Grubb & Ellis Co. superstar broker Daniel Cressman has negotiated an agreement that should allow him to receive a more than $3.2 million commission payment directly from landlord TMG Partners in relation to a Macys.com lease signed in late February.
Cressman’s arrangement stands in contrast to that of many other Grubb & Ellis agents and workers who are being treated as unsecured creditors in Grubb’s bankruptcy case and who collectively are expected to lose millions of dollars in commissions, deferred compensation and lost wages.
Cressman represented Macys.com in negotiations for a 15-year lease of nearly 243,000 square feet at 680 Folsom St. in San Francisco. TMG and financial partner Rockwood Capital LLC are investing $87 million to renovate the former Pacific Bell headquarters. At last tally, TMG had leased 80 percent of the building, which is located near Moscone Convention Center in the bustling South of Market district.
An attorney representing Cressman did not respond to an email or a telephone call seeking comment. Cressman did not respond to an email.
BGC, a publicly traded global brokerage company that primarily services the wholesale financial markets, bought Newmark & Co. Real Estate Inc. in October. The company operates under the brand name Newmark Knight Frank, and in the Bay Area has a relationship with Cornish & Carey Commercial. BGC reported revenues of nearly $1.5 billion last year, up from $1.33 billion in 2010. Its 2011 net income was $20.1 million.
Between Newmark and Grubb, BGC has said it expects to have more than 100 North American offices, 250 million square feet in property and facilities management and a national appraisal business. Both Grubb and Cornish have multiple Bay Area offices.
On March 27, U.S. Bankruptcy Judge Martin Glenn signed a 23-page order approving the sale of Grubb’s assets to BGC free of any claims from brokers or agents. Brokers and agents working for Grubb have no independent right to their commissions, the judge ruled. Rather, the judge said, “… the agents’ right to payment stems solely from [their] separate agreements with [Grubb].”
Two sets of brokers, including several people from the Bay Area, have filed separate notices with the court in the Southern District of New York advising that they intend to appeal the ruling. One set of brokers argues that their commissions reside in a “constructive trust” and cannot be sold or passed to another in the sale of Grubb’s assets. The judge did not accept that argument nor did he endorse the theory that the brokers held liens that entitled them to payment, as the other set of brokers argued.
Cressman has negotiated a special status for himself in his relationship with Grubb in a series of five agreements signed beginning in mid-2007, in fall 2008, in October 2010 and finally in February and March. The agreements were presented as exhibits to the bankruptcy court. That said, according to the 2008 agreement between him and the brokerage house, Cressman remains an “independent contractor,” a relationship he appears to share with all other agents and brokers at Grubb.
Cressman and Grubb signed a “co-broker commission agreement” on Feb. 8 specifically in anticipation of the Macys.com lease being finalized and to address Cressman’s commission payment. Cressman is a licensed California broker, rather than simply an agent. Brokers have rights and responsibilities that agents do not have such as the ability to manage other real estate professionals and to own and operate a real estate firm, according to the National Association of Independent Real Estate Brokers.
The Macys.com lease was not signed until Feb. 28—eight days after Grubb filed for bankruptcy court protection. However, Macys.com and TMG did sign a letter of intent regarding the lease on Nov. 28 of last year. Under bankruptcy law, debts incurred before a bankruptcy filing, or “pre-petition,” are typically treated quite differently from claims incurred “post-petition,” or after a bankruptcy filing. What constitutes a pre- and post-petition claim also is not always crystal clear.
According to the February agreement, a copy of which is on file with the court, Grubb was to receive 10 percent of the Macys.com commission payment from TMG while Cressman was to receive the rest. Each commission was to be paid directly by TMG to each of the parties.
The arrangement seems to directly contradict what was laid out in the 2008 independent contractor agreement, which stipulates, in part, that Grubb “owns all commissions and fees paid in exchange for the real estate services provided by its agents.”
Then, on March 2, Jennifer D. Stein, a vice president and associate general counsel for Grubb, signed a letter that was sent to “various landlords” advising them that they were free to make payments directly to Cressman “for all transactions closing or being completed after (sic) February 20, 2012.”
Michael S. Fox, a Manhattan attorney who represents one broker group that has told the court it intends to appeal the ruling, said under the judge’s order, the first day that Grubb and BGC are allowed to consummate the sale is April 4. Fox represents more than 50 brokers in the case, including at least two in the Bay Area. While he had hoped that BGC or Grubb would come forward with a settlement offer or compromise, thus far they have not, he said.
“I have reached out to them, but they are not talking to me directly. They are continuing to talk to the brokers. The whole idea of working through our group is that I can speak to 60 people,” he said. “I am frustrated and disappointed that they have not responded to me.”
Some members of the group “don’t have a choice but to sign a deal,” Fox said. “BGC is saying that if you sign a deal, they will pay you what you are owed, but with strings attached.” He declined to be specific.