Tough times hurting brokerages

By Buck Wargo

Friday, Sept. 10, 2010 | 3 a.m.

Residential and commercial real estate brokerages are hanging tough and vying for every piece of business as they struggle with the Southern Nevada recession.

In the meantime, there has been a change at the top of the lists published by In Business Las Vegas for residential and commercial brokerages.

CB Richard Ellis has overtaken Colliers International Las Vegas as the No. 1 commercial brokerage, returning to the spot it held two years ago. CB Richard Ellis had fallen to No. 4 last year.

On the residential side, Realty One Group has overtaken the top spot held by Prudential Americana, something that had been in dispute before it became official on the list that runs from July 2009 through last June. Realty One Group has used billboards this year to tout its top position to the dismay of Prudential.

Being No. 1 brings bragging rights and marketing opportunities to potential clients in a competitive market. Realty One Group reported transaction volume of $1.57 billion compared with $1.54 billion for Prudential Americana.

“They opened an office in California and Arizona and what they are doing now is adding them all together,” Prudential Americana CEO Mark Stark said. “I guess if I opened in 50 states and had 10,000 agents, I could say that too.”

Stark said he likes marketing his firm as the No. 1 agency in terms of transactions, but said he knows he was going to lose that position because of his model. He said his firm won’t take agents who handle two to three deals a year like other brokerages, but instead wants someone who is full time and productive.

“It’s all marketing and ego stuff and just bragging rights,” Stark said of the ranking.

Realty One Group President Kuba Jewgieniew disputes that he is using out-of-state numbers to make his claim of the No. 1 ranking and called it a sign of what’s happening in the residential market.

“We have been No. 1 for a year now and we are opening the gap on No. 2,” Jewgieniew said. “The big boys in town are going head to head, and that’s the way the market is going to be. The midrange (size) brokerages are going to go away or get absorbed. It is really going to be the big guys or the boutiques. The rich are getting richer and the small guys are scaling back trying to weather the storm.”

The economy and lack of job growth create a drag on housing sales this year, and commissions have dropped more than half because median prices have fallen sharply over the last three years. Because of that there will continue to be a shakeout in the industry in Las Vegas, Stark said. The small one-person operations can survive but those with 30 to 40 agents will face a tougher time.

“A lot are not going to make it,” Stark said.

Jewgieniew said he expects the ranks of agents to thin out in 2011. Many agents have needed a second job to supplement their income, he said.

Rick Shelton, local broker of Better Homes and Gardens Real Estate, which has 150 agents, said it’s understandable that some of the midsized firms of 40 to 70 agents are struggling and have trimmed offices and other expenses.

“Any business that lost 50 percent of their base revenue is in trouble,” Shelton said. “The smaller brokers are out there selling instead of managing.”

Commercial brokerages

Commercial business has picked up during the past year even though the economy hasn’t gotten any better and vacancy rates continue to increase, said Mike Hillis, managing partner of Commerce/Cushman & Wakefield.

“It doesn’t have anything to do with the economy, but it has to do with landlords and building owners recognizing that is not a short-term problem,” Hillis said. “For such a long time, everybody was holding their breath thinking the market would turn, and they were just trying to hold on.”

Hillis said the industry realized given the rate space is being absorbed that there is seven to eight years of office inventory and it was incumbent on building owners to cut rents and start making lease deals to fill their empty space.

Some local brokers have seen commercial sales pick up, but Hillis is not among them. Few sales are taking place because of the inability to borrow money in this recession, Hillis said. Everyone continues to wait for properties with troubled loans to come to market at some point, he said.

Many brokerages in the market have downsized because of the slowdown in business and some brokers have even left his firm because fewer transactions have reduced their income, Hillis said.

The latest trend is for individual brokers who were independent contractors to join larger firms to take advantage of opportunities with troubled properties.

“The small, independent guy doing a one-man show is realizing to get into the market servicing banks and institutions that they need to align themselves with a brand,” Hillis said.

Frank Gatski, CEO of Gatski Commercial Services, said a key component of his business these days is taking over management of properties that have gone into receivership. His firm has picked up more than 1 million square feet in the last six months and those have the potential to turn into opportunities to sell the properties.

“It is unfortunate with the tragedy of so many people losing their buildings,” Gatski said. “But in this difficult situation is opportunity.”

Mike Mixer, managing partner of Colliers International Las Vegas, said although the commercial market remains slow compared with the past, 2010 has been much better than 2009. He said revenue is up about 25 to 30 percent over last year.

“Last year our business was primarily leasing along with our property management,” Mixer said. “This year we are seeing the same amount of leasing but an increase in sales occurring. Sellers and lenders are starting to price properties to the market.”

Mixer said there’s more pain to come and it’s possible more commercial brokerages will close or consolidate over the next year. Some smaller firms have merged to create economies of scale, but firms that have little debt are in the best position, he said.

“I would like to think that everyone who has made it this far has weathered the storm,” Mixer said. “Last year was the toughest on record and those that are still standing will be stronger for having gone through it.”