74.9 F
San Fernando
Sunday, Aug 7, 2022
-Advertisement-

Commission

How many brokers does it take to sell an office building? The answer used to be two one to represent the buyer and one to represent the seller. But these days, the answer is more likely to be one. Meanwhile, as the perception grows that it’s easier to broker a deal, the commissions being paid to commercial brokers are being slashed. As money for financing large office properties has gotten tighter, the pool of potential buyers has become small and easy to identify. That’s allowed listing brokers to go directly to prospective buyers, eliminating the second broker who would normally represent the buyer. “There are many buildings that are sold that never hit the open market,” said Paul W. Stockwell, corporate managing director at Julien J. Studley Inc. “The broker working for the seller can take the opportunity directly to the REITs (real estate investment trusts), and some of the usual suspects. A lot of the transactions are done without a broker on both sides.” Consider the recent decision by Archon Group to sell the 122,000-square-foot Warner Atriums in Warner Center. Archon hired Cushman & Wakefield three months ago to handle the transaction, but the brokerage has yet to place a “for sale” sign on the property. Cushman & Wakefield executives are mum on the deal, but others familiar with it point out that the scenario is typical of the way many transactions are handled in today’s marketplace. Before the real estate market collapsed in the early 1990s, a number of different institutions ranging from insurance companies to savings and loans were willing to finance the major portion of the cost of a property, based only on the perceived value of the real estate. But most of those lenders are no longer in the market, and those that remain require that the buyer put down a substantial portion of the cost from other sources. That has left only a few active buyers in the marketplace, primarily real estate investment trusts that are well known to everyone. Instead of working through a second broker, listing brokers can market to REITs directly. “It’s just concentrated the investments into a smaller category of buyers, and now that there are 10 or 20 buyers out there, the sale process is greatly simplified as well,” said Jerry Porter, president of Cresa Partners. At the same time, the number of properties coming on the market has declined. When competition to sell properties was stiff, sellers paid well to be certain that brokers steered buyers to their buildings. But in today’s seller’s market, those who own buildings figure brokers don’t have to work as hard to find buyers and close deals. Believing the job is easier, sellers are no longer willing to pay the same high commission rates they once did. “If you have to sell your house when times are tough, you’ll want to get the best possible broker,” said Mark Williams, a broker with Secured Capital Corp LLC. “But if you have a house and you know 20 people want to buy it, you could say, ‘Hey, I need a broker to just go through the process,’ and you’ll probably save on the commission. The same thing is true in a lot of advisory-type businesses.” When sellers were willing to pay an average of 5 percent or 6 percent in commission, listing brokers put the word out to other brokerages, and the brokers on each side split the commission. But with commissions now ranging from 1 percent to 4 percent, listing brokers are trying to keep as much of the fee as they can. “In the old days, you’d get a listing of 4 or 5 percent,” said Porter. “Today, you get a listing at 2 percent.” As listing brokers go directly to prospects, other brokers are getting squeezed out of the process. Some are trying to manufacture deals to get a piece of the action. “My perception is that there is less on the market today, and therefore there are probably more brokers today who are trying to put buyers and sellers together without having listings,” said Brigitta Troy, senior vice president for Arden Realty Inc., which has been one of the more active buyers in the market. Brokers will solicit prospects with a property that is not on the market, and suggest that they approach the seller with an offer. In that scenario, brokers often request that the buyer pay a commission, a practice that’s only arisen since the market has become stronger. “More buyers are getting used to brokers saying, ‘I know a good building, but you’ve got to pay me,’ ” said Porter. Brokers point out that the rise in property prices has, to some extent, compensated for what they are losing in lower commission rates. And because most brokers handle leasing as well as sales, they have not been squeezed out of the market entirely; there is no indication that major brokerages are cutting down on staff. But privately, brokers admit some resentment over the new turn of events. “(They’re) getting more absolute dollars,” said one broker of the sellers. “So why do they have to cut the broker’s commission? It’s just putting more money in their pockets

Previous articleRooney
Next articleCommentary
-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-