Large deals generate less than 6 percent commission

Oct.October 26, 2007 01:27 PM

If you’re looking for steady 6 percent commissions on your sales, commercial brokerage isn’t for you.

For brokers who sell entirae buildings or portfolios of properties, commissions are a negotiable point of each deal, whether it’s for Stuyvesant Town and Peter Cooper Village, which sold for a record $5.4 billion in October, or the Old Dutch Mustard Company building in Williamsburg, which sold for $25 million last month.

Some brokers speculate that the commission on the Stuyvesant Town deal was around $5 million, according to published reports, which would work out to approximately .09 percent — a far cry from the 6 percent that would be paid to a residential broker, a cool $324 million.

The deal between seller MetLife and buyer Tishman Speyer was brokered by Darcy Stacom of CB Richard Ellis, who declined to reveal her payout.

Commercial brokers work on a sliding scale within certain price targets. Often, larger transactions mean a lower percentage. For example, a $10 million deal may see a 3 or 4 percent commission.

“You aren’t going to see a $100 million building sale with a 6 percent fee,” said Mike Forrest, investment sales broker at Marcus & Millichap. “It’s more around 1 to 2 percent.”

The seller of the property usually determines the commission.

Commercial brokers typically operate on an exclusive basis, in which case the seller is responsible for paying the commission.

“The biggest variable in the ultimate commission is the seller,” said Forrest. “Some sellers will fight to reduce the fee and sometimes the seller will insist on a co-broke and offer more of a fee.”

Aside from the overall price, other factors are taken into consideration for the negotiations of the commission, brokers say.

Commercial brokers say the commission has to cover the extent of services they offer their clients — sometimes it’s the quality of the marketing effort, not the size of the sale.

“There have been numerous situations where we’ve made more on a $3 million building than a $20 million building,” Forrest said.

Eastern Consolidated puts together a book on each client property up for sale. They include detailed data, from upcoming renewal prices for current leases to the financial history of renovations and environmental reports.

“We can offer our clients a different exposure with so many people working on the project,” Anton said. “To get the highest price, we’re able to expose the building to the biggest universe of potential buyers.”

For the sale of the Old Dutch Mustard Company building in Williamsburg, Eastern Consolidated secured the exclusive listing, and Eastern chairman and CEO Peter Hauspurg and director Alan Miller marketed the 127,000-square-foot development site as a residential opportunity in the recently rezoned residential neighborhood. The factory was recently torn down to make way for a new building.

“We thought the property could get a much better number than some of the other brokers because the changes in the market had been so dramatic,” Hauspurg said. “It had been worth next to nothing as an industrial site, but it was worth $25 million after the rezoning.”

Hauspurg said the owners thought they would be able to get $150 a square foot but got a price of $200 a square foot from a local investor.

“The winning bid rose to the top. It was benchmark pricing for Brooklyn,” he said. “The sellers realized that it was valuable but they didn’t know how valuable.”

It’s part of the job to show what properties are capable of achieving three, five, and seven years down the road, say brokers who must sell the building for the owners and sell themselves to the client. A history of large deals brings added leverage to their commission negotiations.

However, brokers say they have turned down clients if the fee isn’t reasonable.

“Time is money, and we need to make a fair fee to provide the best service,” Anton said. “We show what the building has been, what it is now and what the future could hold. We show the building in the best light.”

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