Commercial Scene : Residential Brokers Compete for Commercial Clients

Commercial real estate brokers have always considered themselves a league apart from their residential counterparts.

Mention home sales to a hardened office and industrial broker and you’re likely to get a grimace--followed by a reminder that commercial brokerage is not for lightweights.

But while commercial brokers in Los Angeles stick to their longtime market niche, residential brokerage companies are aiming to claim a piece of the lucrative commercial scene as their own.

Residential giants Jon Douglas and Fred Sands are leading the pack--each with commercial divisions handling more than $250 million a year in office, industrial, retail and apartment investments.

Residential competitors such as Mike Glickman Realty, George Elkins and the Prudential California Realty (formerly Merrill Lynch), are not far behind, all vying for a piece of the commercial real estate market too, some with more success than others.

“Sales are sales,” quipped Don Hecker, vice president and general manager of Jon Douglas Commercial Brokerage. Expanding from residential to commercial brokerage makes perfect sense for his company, Hecker said. Residential companies already have an established network of offices throughout Los Angeles. And, he said, “we have name recognition.”

Commercial real estate prices and brokerage commissions have skyrocketed in recent years--especially in West Los Angeles, where residential brokerage companies have a strong foothold.

“People have a tendency to do business with a company they already know,” Hecker observed, and with a staff of more than 1,600 residential agents, Jon Douglas is well poised for servicing the commercial needs of its current residential clients.

‘We’re on a hiring binge at our commercial division,” Hecker boasted. “We’ve had an incredible surge of business. We’re looking to be quite a force.”

The offices and the agents add up to more commercial lease and sale transactions than ever before for Jon Douglas and other residential brokerage companies--much to the chagrin of several more entrenched office and industrial brokerage companies in Los Angeles.

However, seasoned commercial brokers say they see no serious threat to their dominance.

“Residential brokerage companies do play a role in the commercial market,” conceded David M. McKenney, senior vice president at Cushman & Wakefield of California in downtown Los Angeles, “but it’s a very minor one.

“I would doubt very seriously the numbers they report.”

And, he added, most of the business that residential brokers are attracting is in apartment buildings and small retail projects--business that most good commercial brokers wouldn’t want anyway.

He described attempts by the Prudential to hire some of his staff away as “sophomoric,” noting: “They’ve never attracted any big names to their business.”

Moreover, he added, “I don’t know of any major transactions done by the residential brokerage companies either.”

“They have a different culture,” said McKenney of his residential counterparts. “It won’t work.” In 1979, he recalled, Fred Sands hired a top Coldwell Banker broker to head his commercial division. “The whole thing blew up.”

Indeed, in 1989, some observers say Mike Glickman’s commercial division may be doing the same. Just 6-months-old, the unit already seems to be retreating.

“I don’t think we can compete with the major commercial brokers,” conceded commercial division manager Fran Sirota. “The residential brokers are instead competing with one another.”

Sirota started work at Glickman about six months ago--charged with uniting in a Sherman Oaks headquarters the commercial brokers who were dispersed throughout several offices.

Now that the company is planning to open a residential division in Beverly Hills early next year, the plans for a strong commercial division have been assigned to the back burner. “We have to sit around and wait,” Sirota said.

Tentative plans call for regrouping the commercial agents in Beverly Hills. For now, however, the main commercial office in Sherman Oaks is closing and its almost 30 agents are leaving the company or moving to other offices.

Fred Sands and Jon Douglas managers reject any comparisons to Mike Glickman.

“We have our own way of doing business,” insisted Darrell Levonian, vice president and sales manager at Fred Sands Commercial Brokerage in Century City. “We don’t just hang out a sign and wait for somebody to call.”

Unlike residential brokers, some of whom work part time, commercial brokers at the company are required to put in a full day’s work.

“We’ve separated our residential and commercial divisions,” Levonian said, along with stricter hiring standards in place for the latter. While some commercial brokers and potential clients still may not take his division seriously, “we’ve taken business away from major companies,” he said.

Not to be outdone by one another, Fred Sands and Jon Douglas each is touting his international division, connections in Japan, a growing staff of leasing “specialists” and well-heeled banking contacts. Their advertisements stress expertise as “serious” brokers and the promise of “full-service” brokerage.

“They want to be full-service but it’s a big myth,” charged Dan Powell, president of Brentwood-based CityPacific Commercial Real Estate Services. “In theory, it’s terrific; in practice, it hasn’t worked.”

Commercial brokerage doesn’t mix well with residential brokerage, Powell said. “The nature of the two businesses is different from A to Z.”

“The sales skills are similar,” he conceded, but added that he believed that residential brokerage isn’t really a “serious career.”

Commercial clients, he said, need to be serviced by companies that do nothing but commercial brokerage. Doing business with essentially residential brokerage companies, he alleged, is just for amateurs. In fact, Powell said, these new commercial adjuncts are little more than “bits and pieces tied together with dental floss.”

Powell’s criticisms go to the heart of what residential brokerages complain is an unfair stigma. While commercial brokers are generally portrayed as hard-headed businessmen, their residential counterparts are often painted as bored housewives looking for a way to pass their time.

Residential brokers also tend to be more ethnically diverse than their commercial colleagues, Glickman’s Sirota noted. That can help win over the business of many immigrants who prefer to deal with an agent who speaks their language--literally.

Compared to commercial brokerage companies, she said, “we’re not as structured and controlled.” That, added Sirota, can be both an advantage and a disadvantage.”

Jon Douglas, Fred Sands and Mike Glickman each has a staff of more than 1,500 agents in the Los Angeles area. Commercial brokerage companies can’t compete with that kind of coverage. While only a few dozen agents at any of these companies actually specializes in the commercial scene, Sirota said, the potential for intra-company sales leads is phenomenal.

“There is a vast amount of leads generated by our residential division,” Hecker claimed. Also, having access to a proliferation of local offices helps the commercial brokers become intimate with the market they’ve targeted.

A drive up Pacific Coast Highway, Hecker said, proves the point. For all practical purposes, he said, Jon Douglas has captured the commercial real estate market in Malibu--an area largely ignored by most of the competition.

Sales managers at Jon Douglas and Fred Sands prefer to be compared to companies such as Coldwell Banker, Grubb & Ellis, Cushman & Wakefield and other similarly situated heavy hitters. Most brokers at these companies, however, balk at such comparisons.

Can residential brokerage companies succeed in the long run?

It all depends on the quality of their commercial brokers, reasoned Marc Danziger, a vice president at the Westwood office of commercial brokerage Julien J. Studley Inc.

Jon Douglas Commercial, he recalled, scored a $27-million deal in Santa Monica with Japanese commercial real estate giant Shuwa Investments Corp. “It was an absolute home run,” Danziger said.

Residential brokerage companies can also succeed as commercial brokerage companies if they learn the market thoroughly, Danziger said. One friend of his has done just that, he said. “She’s hugely successful because she knows her turf better than anyone else.”

“Some brokers have managed to work both sides of the fence well,” added David Burback, a vice president at Coldwell Banker Commercial.” The strategy has to be a focused one, he said, but it can be done.

Still, Burback noted, the focus of residential brokerage companies continues to be on small retail developments and apartment buildings--not high-rise office leasing or industrial property sales.

Indeed, most of the residential brokerages queried, report that at least 50% of their commercial brokerage business is in multiple dwellings.

“Most of the money makers are selling apartments,” CityPacific’s Powell said.

Law Firm to Move to Downtown Tower

The law firm of Cummins & White has signed a $19-million lease for 41,000 square feet of office space at 865 S. Figueroa--under construction in downtown Los Angeles. Now located at 1600 Wilshire Blvd., the law firm is now committed to take two floors for 15 years in the new 35-story tower. Developer Manufacturers Real Estate was represented by Cushman Realty in this first lease signed for space at the building. Faulkner Co. represented the tenant, which plans to relocate in June 1991.

MGM/UA Abandons Relocation Plan

MGM/UA Communications has abandoned plans to relocate to a new custom-built headquarters building in Beverly Hills. An agreement to retain Cushman Realty as leasing agent for the building concludes months of speculation about what would be done with the now vacant building at 9333 Wilshire Blvd.

Continued uncertainty over sale of the company will keep MGM/UA at its current offices, while controlling shareholder Kirk Kerkorian moves into the just completed marble edifice, along with his Tracinda Corp. holding company and MGM Grand Inc.

MGM/UA’s decision to stay put leaves 80,000 square feet of space available at the 110,000-square-foot Wilshire Crescent Building. Brokers seeking to fill the empty space face competition from Columbia Development Partners, CoastFed Properties and Amir Development--each with its own tony office projects opening nearby. Office vacancies in Beverly Hills are expected to rise sharply with a long list of projects completed in 1989 and 1990.

Top Law Firm Leases in Jamboree Center

The law firm of Gibson, Dunn & Crutcher signed a reported $60-million lease for 111,000 square feet of office space at 4 Park Plaza--a 400,000-square-foot tower planned at the Irvine Co.’s Jamboree Center.

It’s one of the largest leases ever in Orange County, and leaves developers such as the Koll Co. and Birtcher disappointed with the Irvine Co.’s coup. Brokerage Tooley & Co. reports that the Irvine Co. has a building permit for the law firm’s new home, while competitors are still waiting approval from the city of Irvine for nearby projects.

Headquartered in Los Angeles, Gibson, Dunn is one of the nation’s top five law firms, with more than 700 attorneys in 17 offices. It intends to occupy five floors at the planned 20-story office tower--set for completion in 1992. Currently, the firm has Orange County offices at the Pacific Mutual building in Newport Center.

4 Park Plaza is the fifth and last office building planned for Jamboree Center. With its completion, the Irvine Co. will turn its attention to office development in its enormous Spectrum business park.

Investment Bankers Take Westwood Lease

In Westwood, investment banking firm Houlihan, Lokey, Howard & Zukin Inc. signed a $13-million lease for the top two floors of 510,000-square-foot Wilshire West Plaza at 10880 Wilshire Blvd. VMS Realty Management Inc. is owner/operator and was represented by Tishman West Management Corp. in lease negotiations. Mike Geller, vice president of Julien J. Studley Inc. represented the tenant.

Also leasing space recently was Canada-based System House, which signed a 10-year, $10.5-million deal for 42,000 square feet at Transpacific Development Co.’s Cerritos Towne Center. Brokers were Craig de Miranda of Coldwell Banker Commercial Real Estate Services and Tom Stilley of Grubb & Ellis.

Record Company Has Eye on Health Care Site

Record company executive David Geffen is negotiating to buy the Beverly Hills headquarters of Salick Health Care Inc. at 407 N. Maple Drive. Geffen has already acquired a site just a block away where he plans to build a new 90,000-square-foot home for the David Geffen Co. Meanwhile, Salick wants to find a new headquarters of its own--preferably within a mile of Cedars-Sinai Medical Center.

Geffen sees the opportunity to develop yet another office project in an area fast emerging as a sought-after niche in Beverly Hills.

Opening a block away within the next several months is a new home for Beverly Hills Mercedes-Benz, topped by office space for its owner and other tenants. The dealership will abandon its longtime home at Wilshire Boulevard and Swall Drive.