[Updated at 6.30 p.m. with comments from Newmark's attorney] The consultancy arm of commercial real estate firm Newmark Knight Frank is fighting off the early stages of a lawsuit, in connection with a real estate deal with Christie’s auction house.
BDO, a New York-based national consulting services firm, is seeking commissions of at least $1.14 million related to a referral it granted to Newmark Knight Frank subsidiary Newmark Project Management, according to the official request for arbitration issued in March.
Newmark denies the allegation that it owes BDO any brokerage commission.
“NKF enters into many co-brokerage arrangements each year. NKF stands by all of its commitments and jealously guards its reputation for honesty and integrity,” said Howard Rubin of Goetz Fitzpatrick law firm, attorney for Newmark.
The controversy between the two firms dates back to 2007 when BDO apparently referred its client, Christie’s auction house, to Newmark Project Management for help instigating a plan to expand its fine art warehousing business through real estate acquisition. As a result of BDO’s recommendation, Christie’s retained Newmark for an array of services including brokerage, design, specifications, scheduling, budgeting and cash flow. The auction house ended up leasing a 235,000-square-foot waterfront warehouse at 62 Imlay Street in Red Hook, Brooklyn. It was the largest commercial deal in Brooklyn in 2009, with brokers estimating the rent for the space at $8 to $10 per square foot.
In a letter dated April 2, 2007, Jeff Estep, managing principal of Newmark Project Management, thanked BDO partner Michael Pappas for the recommendation. “We really appreciate you providing us with this potential opportunity to work with Christie’s,” he wrote.
Later in the process, problems arose over whether or not BDO should receive a commission for its referral.
BDO argues however that, as both parties are members of a client referral and business development program called the BDO Seidman Business and Technology Alliance, all referrals must be compensated.
Attorney Henry Bergman, who is representing BDO in the case, said in the original demand for arbitration filing dated April 2011 that “the law of New York does not prohibit a licensed broker from paying fees to an unlicensed person who refers a client to the broker, but does not do any brokerage work.”
A source close to the matter said it was as though Newmark Project Management created a diversion, transferring all fees to another Newmark entity to avoid referral fees.
In BDO’s court filing, it states that Newmark Project Management received a $700,000 fee while the rest of its commission from the leasing of the Red Hook warehouse — $4.5 million by BDO’s account — was transferred to Newmark Knight Frank, which is not part of the alliance.
Nemark’s attorney said there was nothing fishy about the company transferring the project to its realty division.
“BDO and Newmark Property Management were members of a referral group with numerous other companies,” Rubin told The Real Deal, “the purpose of which was to refer business to each other. Newmark Knight Frank was never a member of that group and the parties understood that it was not bound by the terms of any agreement relating to that group. At the time of the engagement, NPM [was] a separate legal entity from NKF and performed project management services and consulting only and is not a licensed broker.”
Rubin called the allegations that it had created a diversion “absurd,” saying: “the reason NPM introduced NKF into the transaction was that NPM was not a licensed broker. NPM did not seek any brokerage commission compensation for this referral from NKF.”
Representatives for BDO declined to comment, saying that the company does not speak on matters of ongoing litigation, though a source told The Real Deal that the issue should be resolved in about one month.
Rubin said Newmark was confident that that “the claim against NKF will be dismissed as a matter of law on its merits.”