Co-brokering key to recent deals

While commercial real estate and residential real estate obviously have much in common, one key difference between them continues to be a serious problem for the commercial side: the lack of "co-brokering."

All residential agents now accept co-brokering—in which buyers' agents and sellers' agents split a commission from the seller on a shared deal—but many commercial brokers are not open to such an arrangement. They typically will not agree to split a commission, even though this decision basically assures a longer time on the market and less competition for the property they're selling.

"Brokerage firms or brokers that try to convince clients that they know all the 'best' buyers are simply wrong," according to David Frosh, president of Sperry Van Ness Commercial Real Estate Advisors. "To assume that any single broker or firm can directly reach the millions of qualified investors is a line of thinking that will ultimately cost sellers money."

So it was an exception to the standard rule when a commercial lease agreement was recently made for the facility at 221 Broadway in downtown Urbana, with a Sperry Van Ness / Ramshaw Real Estate agent representing the owner and a competing agent representing the tenant, a research division of Carle Foundation Hospital. But SVN/Ramshaw agent Todd Salen knew the only way to give his client optimal service was to lease the space to the best potential tenant, even if it meant splitting the commission.

And like many commercial facilities, 221 Broadway is a very unique property, containing 24,000 square feet and containing office, warehouse, and even laboratory space, as it had originally been built for the University's Geological Survey. Finding a tenant would be next to impossible if it was exposed to only a small portion of the market.

"When you tell a client they'll receive the best service, you only mean it if you're going to market the property to the entire market," Salen said. "You may make less per deal, but you end up doing more deals, and your clients are certainly happier with you. It's just a winning situation for everyone involved."

Another of Salen's recent deals, this one for a newly built facility at 706 Bloomington Road (see "Forward thinking pays off" on inside panel), followed a similar path. With three retail spaces to fill, one tenant approached Salen directly, but the other two came by way of agents from other local brokerage houses. The owners certainly were glad to have the three spaces filled quickly.

"Todd found tenants that fit the spaces perfectly," said Kip Pope, one of the building's owners. "We were delighted with the activity he generated for us."

The entire idea behind the SVN national brokerage, and the reason Ramshaw became affiliated with them in 2004, is that co-brokering belongs in commercial real estate as much as it does in residential. All properties listed through SVN brokerages are marketed to the entire brokerage community, with fees shared with competitors on shared deals.

"Seventy percent of the time, this leads to a winning bid on a Sperry Van Ness listing coming from an outside agent," according to Frosh. "Contrast this with an industry where 80 percent of the time, the listing agent or firm does not cooperate with an outside broker. One needs to consider who these firms are really representing."

"This approach improves fees for brokerage firms but costs the seller money by denying the basic law of supply and demand."

As SVN affiliates and other like-minded brokerages gain market share and awareness nationally, it is possible that co-brokering will reach a tipping point. It came for residential; it can come for commercial.