The Real Deal New York

Jones Lang’s big play

JLL has shelled out an estimated $20 million on new broker teams. A look at whether the poaching is paying off.

March 01, 2011
By Adam Pincus

On an island with 450 million square feet of office space, an early 20th-century Midtown building of less than 100,000 square feet is a drop in the bucket.

But in January, the 13-story 681 Fifth Avenue was one of the flash points in a frantic contest between commercial brokerage rivals Cushman & Wakefield and Jones Lang LaSalle. At issue was control of roughly 20 properties, in play because JLL poached five top leasing brokers from Cushman.

In that contest — which is still in full throttle — both sides are bringing out their big guns because every square foot counts. And while lost leasing revenue is the immediate concern, the potential to sell or manage a building down the road is always on a firm’s radar.

In an effort to retain the business that defecting brokers Mitchell Konsker and Matthew Astrachan had represented, Bruce Mosler, Cushman’s chairman of global brokerage, met with Metropole Realty Advisors, the owners of 681 Fifth — a small, boutique office building located between 53rd and 54th streets.

Mosler, who was joined by Arthur Mirante, president of global client development, and others, prevailed in that case, holding on to the account. In addition, the two, who are both former CEOs, teamed up to keep Vornado Realty Trust’s 1290 Sixth Avenue, where Cushman had a leg up because it’s headquartered in the building.

Mosler conceded that his firm would lose some accounts, but predicted that it would win others.

“Some will go, some will stay,” he said. “At the end of the day, C & W continues to be a dominant force in the agency world.”

JLL has already won about 3.8 million in agency business from Cushman since January, including 1.9 million square feet in three Midtown buildings owned by Eastgate Realty.

With those properties alone, Jones Lang LaSalle has already inflicted real pain on its rival — in millions of dollars in lost income as new leases are signed — and beefed up its New York operation.

JLL, while huge internationally, has long been stuck in the second tier of commercial firms in New York. But in the last two years, it’s garnered much attention (most recently last month, with a profile in Real Estate Weekly) for its efforts to expand its New York footprint with high-profile hires.

The Chicago-based brokerage has, by some estimates, shelled out $20 million over the past year to lure two teams (both from Cushman) to its New York office. Rumors abound that the firm paid (either in cash or stock payments) a total of about $13.5 million — or by another measure, $2 million a person — to snag the leasing team alone.

But the investment sales team that jumped ship nearly a year ago has yet to produce a blockbuster deal. In fact, they’ve only done about $200 million in property sales (in addition to note sales) since they arrived. That’s in a Manhattan market with $13.6 billion in trades last year. And with so much money invested in that team, and in the latest five-person leasing group, the question remains: Is the poaching going to pay off?

“When you buy a guy, you better be damned sure that that guy really controls his business,” said a top executive at a leading New York brokerage.

The scorecard … so far

While some of the clients that Konsker and his team — which in addition to Astrachan also includes Paul Glickman, Mitti Liebersohn and Alexander Chudnoff — represented have already chosen sides, many others are still up for grabs.

Glickman — widely considered one of the best agency representatives in Manhattan –brought over the three Eastgate Realty buildings to JLL, as well as others such as the 300,000-square-foot Stawski Partners building at 505 Fifth Avenue.

Using data from the CoStar Group, The Real Deal identified 21 buildings where a member of the defecting leasing team represented the landlord in the last year.

As of the middle of last month, Glickman brought six of his estimated 10 buildings to JLL. And Konsker, who was an agent on at least nine buildings, brought over one, The Real Deal‘s analysis showed. However, Konsker has an active tenant-side client roster, and earlier this year brokered a monster 490,000-square-foot lease at the Empire State Building for Hong Kong-based apparel company Li & Fung.

Of the 21 buildings reviewed, which total 11.7 million square feet, it appears Cushman has retained 5.5 million square feet so far, and JLL has won 3.8 million square feet.

The yet-to-be decided buildings include 410 Park Avenue, 1411 Broadway and two Shorenstein Realty Services properties, 850 Third Avenue and 65 East 55th Street.

Still, it’s too soon to judge who will ultimately win the race for accounts, since the team’s defection is still so fresh.

And the competition to secure agencies following a defection isn’t always cut and dried. While there are times when a landlord or tenant has a contract with a company, insiders said those agreements are not worth much if the client doesn’t want to stay with them.

“You can’t last long stopping a client from choosing where they will go,” one brokerage executive said.

On the investment sales side, sources say JLL paid about $1 million a man for the high-profile team of Richard Baxter, Scott Latham, Yoron Cohen and Jonathan Caplan, which it hired from Cushman in May 2010. While at Cushman, the team completed blockbuster deals such as the sale of 200 Park Avenue in 2006 for $1.7 billion. But with the exception of 417 Fifth Avenue and 434 Broadway, it’s been nearly silent since joining JLL.

By comparison, Darcy Stacom, a vice chairman at CB Richard Ellis, and her team racked up a market-dominating year, with more than $5 billion in Manhattan sales in 2010.

But the JLL team is starting to pull in some major listings, including one announced last month for the prewar apartment building at 737 Park Avenue, at the corner of 71st Street on the Upper East Side. According to the New York Post, the 108-unit building could go for as much as $250 million.

And a source at JLL said it is also not fair to evaluate the team for its production in one year, predicting it would take two or three years for the group to hit its stride.

Another JLL source said the value of the team is not only its revenue, but also raising the overall profile of the New York office with its marquee names.

“[The team] put them on the map,” he said.

JLL and its brokers declined to comment for this article.

From left: Peter Riguardi of JLL, Paul Glickman of JLL, Mitch Konsker of JLL, Bruce Mosler of C&W, and Tara Stacom of C&W

First push

JLL opened its first office in New York City in 1975; at the time, the firm was known as Jones Lang Wootton, and was based in London, where it has roots reaching back more than 200 years.

Although it was one of the first firms to have a global presence, by 2002 it captured only a small amount of the New York market. In a ranking of top leasing deals that year by CoStar, the firm represented the landlord or tenant on just four of the top 50 deals, and none of the top 10.

That summer — as part of its first major push to break into New York’s commercial real estate big leagues — the firm wooed the young Peter Riguardi from the Manhattan firm Colliers ABR (now a regional office of Cassidy Turley).

It was a splashy, multimillion-dollar hire that came as New York’s commercial real estate world was undergoing a rapid shift, with firms buying up competitors at a furious pace.

For Jones Lang LaSalle, luring Riguardi was part of a concerted effort to double the firm’s business in the nation’s largest market. And that first major New York expansion did not come cheaply. Including bonuses to hire Riguardi, who took over as president of the New York division, and Robert Flippin, who was brought on as a managing director, the price tag was between $5 million and $7 million, 2002 Securities and Exchange Commission filings show.

That same year, CBRE, which also had a modest presence in Manhattan at the time, spent millions to bring over top talent from market leader Insignia/ESG, such as Mary Ann Tighe and Patrick Murphy. The next year, CBRE bought Insignia, consolidating its position as the leading firm in New York City.

But while CBRE has become the undisputed leader in the Manhattan commercial game, JLL has remained in the second tier.

Riguardi has proved to be a powerful dealmaker, negotiating one of the largest leases of the past decade, with a 1.1 million-square-foot deal in 2004 by Bank of America in One Bryant Park.

But after hiring Riguardi, the company waited until 2008 to make its next big move.

That year, in another rush of acquisitions by the major commercial firms, JLL bought Staubach, the Texas-based tenant-representation firm founded by former Dallas Cowboys star quarterback Roger Staubach. (JLL did not acquire the retail portion of the national company.)

Melding together the two firms — about 30 New York City brokers at Staubach and about 50 at JLL — with two different cultures was not easy. First and foremost, brokers said, was figuring out which clients each broker would take. In addition, roughly the top half-dozen Staubach producers signed agreements that incentivized them to stay for about five years, one former Staubach broker said. One of those top brokers, Peter Hennessy, left JLL last year to take over as president of the New York office of Cassidy Turley.

Also around that time, JLL began changing its compensation system, from a salary and bonus system in New York and in some other offices to the full commission structure that is more in line with what competing New York firms offer brokers.

That culture shift — from a corporate, property-management culture to a more rough-and-tumble commercial brokerage — helped it start its most recent poaching spree in earnest.

Searching for carnivores

The recent spate of hirings is seen not only as an effort to grow revenue, but also as an attempt to boost the firm’s corporate image.

“You can’t be a major global leader in the business and have a weak office in one of the biggest markets in the world,” said Barry Gosin, CEO of Newmark Knight Frank.

In August 2009, with the economy still shaky, JLL made its first round of recent headline-grabbing hires when it announced that Scott Panzer, a hard-nosed Newmark broker, would be coming aboard with his 13-person team. The get was especially sweet since Panzer was close with Gosin.

In May 2010, JLL brought over the 11-person Latham team. A month later it announced that Robert Martin, a high-profile CBRE leasing broker, was joining the firm. And then, of course, Konsker and company followed in January. And they have brought over other Cushman brokers, such as senior vice president Diana Biasotti.

Yet despite the Staubach acquisition and all its hires, last year JLL only represented owners or tenants in six of the top 50 deals, compared with CBRE, which had 28, and Cushman, which had 19, a 2010 CoStar ranking in Crain’s shows.

“The second-largest firm in the world didn’t do a major [solo tenant-represented] deal in Midtown all year,” a competing broker noted.

And, while the hires were a coup for JLL, they did lead to some growing pains for some existing agents at the company, including the firm’s prior top investment sales broker, Nat Rockett, who was pushed out after the Latham team was hired. Rockett quickly took a spot at Cushman, where he had worked before with the Latham team. Meanwhile, Peter DeCheser, another JLL capital markets broker, left for UGL Services last year.

More pressing is that some commercial brokers who are familiar with JLL wonder how Riguardi, who has been the big fish in a relatively small pond, is going to handle internal competition from the five new heavyweight leasing producers.

Riguardi’s bosses in Chicago have been pleased with his leadership, one inside source said, noting that they renewed his contract last year. And others at JLL said he has pushed office revenue up sharply since he took over.

But while the new high-profile brokers obviously have their own Rolodexes, they will also pose additional competition to existing brokers for leads that come through JLL’s corporate system.

What’s more, they may all need to share with even more colleagues soon. Sources say the firm is not done hiring.

One JLL insider said the investment sales team is looking for new agents and the company is also actively interviewing experienced retail teams. The firm is the only top-tier international firm in the city without a local retail presence.

One retail broker from a small firm said he spoke with JLL executives last year about how to build a retail presence in the city.

“[They] want to do something right away,” he said, noting that they are looking to lure away “unhappy” teams of four or five brokers from leading firms like Cushman or CBRE.

But because JLL represents much less office space than those competitors, it does face challenges that spill over into recruiting retail specialists. Although office and retail brokers operate in their own universes, having a strong overall commercial presence is important for attracting retail brokers who want guaranteed agencies to attract them to a new firm.

“You need the carnivores. And these guys [at JLL] recognize that formula for success,” a current broker at the firm said.

Stuck in second

Globally, JLL is second only to CBRE in overall revenue, with a company record $2.9 billion in 2010, behind CBRE’s $5.1 billion.

The company has been surging internationally, with leasing volume up about 20 percent in 2010, to $1 billion in revenue, and capital markets revenue up 50 percent to $306 million in 2010.

Yet as of last month, JLL had the agency for only about 13 million square feet of office space in Manhattan, far below the top three firms: CBRE with about 64 million, Newmark with 43 million and Cushman with 38 million (which includes one of the most prominent assignments in Manhattan, 1 World Trade Center, led by Tara Stacom), CoStar figures show.

In terms of investment sales, JLL has brokered some high-profile deals, including that of the Takashimaya Building at 693 Fifth Avenue, by Rockett in July for $142 million. But they only did $716 million in Manhattan deals in 2010, according to a review of Real Capital Analytics.

Nonetheless, the company is in strong financial shape. And Wall Street has rewarded JLL shareholders handsomely during the last year: The company’s stock has rebounded from a recession low of $16.94 per share in March 2009 to more than $100 last month. At press time it was heading toward its all-time high of $123, reached in July 2007. Other real estate services firms have also seen their share value improve over the past year. CBRE stock, which was under $2.50 per share in March 2009, was above $24 per share last month.

Still, insiders wonder how long it will take for Jones Lang LaSalle’s investments in the new brokers to pay off. Top brokers think the most recent hires could thrust JLL toward the realm of the top New York firms — CBRE, Cushman and Newmark. But it may not be enough.

“It is unclear to me who will emerge. Will Colliers [International] emerge? Clearly JLL will emerge at the rate that they are going,” one Manhattan real estate veteran said. “The landscape today is less certain because there is that second tier, and some of them will pop into the top tier.”

Of the 21 buildings defecting brokers repped when they left Cushman in January:

• JLL has snagged 7 buildings (3.8 million square feet)

• Cushman has kept 9 buildings (5.5 million square feet)

• Still up for grabs: 5 buildings (2.5 million square feet)

Breakdown includes:

Paul Glickman: 6 of 10 buildings retained in move from Cushman to JLL

• 505 Fifth Avenue

• 120 Park Avenue

• 99 Park Avenue

• 875 Third Avenue

• 600 Lexington Avenue

• 485 Lexington Avenue

Mitchell Konsker: 1 of 9 buildings retained in move from Cushman to JLL

• 619 West 54th Street

Bruce Mosler: 2 buildings retained for Cushman after defections

• 1290 Sixth Avenue

• 681 Fifth Avenue

Frank Cento: 4 of 4 buildings retained for Cushman after defections

• 150 Broadway

• 75 Broad Street

• 2 Rector Street

• 100 Wall Street

The Real Deal analyzed CoStar Group records and identified 21 buildings where at least one of the defecting Cushman brokers was an agent, then determined whether the leasing assignment stayed with Cushman or followed the defecting brokers to Jones Lang LaSalle. The Real Deal confirmed the leasing agency through the owner or the agent for all properties except 410 Park Avenue and 725 Fifth Avenue.

Comments are closed.