Recently filed lawsuits by CB Richard Ellis against former employees have other commercial real estate brokerages sitting up and taking notice, as the company gets tough about its turf and its money.
The nation’s largest commercial real estate brokerage appears to be clamping down on brokers who leave the company for rivals, pursuing one broker with a claim for an unpaid draw and going after a group of Long Island brokers it alleges took confidential information when they defected en masse to Newmark & Co.
The first lawsuit was filed November in State Supreme Court against former broker Michael Burgio for allegedly failing to repay a draw of about $812,000. A draw is a loan many commercial brokerages offer their agents when brokers work on commission in lieu of receiving a salary.
Typically, the brokers pay back the loan with earned commissions on commercial lease deals. However, CBRE alleges in the suit that Burgio left to go work for competitor Cushman & Wakefield still owing the company money.
The company is seeking the principal of the loan plus any interest accrued, as well as legal costs and any other damages.
In an unusual move, CBRE also filed a lawsuit in State Supreme Court in December seeking $45 million in damages from four former brokers from Woodbury, Long Island: Jack O’Connor, Brian Lee, Scott Berfas and Dan Marcus. CBRE accused the brokers of orchestrating a group defection on Sept. 8, 2004, when they left for a Newmark office in Melville, allegedly in violation of their employment contracts. The lawsuit also claims the agents took confidential documents and a computer database and failed to provide a list of their pending deals to the firm.
The company also accused one broker of failure to repay a signing loan of $165,000 and another of failure to repay an employee loan of $30,000.
Many commercial brokerages offer their agents draws or signing bonuses, and sometimes those agents defect without paying back the money. A company spokesman said CBRE rarely litigates in these types of disputes.
“We obviously feel strongly that a contract is binding to both parties,” CBRE spokesman Steve Iaco told The Real Deal. “We’ve lived up to our end of the contract, and it’s incumbent on these folks to live up to their end of the contract.”
None of the five accused brokers chose to comment through spokesmen at their new firms. Neither Cushman & Wakefield nor Newmark responded to questions.
Other commercial real estate brokerages, while reluctant to weigh in on the specifics of the lawsuits, said they would be watching the outcomes.
“I will definitely be monitoring them,” said Richard Hodos, president of Madison HGCD. “We do put people on draws and monitor their performance relative to their draws. We do provide bonuses. With that said, we haven’t had any problem.”
Hodos said he hopes the firm’s familial culture and comprehensive benefit package, along with its relatively generous expense reimbursement policy, will attract quality brokers who don’t ask for exorbitant draws or signing bonuses.
He contemplated momentarily whether the practice of fronting brokers big money to lure them aboard might change as a result of the CBRE lawsuits.
“I think quality people will continue to demand certain kinds of things,” Hodos said. “In order to attract the best and the brightest, firms will still have to dig down deep to come up with attractive packages. It has always been that way; it will continue to be that way.”
Peter Riguardi, president of Jones Lang LaSalle New York Region, disagreed, saying the litigation’s outcome could change compensation structures. He said his company is one of few commercial brokerages that has chosen not to offer draws or signing loans, which creates a more team-oriented culture.
Instead, Jones Lang LaSalle offers brokers a salary and bonuses directly tied to production. Young professionals considering either a career in real estate or on Wall Street are particularly drawn to this model, Riguardi said.
“Our employees never owe money,” Riguardi said. “So we sort of look at these problems and are very pleased that we’ll never have them.”
He said he will watch for changes at other brokerages in the wake of the lawsuits.
“Because our compensation formula seems to work the best, we watch with curiosity,” Riguardi said. “We think some of our competitors might change over to our format.”