The Property Report section of today’s Wall Street Journal includes an article on the acquisition of bankrupt commercial real estate brokerage Grubb & Ellis by BGC Partners, Inc. BGC, a spin-off from Cantor Fitzgerald, is a large wholesale brokerage firm. BGC is merging Grubb & Ellis with Newmark Knight Frank, another commercial real estate brokerage that BGC already owns, to form a new brokerage that will be named Newmark Grubb Knight Frank (no one seems to know what happened to Ellis).
I discussed the merger with a Grubb & Ellis broker this morning and it turns out that part of the Wall Street Journal article is misleading. According to the article:
“[BGC Partners] has played hardball with the Grubb & Ellis brokers who were owed commissions at the time of the bankruptcy filing. BGC has offered to pay those commissions to brokers who have agreed to stay, according to people familiar with the matter.”
In fact, the commissions that were owed to Grubb & Ellis brokers at the time of the bankruptcy were dismissed as part of the bankruptcy proceedings, so neither Grubb & Ellis nor BGC owes these commissions. BGC is, in fact, providing an incentive to brokers by offering to pay these commissions from its own pocket, even though it isn’t obligated to pay them.
BGC is mirroring the efforts of other commercial real estate brokerages in offering retention incentives to key employees. CBRE provides new hires large signing bonuses as part of its compensation packages but holds this money in an escrow account, requiring recipients to remain with the firm for several years in order to become fully vested.
This is all part of a trend in which smaller real estate brokerages are being consolidated into a few huge national brokerages. If you see parallels between this and the past 25 years of the banking industry, along with a voice in your head saying “don’t look behind the curtain”, don’t assume you’re crazy.
Doug McKnight has been a commercial real estate appraiser for 23 years. He previously served as a director for the national appraisal firm Marshall & Stevens. He is currently the managing director of CapStruc Advisors and is working on a book on the value of assets.