Recession prompts more broker poaching
There’s a recession. Deals are scarce. Commissions are shrinking. It’s a great time for broker rustling.
Commercial services firms are aggressively poaching their competitors’ brokers and research analysts, figuring they will be better positioned to win market share once a rebound takes hold. The slow transaction volume means fewer money-making deals are tying brokers to their firms, creating ripe opportunities for rival firms to exploit the age-old tension between the lower-ranked agents and their senior producers.
FirstService Williams is a good example.
Mark Jaccom, CEO at the commercial services firm, said he is looking to poach mid-level brokers from its larger competitors such as Cushman & Wakefield and CB Richard Ellis as part of an aggressive company plan to more than double local revenue.
“We are looking to grab teams [of commercial brokers],” Jaccom said. “There are teams in offices that are doing anywhere from $5 to $15 million [in gross revenue]. So I get a couple of those.”
FirstService Williams recently lured four analysts from Cushman & Wakefield. New York-based FirstService Williams will be known as Colliers International by the end of May, after parent company FirstService Real Estate Advisors, a subsidiary of Toronto-based FirstService Corp., combined earlier this year with Colliers. (Note: Correction appended) Separately, the New York firm Colliers ABR dropped its regional name and became the tri-state office for the national company Cassidy Turley this month.
Despite an overall reduction in the value of transactions in New York from the boom times, Jaccom plans to hire as many as 20 brokers over the next two or three years, as part of a plan to grow the firm’s tri-state area revenue from under $100 million to more than $250 million within five years.
His growth ambitions could collide with in-place heavyweights like CBRE and similar expansion dreams of other companies such as Cassidy Turley, Jones Lang LaSalle and UGL Equis, the American division of an Australian-based commercial property firm that has added 23 people since 2008.
Cassidy Turley tri-state chairman Mark Boisi said his company plans to double the amount of property management assignments it currently has from about 14 million square feet within three years. It also is hiring brokers. In September, the firm grabbed Cushman’s director of brokerage services John Gallagher to serve as managing director of brokerage services.
The New York office of UGL Equis plans to have 2 million square feet in facilities management within 12 months — up from zero now. It has already taken nine brokers over the past two years from CBRE. Jones Lang, which last summer lured a 13-member leasing team headed by managing director Scott Panzer from Newmark Knight Frank, is also reported to be on the hunt for more.
There seems to be a large pool of frustrated brokers looking to move.
“If you’re at CB or Cushman and you are making unga dollars, there’s not a reason to go,” Jaccom said. “[But] let’s say you have a producer and he is making unga bucks and he has four good senior turks and they are doing real well but they can’t break out and there is nowhere for them to go? That is prime for us.”
Why is now the time to poach?
The answer, ironically, is partly market-driven. “In a down market it’s a little bit easier to recruit brokers,” Boisi said. “Because there is not the velocity of transactions happening.”
Brokers are headhunted away with the expectation they will make more money if they can run their own deals. But that often stems from tension between the up-and-coming agents and more senior brokers at their existing firms.
One recent transfer, who asked not to be identified, said a midlevel agent could expect between $100,000 and $500,000 in an incentive package to provide a guaranteed income while developing new accounts, although some of that could be in the form of a draw that would need to be repaid. “But again I think those companies are being very cautious given the [lower] revenue streams,” the source said.
To understand why brokers have jumped ship, The Real Deal spoke with more than a dozen sales and leasing brokers who have switched firms in the past two years. Although the brokers gave specific examples identifying the firms, they asked that neither they nor the firms be identified to protect their relationships in the industry.
When brokers are new to the industry, they seek the advice from what some refer to as a “rabbi,” or more generally a patron or mentor. Because a junior agent often has few contacts, a benefactor is needed to generate business.
But as brokers grow in experience and start running their own deals, they want to take on more responsibility and a larger piece of the commission split, leading to tensions. Some of the larger firms, for example, require a senior broker to lead any lease negotiation over 5,000 or 10,000 square feet even though the junior agent discovered the requirement.
Leasing brokers gave examples of how high-powered brokers try to reach into colleagues’ accounts. In one instance, according to the junior broker, a senior broker who was also involved in management at a major firm met with the junior broker’s clients under the guise of improving the overall business relationship. But the senior broker then used apparent weaknesses in the handling of the account to say it needed a more experienced broker, and sought a piece of the account and thus a significant percent of all the deals.
Sales broker Adelaide Polsinelli, associate vice president of investments at Marcus & Millichap Real Estate Investment Services, said in the sales arena there are inherent conflicts between junior brokers and senior brokers who are also owners at the company. “If the principal is also the senior agent then the junior agent will have a very difficult time explaining why they should get [a higher commission],” Polsinelli said.
Disputes arising over commission splits are common, in part because the exact percent is not determined until after a deal is completed, brokers said. Once the deal is finalized, the brokers hash out on the so-called ticket or voucher the value of their contributions.
Jaccom said junior Cushman brokers, as an example, were constrained by whom they could call because senior brokers already had the clients locked up. “If you are at Cushman & Wakefield, there is a lot of banging of heads,” he said. “They’ve got too many bodies there.”
Cushman declined to comment. But several brokers said that situation was not unique to Cushman, and that many firms either formally or informally put some clients off limits.
CBRE investment sales vice chairman Darcy Stacom said in an interview last year that poaching was a major problem at her office. “All of our people get headhunted away,” Stacom said. “We train them hard for a year and a half and people go, ‘Whoa, I know they have five years of training.’ That is our biggest challenge. It is our biggest compliment, but it is also our biggest challenge.”
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