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Published on May 10, 2004

Even at the top end of the market-the big deals traditionally dominated by large, full-service brokers representing both tenants and landlords-tenant-only firms such as Cresa Partners, Equis, Plymouth Partners, Staubach and Studley have surged upward in the rankings.

When Cadwalader Wickersham & Taft began its quest last year for space for its new headquarters, the law firm's search committee screened eight brokerage firms.

" We were looking to make a very big move, and it was very important to us to get the right fit with a broker," says John Zizzo, a partner at the firm.

Ultimately, Cadwalader found that fit with the lone tenant-only broker in the group.

" I wouldn't say it was the chief or deciding factor," says Mr. Zizzo, "but the fact it was a tenant-only representative ended up being important to us."

And so it happened that Cadwalader's lease of 460,000 square feet at 1 World Financial Center, the biggest deal downtown since the terrorist attack of Sept. 11, was handled by Studley.

The Cadwalader transaction capped a remarkable run for the handful of tenant brokers in New York. In the toughest commercial real estate market in a decade, tenant representatives have shucked off their second-class status and snatched an unprecedented share of the deal flow.

Even at the top end of the market-the big deals traditionally dominated by large, full-service brokers representing both tenants and landlords-tenant-only firms such as Cresa Partners, Equis, Plymouth Partners, Staubach and Studley have surged upward in the rankings.

" In 2003, six of the top 10 leases in midtown, and nearly half of the top 20, were negotiated by tenant-only firms," says Henry Robbins, a vice president at real estate consulting firm Yale Robbins.

Their showing contrasts sharply with results from as recently as 2000, when tenant-only firms placed just four deals in the top 40. In the 12 months through October 2003, Studley alone brokered three of the top five midtown deals.

" The tenant-only brokers have been thriving because the market favors driving very tough bargains with landlords, and the perception is that tenant-only firms are better able to be aggressive on prices," says Steve Spinola, president of the Real Estate Board of New York.

Actually, the past three years have been something of a perfect storm for the tenant brokers.
Users of small and midsize spaces, which traditionally gravitate to tenant representatives, have dominated the market as large corporations have scaled back their leasing. In addition, because tenant brokers represent space users exclusively, clients perceive them as far more willing to squeeze landlords for the best deal in a soft market.

Even one of the market's biggest weaknesses of late-the huge overhang of available sublease space-has worked in tenant brokers' favor. They are being hired by their space-user clients to quietly find takers for surplus acreage.

No one is counting out the full-service brokers. As a group, they remain far and away the dominant force in New York City's office rental market. Just 10% of the 1,300 individuals who broker commercial real estate tracked by Yale Robbins are tenant-only. Huge companies like CB Richard Ellis, Cushman & Wakefield, Newmark & Co. Real Estate and ! GVA Williams negotiate hundreds of thousands of square feet worth of leases every year and manage millions of square feet for building owners.

On a roll

For the time being, though, the tenant brokers have the momentum.

" Since all of the corporate accounting scandals that began with Enron and the breaching of Chinese walls on Wall Street, the conflict-of-interest issue has really gotten people's attention," says Marcus Rayner, partner in Manhattan-based Cresa Partners. "Now, tenants look very seriously at whether their real estate adviser is independent or not."

Not surprisingly, full-service brokers dismiss such claims.

" They're a marketing ploy, no more," says Bob Alexander, chairman of the tristate region for CB Richard Ellis. "Tenant-only brokers are paid by the landlord, just like we are."

Whatever the reasons, it is hard to deny that the tenant brokers are on a tear. In the past three years, Cresa has upped its staff of brokers here to 21 from four. The Staubach Co., based in Dallas, has bumped up the number of brokers in its Manhattan office to 25 from just three seven years ago. Among tenant representat! ives, it's second only to Studley, which has a local broker count of 50.

The lion's share

The growth has been largely fueled by deals in the 25,000- to 50,000-square-foot range, which have accounted for the vast bulk of leasing activity in recent years.

" Two-thirds of our business comes from midsize services companies, like hedge funds, law firms and financial advisers," says Gregg Lorberbaum, a managing principal at Staubach.

Typical of that client category is ALPinvest Partners. The private equity firm considered several full-service brokers when it was looking for new offices a year and a half ago, but went with Cresa Partners, largely because of the brokerage's lack of perceived conflicts.

The rise of subleasing also has helped tenant brokers. Last year, subleases accounted for 27% of all available office space in Manhattan, up sharply from 19% in 2000, according to Cushman & Wakefield Inc. Much of that acreage was handled by tenant brokers, which in most cases had represented the same tenants when they originally acquired their spaces.

Among the tenant brokers awash in such business is 3-year-old Miller & Partners Ltd. One of its biggest deals closed last year, when it represented client Metallurg in disposing of its 14,000-square-foot lease in midtown.

Cresa, too, has cashed in. It recently negotiated a deal to sublease 130,000 square feet held by Vivendi Universal. Meanwhile, Staubach's Mr. Lorberbaum estimates that subleasing makes up about 25% of his company's work these days.

Ironically, such success may come at a high cost. Many believe that the subleasing transactions undermine tenant brokers' claim that they represent only the users of space.

" It's a bit of misnomer, considering how many of them have taken on large sublease assignments, acting in effect as the landlord's agent," says Ken Krasnow, senior managing director at Cushman & Wakefield and head of its New York offices.

In many ways, the intensifying debate is the clearest sign that the industry takes tenant brokers seriously. Of course, ! tenant representatives believe that despite what their detract! ors say, the appeal of firms like Studley and Staubach transcends the depressed market or even powerful issues like conflicts of interest.

" Tenant-only firms will continue to grow because we can do a better job for our clients than full-service firms," says Mitchell Steir, chief executive of Studley.

But he says people shouldn't choose tenant brokers solely because they don't represent landlords.
" You want someone who's experienced and skilled," Mr. Steir says. "But if you find those traits in a tenant-only broker, why not eliminate the conflict of interest?"

Copyright 2004, Crain Communications, Inc