The leasing game

In the cutthroat world of Manhattan office leasing, brokerages are regularly trying to best one another by finding new landlords and tenants to represent. But which firm actually does the most deals?

To find out, this month TRD conducted a first-ever review of both landlord- and tenant-side office-leasing transactions. We pored over more than 3,000 Manhattan leases inked in 2012 totaling more than 38 million square feet, pooling together recorded transactions of more than 1,800 square feet from databases such as CoStar Group, TRD research and information supplied by sources. (Tenant-side transactions are not tracked reliably by CoStar or other commercial databases, but TRD obtained transaction lists from sources at several of the leading firms to fill out the numbers.)

In addition, much like TRD did on the investment-sales side this month, we conducted an analysis estimating how much each firm took home in revenue through its leasing activity for the year. (We applied a standard commission rate of 32 percent of lease payments in the first year on a 10-year deal to the tenant-side brokers, and — following industry custom — about a third of that rate for the landlord-side brokerage.)

What we discovered is, despite the fact that 2012 was a slow year for Manhattan office leasing — total volume was down 9 percent from a robust 2011 — by TRD’s estimate, landlords still shelled out an estimated $750 million in commissions last year to these office leasing firms. So there was plenty of money on the table for the companies to aggressively pursue.

“I would imagine that [the commission] number is quite large,” considering the enormous volume of leasing done in the city, said Bradley Kaufman, a partner and head of the commercial leasing practice at law firm Pryor Cashman.

For both transaction volume and revenue, TRD looked only at the seven largest third-party brokerages active in the city.

Clocking in at No. 1 on the ranking was CBRE Group, the world’s largest commercial brokerage. By TRD’s estimate, the company’s New York office brokered 13.2 million square feet of lease deals on both the landlord and tenant sides in Manhattan south of 59th Street, where all of Manhattan’s major office markets are located.

CBRE was far ahead of its nearest rival: Newmark Grubb Knight Frank. That firm, headed by CEO Barry Gosin and now a part of the public company BGC Partners, brokered a little over 10.2 million square feet of deals. NGKF, while a powerhouse in New York, is much smaller globally.

CBRE and NGKF were among several firms that objected to TRD’s methodology and declined to provide leasing information.

Ranking No. 3 was Cushman & Wakefield, the New York–based firm, which brokered about 8 million square feet. Then came Jones Lang LaSalle, the world’s second-largest commercial firm, which has been growing its New York office with a series of strategic hires in recent years. The firm brokered about 7 million square feet in total leasing transactions.

The next wave of firms included Studley (with 4.8 million square feet in leasing transactions), Colliers International (with 3.1 million square feet) and Cassidy Turley (with 2.4 million square feet).

While the order of the list may not be a huge surprise to industry observers, the ranking provides a first look at the actual deal volume of each of these firms — which is especially significant because brokerages don’t publicly release this type of sensitive data. The seven ranked firms all declined to comment.

“Most brokers are inherently secretive, and their currency is information,” said Joseph Thanhauser, chairman of Midtown-based brokerage Byrnam Wood.

Take-home pay

The estimated $750 million in leasing commissions that Manhattan landlords doled out to these firms in 2012 — landlords customarily pay commissions for both their broker and the tenant’s agent — was not evenly distributed among the city’s major brokerage firms.

Not surprisingly, the commission ranking broke down in the same order as the transaction volume, with CRBE raking in the most. The firm took in an estimated revenue of between $200 million and $250 million.

NGKF, meanwhile, earned between $110 million and $150 million in revenue according to TRD’s calculation. Next was a cluster of three firms — Studley, Cushman and JLL — that, according to TRD’s estimates, each earned approximately $75 million and $100 million. Trailing them was Cassidy Turley, with between $25 million and $30 million, and Colliers with between $15 million and $25 million, according to TRD’s figures.

Other national and international firms with a modest presence in Manhattan include UGL Services, Transwestern and Lee & Associates. There are also local firms that do a substantial amount of brokerage, such as Savitt Partners, Murray Hill Partners and ABS Partners Real Estate.

TRD’s commission ranges take into account the fact that the terms of most deals — including the length of the lease and the exact price per square foot — are not publicly recorded. The ranges also consider that commissions are negotiable, and that firms often give a so-called commission rebate back to tenants on larger, pricier deals.

Real estate professionals also cautioned that it’s impossible for an outsider to predict exactly how much a landlord paid a broker in commission despite the standard rates.

Nonetheless, the ranking brought to light some key facts, including just how lucrative tenant-side deals are.

Industry standard dictates that the tenant-side broker typically gets a commission fee that’s two to four times that of the landlord’s agent. Indeed, the tenant brokerage typically takes home what’s called a full commission — approximately a third of the first-year’s rent.

On a hypothetical 10-year, 100,000-square-foot lease valued at $50 per square foot, that would total about $1.63 million. But insiders say for deals larger than 100,000 square feet, the landlord will allot a full commission to the tenant broker, but that broker will then “rebate” a portion of it back to the tenant. (In Class A office buildings, landlords generally only pay a quarter to a third of a full commission, while in older buildings they pay a higher rate.)

“It is all negotiable,” Glenn Brill, a managing director in corporate finance at the Midtown office of the London-based FTI Consulting, said. In some instances, tenants “set up real estate subsidiaries and the brokers split the commission with them, effectively reducing their cost.”

Driving home the reality that there’s increased earning potential on the tenant side, TRD’s ranking showed that brokerages that represented a disproportionate number of office-space hunters had strong commission numbers.

For example, TRD estimated that about 75 percent of CBRE’s office leasing revenue was derived from tenant-side deals. The company represented six of the tenants in the top 10 largest leases for the year, including Viacom in a blockbuster 1.6-million-square-foot renewal and expansion at 1515 Broadway. TRD estimated that commission at $60 million, prediscount. One source familiar with the deal, however, maintained CBRE took home significantly less than $30 million on that transaction.

Meanwhile, on the landlord side of the business, the first four firms were CBRE, NGKF, JLL and Cushman. While this is the first time TRD has produced this ranking, sources said JLL would probably not have ranked this high in prior years. The company has grown its agency business significantly since 2011, when it poached a large leasing team from Cushman that includes Mitchell Konsker and Paul Glickman.

Viacom and CBRE did not respond to a request for comment, and landlord SL Green Realty declined to comment.

Meanwhile, TRD’s ranking also showed that tenant-side brokerages, like Studley, took in more money with fewer transactions. The company, headed by CEO Mitchell Steir, saw tenant-side revenues that were more than 85 times higher than its handful of landlord deals, which were virtually all subleases.

The company declined to comment, but meeting records from the Port Authority of New York and New Jersey showed that the firm earned a $4.4 million commission for a 270,104-square-foot lease at One World Trade Center. That’s a 60 percent discount off the expected full commission of more than $11 million, but still one of the city’s top 20 commissions, TRD’s review reveals.

However, landlord-side work is also fiercely fought over, partly because brokers don’t have as much of a learning curve with each new deal since they are working in a limited number of buildings, and partly because it’s a more steady and guaranteed stream of business.