Exec Defections Shake Up L.A. Broker Scene
The clubby world of Los Angeles’ commercial real estate brokers has been hit by a wave of high-level employee defections and at least one lawsuit as an industrywide shakeout promises even more changes.
Much of the recent upheaval has been triggered by the arrival of New York-based real estate brokerage giant Insignia/ESG. It wasted little time hiring away top rival brokers with signing bonuses--unheard of in local real estate circles--that in some cases exceeded $1 million.
“No one was paying any money [to recruit] before,” said Robert A. Ortiz, national director of brokerage services for Cushman Realty, which lost a top broker to Insignia last month. “They are buying talent.”
Insignia’s aggressive Los Angeles expansion illustrates the power and wealth of the new global brokerage giants, whose ranks include L.A.-based CB Richard Ellis. Their emergence threatens the survival of smaller, privately owned firms that lack the size and financial strength to serve clients on a national basis.
The global companies “have the ability to buy the best talent in individual markets,” said Tony Morales, leasing manager for Maguire Partners, Los Angeles’ largest owner of office space. “It’s safe to say that every brokerage firm today . . . will try to figure out how to ensure that they don’t have similar kinds of defections.”
The consolidation may result in fewer options for tenants, but it fits into a trend that favors large, diversified real estate companies that cater to equally large national and international clients. Along with leasing space, the new real estate giants also manage huge property portfolios, provide financing and develop commercial real estate projects worldwide.
“Real estate decisions are not being made locally anymore,” said Whitley Collins, a broker in the downtown Los Angeles office of CB Richard Ellis. “They are being made nationally and globally.”
In Los Angeles, the industrywide realignment is taking place as the market has rebounded from the bust of the early 1990s, attracting new real estate firms to the area and giving top-notch brokers the confidence to jump ship.
E. Michael DeSantis, for example, one of the top office-leasing executives at Cushman & Wakefield, recently left to join Cushman Realty. Maury Gentile, one of the most prominent veterans in the downtown Los Angeles office of Grubb & Ellis, has joined Julien J. Studley. And Dallas-based Staubach has also opened up a Los Angeles operation staffed by local brokers.
But it is the fledgling L.A. brokerage of Insignia/ESG--a subsidiary of Insignia Financial Group--that has drawn the most attention and ire from competitors. Last fall, Insignia/ESG hired Stephen L. Bay--a well-regarded broker who had managed Studley’s downtown L.A. office--to head its Los Angeles brokerage. (Insignia already operated a well-established property management company in the area.)
New York-based Studley filed a lawsuit against Bay, Clay W. Hammerstein and two other brokers who left for Insignia/ESG, claiming they had taken sensitive and confidential information that could be used to win customers for their new company. A Los Angeles County Superior Court judge ordered Bay and the others to return the materials, and both companies are working to resolve the matter.
“We don’t think we need to buy talent,” said Greg Gerber, Studley’s new Western regional manager. “It’s not because we don’t have the money to spend. We prefer to spend on systems and programs instead of [on] one or two people.”
The lawsuit, however, did not deter Insignia/ESG from pursuing other deal makers. Last month the firm hired Cushman Realty’s R. Todd Doney, whose clients included Walt Disney, and colleague Nico Vilgiate.
Doney’s departure--along with his signing bonus of more than $1 million--shocked the brokerage community.
“It’s a key hire for Insignia,” said Jerry Porter, vice chairman of CRESSA Partners brokerage. “Todd Doney is an excellent broker, and he brings a pretty strong client base. It’s a very strong move for them.”
Doney said he hated to leave Cushman but could not resist the opportunity to join a firm with strong relationships and contacts with corporate tenants worldwide.
“There are more corporate users looking to have relationships with real estate firms that are broad in their delivery of services,” Doney said. “Those are things that not all regional firms can offer.”
The competitive pressure on other firms--particularly smaller local players--is expected to grow as Insignia/ESG spends millions of dollars on expanding its L.A. office from a handful of brokers to about 40 within a year.
“We want to have the dominant share of large transactions, and we want to represent landlords and tenants across the board,” Bay said.
Many brokers say there will still be room for the many specialized firms that lack the size and financial muscle of their corporate brethren. Many clients would rather deal with smaller specialty firms than larger, more generic outfits under pressure to please Wall Street investors.
“Some of our larger competitors, as they have grown, have found themselves under intense earnings pressure,” said Porter, whose firm represents only tenants, not landlords, in cities nationwide. “They’re cutting back on compensation to their brokers, and they are trying to consolidate offices. It just creates opportunities for other firms.”
