The brokerage commission that will be paid on the 1 million-square-foot lease that Conde Nast is expected to sign at 1 World Trade Center in Lower Manhattan will certainly be in the tens of millions of dollars. Yet the exact amount the publisher’s brokerage CB Richard Ellis will earn has not been made public, and likely never will be.
About a half-dozen commercial real estate brokers — who had no inside knowledge of the deal — speculated the fee was in the range of $25 million to $30 million, but said commissions in large deals, unlike in smaller deals where the fees are more predictable, were highly negotiable. They were reluctant to comment on the record about the payment, fearing it would alienate CBRE.
And further obscuring the figure CBRE will ultimately put in the bank is a little-discussed feature mostly involved in large leases greater than 100,000 square feet, known as a rebate. In these situations, described as common by some, the tenant broker relinquishes 20 percent and up to 50 percent of the value of the commission back to the tenant, often in the form of free rent or tenant improvements. CBRE says it does not discount its fees.
“CB Richard Ellis does not compete on the basis of price. We compete on the basis of our services and talent. Other companies have neither the array of services nor the strength of talent, so they are forced to compete by discounting their fees,” company spokesperson Philip Russo said in a statement to The Real Deal. “In real estate, ‘cheap’ is usually expensive. As in every other sphere of life, you get what you pay for,” the statement concluded.
The brokerage community has been buzzing about the lease agreement reported Tuesday in the New York Times, between Condé Nast, the publisher of magazines such as the New Yorker and Vogue, and the Port Authority of New York & New Jersey, the developer of the 3 million-square-foot tower.
CBRE’s Mary Ann Tighe, CEO for the New York region, and Gregory Tosko, vice chairman, represented Condé Nast. Tara Stacom, vice chairman at Cushman & Wakefield, represented the Port Authority. Cushman and the Port Authority declined to comment.
The 25-year deal for 1 million square feet was estimated to be worth about $2 billion, with the starting rent at about $60 per square foot in 2014 when the publisher relocates from 4 Times Square in Midtown. There is no evidence that there will be a rebate on this deal.
And one former CBRE broker, speaking anonymously, said although rebates on large deals were common in the industry, Tighe might have the pull to keep the full commission for the firm.
The lease — irrespective of the commission — is seen as a watershed for the Downtown market, the slowest to recover from the receding recession.
Hal Stein, a managing principal at Newmark Knight Frank who focuses on Downtown, provided a typical comment from brokers discussing the impact of the large deal.
“This is a great thing for Lower Manhattan,” he said.
Stein, who was not involved in 1 World Trade Center, declined to discuss what the fee might be.
The general rule of thumb for office lease transactions is that the landlord pays the tenant broker what is called a “full commission,” generally about 32 percent of the first year’s rent on a 10-year deal. On a 25-year deal, that figure jumps to 47 percent.
Using this simple calculation, the commission would be about $30 million for the 25-year deal, but brokers cautioned that on large deals the fee is negotiated.
“My guys think it is north of $25 million,” one broker said of his team’s estimate.
The landlord representative commission is often 25 percent to 50 percent of the tenant-representative brokerage, but insiders were reluctant to even hazard a guess at the Cushman fee.
Another veteran agent, also not involved in the deal who did not want to be identified speaking about rebates, said the rebate for a large deal like this would be about 20 percent to 30 percent, or about $5 million to $7.5 million.
“They top out at about 50 percent. I don’t know that there was a rebate, [but] I think for a large tenant it is not uncommon,” this broker said.
In a hypothetical 30 percent rebate scenario on a deal where the tenant-broker commission has been set at $1 million, the landlord would pay the tenant broker $700,000, and the other $300,000 — the 30 percent — will be credited to tenant build-out costs or free rent, brokers said.
It is a very sensitive topic because brokers do not want to be seen as discounting their fees to win business, although most acknowledge that it is commonplace.
For example, in an interview last year with The Real Deal on Newmark Knight Frank, Barry Gosin, company CEO, spoke on a wide range of topics, but when asked about rebates, he said, “that’s something I would rather not talk about.”