As seen in

October 8, 2000
Real Estate / Commercial Property

The big deals, the ones that account for hundreds of thousands of square feet of office space at a time are the ones that attract the most attention in the brokerage world. For the individuals involved, they bring the prestige that comes from persuading both a landlord and a tenant to make a major financial commitment, the recognition by professional groups and, of course, a handsome commission.

But in the real world, industry executives say deals of 100,000 square feet or more are rare and the brokerage industry lives, for the most part, on chunks of office space involving 10,000 square feet or less. "I’d say 80 percent of the transactions we are involved in are under 10,000 square feet," said Stephen B. Siegel, the chairman of Insignia/ESG, one of the largest real estate brokerage and services companies in the city.

Just as there are brokers who specialize in limited segments of the vast New York market, like parking lots or jewelry stores, at least one is convinced there is a niche in finding office space for small users, those looking for less than 3,500 square feet of space.

Tenants looking for small amounts of space have complained that they have trouble attracting the attention of brokers, who tend to devote their time to closing larger, more lucrative transactions. Indeed, this problem is the rationale being advanced by companies trying to broker space over the Internet. Prospective small space tenants can compensate for the lack of interest on the part of brokers by finding suitable space on the Net and, in some cases, negotiating the terms of the lease electronically.

Whether the electronic approach will work is clearly still in question, but Diana Yurek, a broker with Sumitomo Real Estate Sales, has made small spaces her specialty. In the last year, she said, she has closed 19 transactions involving less than 3,500 square feet of space.

In association with other brokers at Sumitomo, she has been involved in 23 transactions totaling only 60,000 square feet of space that have produced more that $365,000 in total commissions. Part of the reason smaller spaces can produce a good income for a broker is the rapid increase in rental rates in Manhattan. With space in Midtown renting for $60 a square foot and above annually, it does not take as many square feet of deals to make a living as it did just a few years ago.

Ms. Yurek said the commission numbers demonstrate that focusing on many small deals can add up to a healthy income. "You have to understand that not all deals close, so if you have a number of them under way, you are more likely to have some of them close," she said.

Commissions, she explained, are based on a complex formula involving the rental rate, number of square feet and the term of the lease, but can be approximated by calculating 24 percent of the first year’s rent.

Sumitomo, the New York subsidiary of a 400-year-old company headquartered in Tokyo, specializes in tenant representation on the commercial side. The company’s commercial operations are headquartered in Manhattan and involve about 10 brokers. The larger residential side of the business has offices in Scarsdale, N.Y., and Greenwich, Conn., as well as New York and has about 50 brokers.

The company was once an owner of property in the city, but since selling the building at 489 Fifth Avenue between 41st and 42nd Streets in December 1998, it has strictly been a service company. Not surprisingly, it specializes in corporate and personal transactions involving American companies moving to Japan and Japanese companies locating in the New York region.

Ms. Yurek said specializing in tenants with small requirements helps her to stand out among brokers competing for assignments to find office space. "When large firms look for space, it is very very competitive," she said. "When small companies look for space, it is less competitive."

As might be expected, large brokerage companies argue that they want and appreciate all customers, regardless of their space requirements. "As long as you represent your tenants as a real estate adviser and broker, it does not matter whether there is 5,000 square feet or 500,000 square feet involved," said James Meiskin, the President of Plymouth Partners, a company that specializes in tenant representation.

He said doing many small deals, versus a few large deals, might be a viable approach for a brokerage, particularly one that may be having difficulty getting involved in the larger transactions. "It is important to have an area of specialization in this market, which has a lot of activity but not a lot of space in the city," he said.

Mr.Siegel of Insignia/ESG said his company maintains a group of brokers who specialize in small deals. He said it was necessary to provide a broad spectrum of services and to have a place where a potential client with small space need could begin a relationship with the company.

Most efforts to close real estate transactions over the Internet have been focused on smaller deals, he said, because larger ones are too complicated to be reduced to a commodity. He said it was not clear yet whether the Internet can be used to complete transactions, as opposed to disseminating information.

A broad approach to the market is most likely to be successful, he added. "Most people, given a choice, would be involved in both large and small deals as we are," he said.

Bruce Mosler, the President of New York metropolitan area operations for Cushman & Wakefield, said the company tries to pay attention to small transactions because this is often the beginning of a relationship with a new customer. "A senior broker will probably not be directly involved in the negotiations, but a junior broker handling the transaction will be on a team led by a senior broker," he said.

Ms. Yurek said getting involved with small companies and meeting their needs can provide a payoff in the future as they grow larger. "It is good to work with small companies, because if you do a good job, they will refer others to us and come back to us as they grow," she said.

She added that while some landlords are wary of small recently formed companies, and require larger security deposits than for more established companies, an argument can be made that it is safer to have many small tenants than a few large ones. "If a building has just a few large tenants, it’s in trouble if one or two leave," she said. "But with many tenants, there is less risk if one leaves."

Indeed, one large investment and management company, W&M Properties, has sold its Class A holdings in Manhattan, while retaining Class B properties like the Lincoln Building on East 42d Street, which has hundreds of tenants. Class A buildings are usually thought of as trophy holdings, but officials of the company said the cost of interior construction for major tenants made the buildings unattractive in a downturn.

Ms. Yurek is a native New Yorker who grew up in the Riverdale section of the Bronx. She graduated from Riverdale Country School and Mount Holyoke College, where she majored in psychology. "Psychology was a good background for what I do now, because fundamentally real estate is a people business," she said.

For this reason, she does not think that the brokerage business will be taken over by the Internet, even for small spaces. "No matter what happens, there will still be a need for brokers," she said. "Not all space is listed, and how can a tenant tell if a space will work for him over the Internet? "There will still be a need for negotiation skills and brokers know to look for things, like rent escalations, that people not in the real estate business might not notice," she added.

The small-space market today is not unlike the large-space market, Ms. Yurek said. There is not a lot of space available and landlords expect quick decisions from prospective tenants or are likely to turn to another bidder. "The pace is much quicker today than it was a few years ago," she said. "Anybody who wants space has to make a quick offer or risk losing it."

But she said the pressure to decide quickly has to be offset by the need to find the right location and amenities for the individuals. She said she showed a tenant looking for 800 square feet dozens of possible office locations before finding something suitable.

"I want my customers to be comfortable and have the opportunity to discuss things with everybody involved," she said. "People spend so much time at work these days, they have to be comfortable in their environment".