 brokers here.

Grubb & Ellis of Santa Ana took a similar approach. It let go of 16 employees who worked in the county – mostly brokers – in November 2008. Executive Managing Director Chuck Hunt, who oversees the company’s five county offices, said that the company ended 2009 with 75 brokers in the area. That was after a run of hiring in 2009 that has continued this year.

Hunt believes that a portion of the brokers who have been let go during the downturn are novices who got into the business in an attempt to cash in on the real estate boom.

“They come into the business and see everybody making a lot of money. All of a sudden the faucet was shut off and there was nowhere to go and nothing for them to do,” said Hunt.

Several brokers said that layoffs have created more competitive environments in which only the strong have a chance. In a down market, that has meant some have had to change to survive.

Making changes

Michael Frankel, managing partner at Brentwood-based industrial developer and landlord Rexford Industrial, has noticed a trend emerging in the business the last year or so: an increase in the number of brokers targeting tenant representation business.

That’s because the recession has created an advantageous climate for tenants, who have leverage to extract better deals from landlords anxious to retain them.

“We’ve definitely seen a migration and increase in brokers to the tenant side, because they see that as low-hanging fruit,” Frankel said. “That’s challenging for a landlord, because you’ve had a tenant for five years and all of a sudden you have a broker you’ve never heard of and they want to renegotiate the lease at terms you’ve never heard of.”

He isn’t the only one noticing the trend. Bill Boyd, a senior managing director at Charles Dunn Co. who runs the firm’s Glendale office, said that representing tenants guarantees at least some commissions, because even in bad times, businesses need to at least maintain their current offices. Unfortunately, it’s just the opposite for the likes of Boyd, a longtime landlord specialist, who has represented mall owner General Growth Properties, now in Chapter 11, and office landlord Hines.

“In a down market, a lot of buildings go for a long time without doing any deals,” he said.

Some in the industry are skeptical of the idea of moving to tenant representation with little preparation. Pupil, the Colliers executive, isn’t so sure a quick transformation can be made effectively.

“That would require on our part a whole new business plan,” he said.

But Joe Vargas, senior managing director of New York-based Cushman & Wakefield Inc., said that he encourages brokers to diversify their practices in the name of “adding another arrow to their quiver.” Indeed, that might entail a tenant representative broker taking a listing on behalf a landlord.

Boutiques

Some brokers are finding that it’s best to make even bigger changes, quite often jumping ship in search of work at often smaller, more specialized firms.

Matthew May and Bob Safai both own local boutique brokerages and have specialties that have allowed them to maintain business. May’s namesake Sherman Oaks company specializes in retail; Safai’s Madison Partners of Brentwood focuses on investment sales.

While six Madison brokers recently left the firm to start their own brokerage focusing on office leasing, Safai said he hasn’t had to lay anyone off and is looking to add brokers in the coming year. (See article page 33.)

“We don’t have any debt, and we’ve had cost control as we’ve gone along,” said Safai, who resisted expanding his firm during the boom years because he preferred a smaller operation. “Boutique businesses sometimes have to go the extra mile but relationships and the ability to execute will make you stand out in a good business.”

Meanwhile, May Realty Advisors, which employs four brokers, is also looking to expand.

“We’ve been very efficient and I’m looking to hire,” May said, adding, “There is great opportunity.”

Sokolsky, the newly minted managing director at Conroy Commercial in the Fairfax district, knows all about opportunity. The longtime real estate professional said his business as a retail specialist with Grubb & Ellis was OK, but he felt that moving to a firm that makes retail its sole line of work would benefit his career.

“It certainly is a trade-off to give up a lot of amenities that go with a larger company, but in return what I am getting is a much closer connection to the street and a lot better direction, too,” said Sokolsky, who recently brokered a new lease for hip Venice restaurant Gjelina.

He’s still able to work on some business he started at Grubb & Ellis, but he believes specialization is the key.

“As our economy has changed things, it’s changing the way we do our business,” said Sokolsky.

Perhaps the ugliest part of the downturn has been its impact on broker behavior. Several real estate professionals said they’ve been disappointed with the ethical boundaries brokers and companies have crossed.

Shady tactics

Brokers described a variety of unscrupulous or frowned-upon tactics that others are using to gain competitive advantages.

Some noted instances in which brokers used confidential information about how much a colleague’s client was willing to pay for a property to secure the deal for their own client. In other cases, brokers have reduced or cut fees in order to poach a client from a competitor. Also, managers said they have heard of brokers cutting deals on the side in order keep the full commission.

“Anytime the market gets more challenging and there is less for more, you get to see people’s character,” Safai said.

Perhaps the most well-known local dustup has been the trouble at Sperry Van Ness. In August 2008, eight offices of the Irvine company were sold to Guardian Real Estate Services, a Portland, Ore., real estate investment firm. Things fell apart quickly.

A handful of sources, including Jahangiri, the former Sperry broker, said that Guardian got into disputes with brokers over commissions and paying other fees to employees.

Jahangiri said co-workers “were not getting paid their share of deals that they did and closed, which is not the way it works,” though she added it never happened to her.

David Rich, who has long worked with Sperry and ran the L.A. region for Guardian, said some brokers and staff members have not been paid wages or commissions.

“I’m disappointed that morality often functions on a sliding scale in our industry, and while it’s discouraging to see real estate professionals compromise their integrity, I’m heartened by the few who have manifested high moral character in this market,” said Rich in an e-mail interview.

The Business Journal reached out to a handful of brokers who were said to have not been paid commissions, but they declined to comment. Guardian President Tom Brenneke acknowledged that the process of paying some brokers their commissions has “dragged on,” but the company never intended not to pay brokers. “As part of our wind-up process in our business, everyone will be paid,” he said. Sperry Chief Executive Kevin Maggiacomo declined to comment.

As things worsened, several brokers left Sperry. Guardian closed the last of its four local offices in February. However, Rich plans to open a Sperry office May 1 in West L.A.

For Jahangiri, the decision to leave was painful, closing a chapter in her career. But she, like some of her fellow brokers, has learned a lesson or two from the downturn. Some brokers said that they’ve learned to hone their strengths, or seek out a firm that caters to their line of work. Jahangiri said she learned the value of sticking to her own moral compass.

“Some of my biggest clients said, ‘We like working with you, we like your ethics and your model,’” said Jahangiri, who started at Keller Williams Commercial last week. “I am excited to be motivated again. This is where I need to be.”