Commercial brokerages retool payments during downturn

By Adam Pincus | December 21, 2009 12:17PM

To support junior brokers during the anemic building sales environment exacerbated by the 2008 collapse of Lehman Brothers, several firms in Manhattan have installed more generous payment plans.

The most radical is at the one-year-old investment sales division at commercial and residential brokerage Halstead Property where managing director John Goldman has created a system for payments that spreads parts of a sales commission among its entire eight-person team, not just those who participated in the deal. Meanwhile smaller firms such as Capin & Associates have revived the time-tested concept of the draw.

Other firms, such as Cushman & Wakefield, CB Richard Ellis, Eastern Consolidated and Massey Knakal Realty Services, remain unchanged in their commission model. At Cushman and CBRE, draws are available to brokers, the firms said; and at Eastern Consolidated and Massey Knakal, no draws are provided, company executives said.

In general, a draw is paid weekly or biweekly to a broker with the understanding that it will be deducted from future sales commissions.

The 82 percent decline in Manhattan office investment sales from $17.6 billion in the first three quarters of 2008 to $3.2 billion in the first three quarters of 2009, as reported by sales firm Eastern Consolidated, has hurt the pocketbooks of brokers — especially those new to the industry.

Goldman said he sought the unusual payment structure as a way to foster cooperation among the eight-person team, most new to commercial sales. The group has completed a handful of note sales, but property sales have been minimal, he said.

“A team feeling is sort of epitomized in this shared commission approach as opposed to fostering a competitive environment,” he said. While he declined to discuss the specifics of the arrangement, those who participate in a deal receive the lion’s share of the brokers’ commission. The others take home a smaller portion for “the cooperative efforts of the other members of the team.”

Timour Shafran a top broker at Capin, a firm that arranged some of the multi-family mega-deals during the market’s peak, said two new agents out of eight total at the brokerage began receiving draws in April and June. No one at the firm was on a draw a year or two ago because there was so much work it was unnecessary, he said.

He estimated a draw today would pay about $500 to $600 per week, about double what he received a decade ago.

“It is not a lot of money,” he said, and generally must be supplemented with a part-time job such as bartending.

Shafran, who shared commissions among a group of three for some time, said sharing commissions becomes more difficult as more money comes in. He had never heard of such a liberal commission structure as the one Halstead has implemented.

“Let’s see how long they keep it up [at Halstead],” he said.

Darcy Stacom, vice president at CBRE and head of its nine-person tri-state investment sales team, said her group pays draws to junior brokers so they would not have to worry about paying bills during the current slow down. She spoke to The Real Deal in an interview last month for an article on CBRE to be published in the January issue.

“We put a couple young guys on what are called guaranteed draws. If we don’t book them enough money to cover it, we’ll cover it,” she said. The last time she took a draw was in 1981 when she received $15,000, she said.