Pushing Dirt

Real estate commissions are fully negotiable, and it’s dangerous to engage in a dialog in a public forum about specific rates charged. It could be perceived as price fixing which is not kosher.

Speaking generally about the shift in market conditions, I think it’s safe to speak to the following trend: In the “landlord’s market” of a just a year or two ago, landlords would typically offer 1/2 of the the commission they would pay to a broker that brought a new tenant to them.

Now we’re seeing brokers asking and getting a “full” commission on renewals. The landlords are more fearful of losing tenants and are doing what the can to keep the broker that “controls” the tenant happy.

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A consequence of the utterly lousy commercial real estate market is that suffering landlords and sellers are likely going to need to start to pay higher commissions. Those higher commissions will be needed to lure the best seller and landlord representatives, who are risking more taking on assignments in this market: despite their best efforts not every space will lease and not every building will sell. Representatives of buyers and tenants will demand even higher fees, and deserve them: they control a very precious commodity in today’s market…at least in the case of creditworthy tenants.

I’m not going to win many friends among owners for saying it, but it’s time for brokers to start demanding higher commissions. Don’t get green with envy for the brokers. The volume of investment sales transactions is down 70 to 80 percent. Leasing transactions are not moving robustly either, with tenants staying put and renewing for very short terms in many cases.

The opportunity for brokers in this market is representing the most motivated of sellers: those that are facing distress and must sell to raise cash. We’re seeing many more of those sellers in places like Michigan, Ohio and Florida. In the Washington DC area the distress is primarily in vacant buildings or residential land.

Established auctioneers are a busy lot, and brokerages are ramping up groups to market distressed assets for sale or to deal with workout situations.

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