Seeking breakups without blowups

Defections in commercial brokerage world raise issues over 'trailing' commissions
October 01, 2010 07:00AM

Like any industry, the commercial brokerage world has its own codes and rituals, many of which seem to crystallize when a tribe member switches allegiances. Those codes have been put to the test lately by a string of high-profile defections by some of New York’s top brokers. But the results have shown a more conciliatory real estate industry than what it is typically perceived.

Take the most high-profile example: the four top commercial sales brokers — Richard Baxter, Jon Caplan, Ron Cohen and Scott Latham — who recently left Cushman & Wakefield for greener pastures at Jones Lang LaSalle.

As of April — while still at Cushman — the four were marketing the 11-story, 50,000-square-foot Bryant Park office building at 54 West 40th Street, the headquarters for the drug and alcohol rehabilitation clinic Daytop Village. The landlord, Allied Partners, is now in contract to pay $26.5 million for the building, a deal the four brokers brought with them to JLL.

But according to a source with knowledge of the deal, the commission, which could be as much as $2 million, stays with Cushman. A spokesperson for Cushman declined to comment on the deal, citing company policy. A spokesperson for the four brokers also declined to comment. By completing the deal, the four brokers will receive their share of the commission, but their new employer won’t get a cut.

When times are good and deals are closing at a steady clip, most brokers stay put. But during economic downturns, discontent often leads to more broker migrations. Just last month, Colliers International announced the hiring of Jack Cohen as their new managing director in the New York office. Previously an associate director with Cushman & Wakefield, Cohen will now likely begin the tricky process of tying up loose ends at Cushman and determining which of his clients will follow him to his new offices. Through a Colliers spokesperson, Cohen declined to comment.

Typically, trailing commissions — the commissions from unfinished deals that follow a broker when they switch firms — are “rife with concerns,” said Laurie McPherson, a partner at the law firm Blank Rome. McPherson recently represented the four brokers who moved to JLL. While she declined to comment on their specific situation, she said these types of issues are usually resolved without lawsuits. That, of course, doesn’t mean that there isn’t any arguing about commissions.

“Some get ugly and nasty; generally speaking, though, most are handled in a relatively civil manner,” said Kenneth Krasnow, managing director of the Brooklyn office of Massey Knakal, who has seen hundreds of brokers come and go over his 23-year career. Krasnow previously served as managing director at Cushman and executive managing director at Trammell Crow in New York.

“It is just an inevitable nature as the course of the business,” he said. “Most of the time, [when] brokers leave a firm, it is not a snap decision. It is something that people think long and hard about.”

Broker Yoav Oelsner moved from Eastern Consolidated to Cushman in 2003 and then jumped to Grubb & Ellis last year, a split he characterized as “amicable.” He said that typically, exclusive listings belong to the firm, but that clients will often follow the broker.

“It really depends on where you are with the deal, what ground was covered while working on the deal and if it is in the advanced stages,” he said. One challenge is determining what to do with the “off-market” deals, which can be tricky because they are often agreed upon with a handshake in lieu of a contract.

Often it’s the landlords and portfolio managers who must decide where their loyalty pulls them. Leslie Himmel, a partner at Himmel + Meringoff Properties who has seen a number of high-profile brokers switch firms, said her sense is that the broker has the leverage, not the firm. “If the broker understands [the clients’] thinking, you will follow them,” she said.

Chris Helgesen is a managing director of the 33-person New York office of UGL Equ-
is. Over the past 18 months he’s overseen UGL’s hiring of about 27 people — most of whom were recruited from other brokerage firms. By the end of the year UGL plans to hire 22 more people.

“When you are leaving, a good proportion of your business is proprietary to you the individual, but the brokerage houses will want to do a full debriefing on what you have been working on to keep their share of revenues,” he said.

“Usually there is a protected window of time” for a former brokerage house to get its due on trailing commissions, he said. That period of time is about 12 months.