Brokers are exploring their employment options as Orange County’s commercial real estate market remains sluggish.
Area brokerages say they’ve seen one of the busiest periods of employee turnover in the past year, as local companies—and their brokers—figure out the best way to ride out the bumpy market.
“The time to pay attention to your top professionals is when things get rough,” said Jeff Moore, senior managing director of OC operations for Los Angeles-based CB Richard Ellis Group Inc. “That’s when there’s a flight to quality.”
Some businesses are looking to hire away top brokers from other companies while also working to retain top talent. Others are using the down market to start brokerages.
In a down market, “brokers are more apt to look for a new environment or a new direction,” said Greg May, co-managing director for the OC brokerage operations of Santa Ana-based Grubb & Ellis Co. “It’s tough to get a broker’s attention when they’re busy.”
From an employment perspective, the area’s in a rough patch.
OC’s 20 largest commercial brokerages employ about 680 brokers, according to this week’s Business Journal list (see story, page 33). That headcount is down about 5% from the peak of the local market in 2007.
The reduction in brokerage personnel isn’t too steep when compared to the overall state of OC commercial real estate market.
Leases and sales are off nearly 40% from their 2007 peaks, although there are some signs of budding improvement.
“There probably should be more consolidation” than there already has been, said Kurt Strasmann, managing director of the Anaheim Metro office for Newport Beach’s Voit Real Estate Services. “There’s not enough business to support the (current) level” of brokers, he said.
But many brokers are trying to ride out the downturn as job prospects in other industries are slim.
“There are not too many places (outside real estate) for these guys to go,” Strasmann said.
A few local brokerage offices have closed shop or consolidated during the downturn. Only one company has opened in the past year, Irvine’s 360 Commercial Partners.
The company was founded by managing partner Louis Tomaselli, a former top broker at Voit who expects to have about four or five teams of brokers working with him within a few months.
So far he’s added one of the area’s top office sales brokers, Steve Economos, and industrial specialist Zach Niles. A brokerage team that handles high-rise landlord leasing is expected to be hired next.
“We’re trying to bring on the best of the best,” said Tomaselli, whose self-funded company represents corporate, investor and developer clients.
For the area’s higher-producing leasing and sales brokers, the tough market isn’t all bad news, as there’s increased interest among competing houses to bring in top talent.
“We’re always a target” for other companies looking to poach high-earning brokers, said CB Richard Ellis’ Moore.
CB Richard Ellis counts 95 brokers in its Newport Beach and Anaheim offices.
Likewise, CB Richard Ellis always is on the lookout to add brokers, but only if they fill a specific local niche that the company is looking to grow, he said.
“If we’re not No. 1 (in a specific market), that’s where we’re recruiting,” Moore said. “We’re taking a rifle approach, not a shotgun approach. It’s not about increasing numbers and growing bodies, it’s about increasing the production.”
Locally based companies such as Voit and Grubb & Ellis—which late last year pulled off a big recapitalization plan—say their financial positions should allow them to hire staffers, start business lines and retain their best performers.
That’s not a given for every local brokerage company, they say.
Voit, for one, has nearly a dozen salaried people working for its real estate-owned division, which tracks distressed properties.
“All that business will get funneled to the brokers,” said Strasmann, who moved over to Voit last year from Grubb & Ellis.
On both a national and local basis, Grubb & Ellis has seen its share of turnover in the past year. It added close to 100 brokers at the vice president or higher level since mid-2008, including 13 brokers in the fourth quarter, according to Chief Executive Thomas D’Arcy.
These brokers have an average annual production of $675,000. During the same period, Grubb & Ellis let go of 176 brokers whose annual production was below $200,000, D’Arcy told analysts during a February conference call.
“We’ve significantly upgraded the quality of our brokerage sales force, and our expectation is that our recruiting success will allow us to capture market share when transaction activity improves,” D’Arcy said.
The upgrades at Grubb & Ellis have been made without too much upfront costs such as bonuses, as the company has opted instead to offer brokers more generous splits on their commission rates, according to officials.
In general, local brokers can expect to retain 45% to 55% of their commissions for themselves, depending on where they work.
Some better-producing brokers that have been in the market for years might fall outside that range and can keep upward of 80% of their commission fees.
That said, “if a broker is looking at (moving houses) purely because of the commission splits, that’s probably not the best way of doing things,” said Grubb & Ellis’ May.
Most brokerage houses try to strike the right balance between offering their brokers competitive compensation and keeping enough money to grow their businesses, notes Strasmann.
“It’s a fine balance,” he said.
Larger national brokerage houses such as CB Richard Ellis and Cushman & Wakefield Inc. tend to invest more money in their operation and in general may offer brokers lower splits on their commissions.
Companies such as Lee & Associates are known for offering their brokers higher splits but may not have the back-office resources seen at their larger competitors.
Tomaselli said his company should be able to attract the “A players” that 360 Commercial’s looking for by building a strong back-office team and investing money in marketing.
“We’ve taken all the heavy lifting off their plate,” Tomaselli said.
In addition, since the company only plans to have a handful of brokerage teams working on different market sectors and industries, brokers at the new company won’t be faced with competition from other people at the same company—a common issue facing larger brokerages, he said. n
