Real Estate Remix

Commercial real estate will be decidedly different in 2012

Back Article Apr 1, 2012 By Anne Gonzalez

The Capital Region’s commercial real estate market in the past five years has shifted from a system dominated by a few big brokers to a diverse pool of smaller offices and team players. As post-recession business gains steam, that market is being eyed for its unplowed territory.

New firms are on the scene, offices are expanding and contracting, former heavyweights are getting knocked down, and growing pains have resulted in a long list of personnel changes with more to come.

The recent bankruptcy filing and acquisition of Grubb & Ellis Co., one of the nation’s largest brokerage houses, is the latest in a series of dramatic local shake-ups. In February, the company filed for Chapter 11 bankruptcy reorganization, citing as causes the “2007-2009 meltdown of the financial markets” and a “slower-than-projected recovery of the real estate markets,” and was acquired by BGC Partners Inc.

Dennis Vollman, president of The Vollman Co. in Sacramento, says Grubb & Ellis got into trouble by taking on too much debt and not generating enough income. The acquisition spells the end for many of Grubb & Ellis’ Sacramento-area brokers, but it also creates space for Cornish & Carey Commercial Newmark Knight Frank to expand into the property management sector.

New York-based BGC, which owns Newmark Knight Frank, would purchase most of Grubb & Ellis’ assets, including its Sacramento and Roseville offices, which employ about 40 people.

“The Grubb & Ellis acquisition will have significant impact on the local market,” says John Frisch, senior vice president and regional managing director for Cornish & Carey. “That’s 30 agents that have to find jobs. The property management division will continue to work for the new buyer, but agents are not included in that purchase. Everyone in town has been talking to the top-producing Grubb & Ellis agents. It’s created a recruiting frenzy for producers.”

The first big move occurred in early March — a team of Grubb & Ellis office specialists including top producers Tom Walcott, Kenneth Johnson, Jason Rutherford, Kris Reilly and Scott Bennett was picked up by Colliers International, a boon for the firm that’s seen at least three teams of brokers jump ship from local offices in recent months.

In the past decade, the Capital Region’s commercial real estate business was led by a few large houses — CB Richard Ellis Inc., typically in the No. 1 position, followed by Grubb & Ellis, Cornish & Carey and Colliers International. An exodus from Colliers, along with CB Richard Ellis’ loss of rising stars to other houses, produced major personnel remixes. In addition, some of the most significant changes in recent years have been the result of expansions at Voit Real Estate Services, Jones Lang LaSalle and Cushman & Wakefield Inc.

“Cushman & Wakefield entered the market with a small presence but expanded that considerably, mostly at the expense of Colliers,” Frisch says. “Cushman & Wakefield got a large office group from Colliers, and Jones Lang LaSalle recruited a large industrial (team) from Colliers, some of the highest producers.”

Colliers’ lucrative industrial team of Mark Demetre, Bill Niethammer, Matt Lofrano, Sean Merold and Mike Zimmerman moved to Jones Lang LaSalle in January 2011. A week later, Cushman & Wakefield nabbed Colliers’ office group of Ron Thomas, Kevin Partington, Bruce Hohenhaus, Chris Schwarze, Mark Tabak and Sean Mullen.

“Everyone in town has been talking to the top-producing Grubb & Ellis agents. It’s created a recruiting frenzy for producers.”

John Frisch, senior vice president and regional managing director, Cornish & Carey

In March 2011, Colliers’ eight-member retail team led by Jason Gallelli switched to Voit’s Sacramento office. The former Colliers group represented more than 50 Northern California shopping centers with 25 national retailers.

Randy Dixon, Colliers’ managing director, says the departures were part of a nationwide restructuring of Colliers’ business model. Nationally, Colliers has seen a 50 percent rollover as the firm switches from an individualized system to a team approach.

“There’s currently a re-branding of Colliers, and the structure of the company has completely changed from a bunch of independent affiliates to a competitive brand,” he says. “I’m liking what I have right now. Having those big teams leave has opened up some space for us to build our model.”
Some of the shifts can be attributed to the financial slump, and others point to a more organic transformation of the local corporate culture, Dixon says.

“The brokers in this market are a little behind the major markets nationally,” he says. “There’s more volatility in bigger cities, while Sacramento has historically been marked by a real loyalty to firms. Now, brokers are focused on moving to the best deal structure they can get, what the house has to offer and what’s negotiated.”

Dixon says the Capital Region’s commercial real estate market is maturing, and incoming national and global firms seek to launch with seasoned, local teams. “That starts to dilute the traditional houses,” Dixon says. “In order to start up offices, these firms are generally making investments, and that’s attractive to some. They take the first opportunity to move over.”

The movement of bigger-city players into the marketplace has also affected the financial structure of the industry. Many East Coast offices pay agents a 50-50 split on deals, but West Coast houses can pay as much as an 80-20 split to brokers, Frisch says. His office pays 60 percent to 70 percent to its agents.

“East Coast companies are becoming stronger out here, and the commission structure is different,” he says. “They give lower commission to agents. That’s going to be interesting. Brokers take it very personal when you mess with their payoff percentage because you’re taking money out of their commission check.”

That “East Coast mentality” could be taking hold in the previously staid Sacramento region, and the economic downturn means brokers are jockeying in a skinnier marketplace. Adding property management and other divisions to company offerings is widening the playing field for some houses, but volatility in the market will, for some, lead to slimmer, sleeker offices.

“There will be a cleansing of low-producing brokers,” Dixon says. “Mediocre brokers used to be able to join just about anywhere and hang on, but our economy won’t support it.”

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