Vacation Without Pay': South Florida Broker Commissions Next on the Coronavirus Chopping Block
South Florida real estate and business brokers are seeing a hit to their commissions as the growing coronavirus pandemic triggers a widespread economic shutdown.
Brokers generate most of their income through commissions calculated as a percentage of the value of a sale, lease or business deal. Their loss hasn’t fully set in, but some commercial real estate transactions already have been postponed, especially in the region’s heavily impacted hospitality and retail sectors.
“Brokers aren’t going to make commissions because the transactions aren’t going to close,” said Neil Merin, chairman and founder at NAI/Merin Hunter Codman Inc. in West Palm Beach. ”Effectively, it’s as if the brokers have a two- or three-month vacation without pay.”
If the coronavirus toll lasts for a quarter, brokers will lose 25% of their annual commission income, Merin noted. As much as 90% of broker commissions could be either postponed or canceled during the hiatus.
Commissions are off because business deals are in a slowdown.
“All the deals that were pending are going to be greatly reduced, which is going to hurt not only those folks who work in those businesses but also the brokers that specialize in the sale of those,” said Roberta Caputo, south district president of trade association Business Brokers of Florida. “It’s going to be a huge deal for many of them.”
Most impacted will be the shuttered nonessential businesses such as hair salons and restaurants, said Caputo, managing director at business brokerage Capital Business Solutions in Deerfield Beach.
Restaurants are limited to takeout and delivery.
“It will have a negative effect without a doubt. It’s a big portion of the market, and it’s coming to a great slowdown,” Caputo said.
Just how much is at stake?
Florida recorded $70 million in restaurant business sales last year, including $25 million in Caputo’s district stretching from Port St. Lucie to the Florida Keys.
If restaurants were cut out of the real estate market for three months, $17.5 million in sales would be lost statewide and $6.25 million in the district. Broker commissions for business deals generally are 10-12%, endangering $2.1 million in statewide commissions and $750,000 in the district.
The outlook for residential deals is mixed as some expect this will be a less affected market.
But Zillow Group Inc., a marketing company that lists single-family homes for sale and started a home-purchasing program in recent years, said Monday it was suspending the home-buying program. It still is marketing homes for sale, including the about 1,860 in its inventory.
“I anticipate that despite all the optimism that the residential side is showing at this time, that they too will have at least a 90-day hiatus from sales and therefore of the broker commissions,” Merin said.
But the residential impact is expected to be much less than hospitality and restaurant deals.
Commercial brokers say it’s not an utterly gloomy outlook as they transact other types of real estate as well. They aren’t fearful of the future but are prepared.
Just ask Realtor Vanessa D’Souza, who does commercial and residential leases and sales.
“I know that our business will suffer. I know I have certain protections in place. I always keep at least a year of my expenses put away,” said D’Souza, who is with RE/MAX and works in Coral Springs and Plantation. “You need to have a cushion because we don’t know from year to year what we are going to make.”
She is doing virtual showings and adding contract clauses that allow for cancellations in case of job or business loss.
Darcie Lunsford, executive vice president and director of office leasing at Butters Realty & Management in Coconut Creek, echoed D’Souza’s comments.
“As the market goes, so does the flow of commissions of course to the brokers. I think when you are a broker, you try to always save for a rainy day and we tend to make money in big buckets, and you just always try to plan for an unforeseen downturn,” Lunsford said.
At Chariff Realty Group, which does commercial and residential sales and leasing in prime Miami areas, a slowdown hasn’t been felt.
“Believe it or not, I am kind of shocked but our phone is ringing,” said Lyle Chariff, president-broker at Chariff Realty.
Owners who have overextended themselves with property are eager to sell, Chariff said. Many are left with shuttered tenants that can’t pay the rent.
“Without income from tenants and moratoriums coming in where you can’t evict people, you can’t foreclose,” he said. “That’s going to hurt a landlord on their cash flow.”
Chariff Realty commission trims are on retail leases that closed before the COVID-19 invasion but the tenant hasn’t opened. For these leases, part of the commission was paid when the lease was signed, and the remainder is due once the business opens.
Chariff Realty won’t go after clients that haven’t opened for the balance of the commissions but is working with them to find solutions.
“You go to the client and you say, ‘Technically you owe me the money, but let’s try to find a new tenant for this space and we will work with you,’ ” Chariff said. “ Every situation is different, but our main focus is to maintain relationships and be forthright and be in it for the long run.”
Jaime Sturgis, founder and CEO of Native Realty Co. in Fort Lauderdale, said one deal was postponed but the pipeline is strong.
A bar-restaurant lease his firm worked on for nine months is on hold, so no commission will come in unless the deal closes.
Still, Sturgis already is looking ahead to the end of the crisis.
“Everybody can’t stay inside forever. At a certain point we have to contain it, adopt standards and practices to live with it or develop a vaccine for it,” he said. “This can’t be a forever situation.”