By JOYZELLE DAVIS
Seeking to cut costs and boost revenues, CB Commercial Real Estate Group Inc. is planning to shutter some of its 15 Southern California offices and end the traditional 50-50 commission splits with brokers.
Los Angeles-based CB, the nation’s largest real estate company, will consolidate an undetermined number of its field branches into “mega-offices.” As a first step in that direction, CB’s San Gabriel Valley and Riverside field offices will be combined into one office, to be located in Ontario, in the fourth quarter.
Mike Fitz-Gerald, CB’s new manager of the Southern California region, said he did not know how many offices would be closed, but that “the dominoes will start to fall” once San Gabriel and Riverside are merged.
“We’re going to figure out what moves to make from there,” Fitz-Gerald said.
While no brokers would likely be laid off, Fitz-Gerald acknowledged that administrative staff members may lose jobs as part of the consolidation.
Commercial real estate firms nationwide have been under pressure to show greater cost efficiencies as corporate clients look to large, full-service companies to handle all their real estate needs.
“We want to be service-oriented, team players rather than lone wolves,” said Brett White, CB’s president of broker services.
But plans to change the firm’s compensation structure have sparked some grumbling among commercial brokers, who traditionally have split their commissions on the sales and leasing of commercial property with the company.
“Real estate is traditionally a business that rewards people for being entrepreneurs, and this feels more corporate,” said one broker.
Initially, CB planned to change the formula to a 55 percent share for the company, and a 45 percent share for brokers. White said that has been changed to reflect a more fundamental shift in compensation.
The plan, detailed to employees in a five-page memo earlier this month, is based on a profit-sharing structure. Under the new system, which goes into effect companywide next January, each broker team within CB devises its own business plan. The management will then decide to fund the team’s estimated expenses, and pay the team a percentage of its pooled revenue for the year.
Under the new system, top-performing teams could see their incomes rise, while teams that turn in sub-par performances could see their paychecks shrink, Fitz-Gerald and White said.
“We need to view our sales professionals as more business managers rather than brokers,” White said. “I can say that all day, or we can institute some policies that put some teeth behind it.”
The proposed compensation change caused some uncertainty within the ranks of CB employees, who had several meetings with management during past weeks to clarify the new policy.
“Brokers always get interested when you start to talk about their income,” said one CB employee who declined to be named.
Under CB’s new team approach, a group that handles health care clients might have a staff of two to 10 employees that could include investment and leasing brokers, a title insurance officer and several junior support staff members.
Employees will have to attain a yet-undetermined minimum threshold of revenue in order to participate in the program. Those who fall short will be placed on salary and retrained. Junior staff members will also start employment on salary.
The team approach is new to an industry that traditionally has been built on the personal relationships developed by brokers.
“That is the evolutionary process that will take place over the next two to three years,” Fitz-Gerald said of the new order. “It just doesn’t make sense not to work in teams.”
The company is also in the process of undergoing a corporate reorganization that would involve a new nine-region approach.
Fitz-Gerald took over the Southern California region in March after working for CB in Phoenix. He implemented the company’s first and so far only “mega-office” there, and said that the model seemed like the best way to deal with the “geographic complexity” of the L.A. metro market.
CB has been on an acquisition spree since it went public in 1996, expanding its size to become more efficient and to offer more services in more areas to avoid regional downturns. CB bought Koll Real Estate Services for $145 million last March and the London-based brokerage firm Richard Ellis International for $100 million in December.
The Richard Ellis acquisition, which closes on May 4, will make the company the largest international real estate firm.