A series of on-line commercial real estate brokerages are rushing into the Manhattan office market in a head-on challenge to the city’s traditional firms.

The first service, TenantWise.com Inc., opened for business last week to represent companies in office leasing transactions. Tenants shop for office space by using the company’s proprietary database, then use TenantWise as their broker to negotiate deals with landlords and building agents.

TenantWise won’t be alone for long. Goldman Sachs Group Inc. is getting ready to launch an on-line leasing and sale brokerage, which it expects to roll out by year’s end in New York City.

Big real estate brokers Insignia/ESG Inc. and Julien J. Studley Inc. are each working on Internet initiatives. Cushman & Wakefield Inc. is weighing whether to start its own on-line service or create a joint venture with another firm.

“We’re looking at all these things because we have to,” says Bruce E. Mosler, a C&W executive vice president.

The new competitors will likely cause an uproar among established firms because they are charging discounted commissions, sharing the savings with tenants and landlords. They’re targeting tenants that need 20,000 square feet or less, but they also expect to attract bigger dot-coms.

Until now, local firms that have migrated to the Web have used it to sell market data to brokers, as RealtyIQ.com has done—or in the case of Cityfeet.com, to offer space listings to tenants without acting as a broker.

TenantWise’s debut marks a dramatic step forward. Co-founder M. Myers Mermel, a former chairman of the Real Estate Board of New York’s commercial brokerage division, expects cut-rate on-line work will become the norm in his industry.

“We can either lead the parade or watch it pass by,” he says.

Mr. Mermel and TenantWise co-founder Caroline McLain staffed the new on-line venture with personnel from their prior brokerage firm, The Corsair Group. As their partners, they tapped Michele Martin, an analyst at pension fund ABP Investments; Trinity Real Estate leasing executive Donna Leto; and Macy’s East database designer Larry Fendrick.

Seed capital at $1 million

TenantWise started with $1 million in seed capital. Investment bank Robertson Stephens is now raising a second round of funding to pay for a nationwide rollout in 10 markets over the next year and a half.

To attract business, the firm promises to take just 40% of the standard tenant broker’s commission from landlords, with landlords keeping 20% of the commission and giving 40% to tenants as money to construct their offices or as free rent.

Mr. Mermel, who ran Morgan Stanley’s tenant rep group earlier in his career, says his company can afford to accept lower fees because tenants do some of the work themselves on-line, such as picking out spaces they want to see and drafting their own lease offers for TenantWise to polish and present.

The Internet can be used to eliminate inefficiencies in real estate transactions, agrees Heather J. Shively, chief executive of Manhattan-based CapitalThinking Inc. She predicts that the Web will be as effective in leasing as it is in commercial mortgage brokerage, her line of work.“We reduce our costs, and that increases our net proceeds,” she says. “That’s a better way of doing business.”

Even so, TenantWise faces obstacles in getting its service off the ground.

Established real estate brokers may try to thwart the on-line upstart—as well as Goldman Sachs, since it, too, plans to discount fees—by refusing to do deals in the buildings where the old-line firms act as leasing agents. With relatively little space available, landlords and their leasing agents call the shots.

“The brokerage community has a wonderful history of getting even with people who cut commissions,” says Tristram H. Pough, president of tenant brokerage Edward Warren & Co.

To try to smooth ruffled feathers, TenantWise offers fees worth 10% of a commission to tenant reps who refer customers. The commissions that landlords’ leasing agents receive remain unchanged.

Prenegotiated leases

Despite these tensions in the market, a number of landlords have told TenantWise they will work with the firm. They plan to craft prenegotiated leases to post on the site, which will shorten the time needed to complete deals.

Naysayers predict there will be narrow acceptance for Internet-based commercial real estate services because New York’s old-line companies will not feel comfortable doing business on the Web.

“All of us are ahead of ourselves,” says Guy Shanon, chief executive of Cityfeet.com, who observes that many visitors to his site have trouble navigating it. “The people making the real estate decisions at some companies barely know how to use the Internet.”

But TenantWise found that the five companies that signed on as customers in its first week of operation were a mix of old-economy businesses, new media firms—and a nonprofit that wants a 100,000-square-foot office.

The brokerage expects to draw enough business to generate a profit once its national rollout is complete.