Seven years after it exited the commercial real estate business, Royal LePage is back in the space and recruiting brokers with higher than industry average commissions.
The new entity has signed on 160 sales people so far to knit a cross-country network from Victoria to St. John’s. A large part of its appeal is its commission structure, which aims to pay top people commissions about halfway between the traditional split 50-50 paid to experienced commercial brokers and the 80-20 split which residential sales agents enjoy. In rough terms, call it 65 to 70%, depending on where in the country the sales person, where he or she is working and what sector (commercial, industrial, etc.)
“It’s not for everybody but for practitioners, particularly those who are a little more independent, who don’t need to coddled or don’t need large support teams, I think the model will be very attractive for them,” said Phil Soper, President and Chief Executive of Royal LePage Real Estate Services.
“It will mean in the end that more of the fees earned end up in their pockets versus the company’s.”
Under LePage’s model, a commercial sales associate would receive more support than a residential agent typically would get, but they would be asked take on more work associated with the transaction than would typically occur in the commercial space.
Growth Plans for the Future
Royal LePage, which employed 500 sales people in its prior commercial entity, will add to its base of 160 people. “Double, triple over time, but not 10 (times),” said Soper. By comparison, Royal LePage has 14,000 agents on the residential side in 600 locations nationally.
“What we would like to see is the productivity or the revenue per practitioners rise considerably over time as we rebuild our reputation in the marketplace and attract some larger clients.”
The new entity would like to win big clients, but will at least initially focus on small and medium-sized businesses (and investors) across the country. “We are not going to be competing for the glass and steel office space, that is not where we are at and in fact we have a sister company, Brookfield Financial Real Estate Group that is already well established at the high end of the market,” said Soper.
In most cases, LePage Commercial’s competition will take the form of “more junior members of the big four brokerage houses in Canada or independent commercial real estate brokerage firms and there are lots of them in the country,” he added. “Single office brokerages that have 10 to 20 people. In fact I have already received some phone calls from across the country from people who are interested in talking to us.”
LePage would like to add some of those small brokerages to its network as well as sole operators in smaller markets.
“We are obviously a mass market brand and our strength is lots of transactions so we would naturally line up with those kinds of people,” explained the Royal LePage president. “Although the big firms do the big deals, there are many thousands of deals done by small firms and we think we can bring some things to the table that they don’t have.”
Private for Now
LePage has revenue and earnings targets for its new commercial entity but it will not be disclosing them publicly. It doesn’t have to, at least for now, because the division will be held privately by Brookfield Asset Management. Results are easier to determine for Royal LePage Residential, which by comparison is owned by Brookfield Real Estate Services Inc., an entity that is traded on the Toronto Stock Exchange.
In 2005 Brookfield Asset Management, then called Brascan, sold the commercial unit to New York-based Cushman & Wakefield for (US)$55-million after weighing whether to grow by acquisition or sell. “Valuations were very high during that time period,” said Soper. “One thing about Brookfield, when valuations are high, there are no sacred cows and we had a long-term referral relationship with Cushman Wakefield and they were an interested buyer so they got Canadian coverage and Canada’s largest commercial brokerage.”
Seven years later, and with much of that period “a relatively difficult time for the commercial brokerage industry,” LePage found the big brokerages to smaller than they used to be and having left a “significant part of the market” available for a new player. As well, it expects a tailwind in the form of a “positive turn in the economic cycle” to get the new business up and running.
With its re-entry into the space, Royal LePage has rolled out a new Commercial logo and a dedicated website (www.royallepagecommercial.com) which is intended to link up buyers and sellers regardless of location.
Some of LePage’s Canadian brokerages had “unbranded, unlinked” commercial operations which had grown organically but were limited in part because they had no formal relationships with other offices during commercial sales across the country. “So part of the magic with this is creating the national network with the links,” Soper explained. “We have built a new system to allow the proprietary listing of properties and share those between locations because what people told us is they needed a way to display properties to investors without having to travel.
“So a big part of what the model will do is simply link people together.”