Massey Knakal territory model untested in NYC retail

From left: Ben Fox, Paul Massey, Chris Havens and Gabriel Bullaro

The announcement earlier this month from Massey Knakal Realty Services that it was entering
the retail leasing business brought not only a major new competitor
to New York City store rentals, but also introduced a novel
brokerage model to the notoriously fractured industry.

The 22-year-old firm has grown to be one of the largest investment sales companies in the city
relying on a system that divides the New York metro area into nearly 50 geographic territories
and assigns a broker to each one. It is believed to be the only firm to use a territory system for
retail brokerage.

The territory model has proven to be effective in building sales, especially for properties under
$3 million, which currently account for two-thirds of the 419 listings on the company’s website.

But some real estate insiders cautioned that the model that works for investment sales may not
transfer easily to retail leasing. For example, a broker in one territory who has worked well with
a landlord will not be the lead broker for that same owner’s property in another territory.

“If you have a good relationship with so-and-so, and you helped them sell a building or lease a
space, you have to hand that off and the relationship does not get passed along,” Barry Hersh,
a clinical associate professor of real estate at New York University’s Schack Institute, said.

Paul Massey, CEO of Massey Knakal, said the territory system provides a corporate structure
and street-level knowledge that provides an edge. There will be one retail broker placed in each
of the same 46 territories the company now has covering New York City for investment sales.
So far the company has only announced two brokers — the head of the division, Benjamin Fox, an executive
vice president, and Ellaina Dreifach, a director.

Massey said he expects the firm would have seven to 10 retail brokers in a year, and that the entire system would be full after three
years. But growth projections don’t always pan out. In 2008 he
expected to have a dozen territories in New Jersey, and today there is just one territory, and that has just one agent.

And Massey said not to expect Robert Knakal, the company’s chairman, to be the top agent on retail
deals.

“The lead on a retail leasing assignment will always be a retail guy,” he said. “And the lead on a
sale will always be a sales guy.” But they would team up, and split commissions, if warranted.

For example if a retail broker got a lead on a building sale, that lead would be passed on to a
sales broker in the relevant territory. The referral commissions at the firm range from 20 percent
to 60 percent, Massey said, but he expected referrals within a district would be closer to 20
percent, “because you don’t want [the brokers] competing with each other.” Many of the
new retail brokers could transfer over from the sales side, or rise up from the lower associate
level.

The territory system is untested in New York City for retail, brokers said. Some noted that a
tenant looking to open several locations would have to deal with multiple brokers in different
territories. But others said the intense knowledge of the territory would be an asset.

“I think it is a little restrictive for brokers, but it certainly works well for outside brokers like us
who have to deal with Massey Knakal, which is pretty thorough,” Alan Victor, executive vice
president of Lansco, a retail-focused brokerage.

“The whole purpose of a territory system is two-fold,” Massey said. “One, client service is better
because you underwrite or evaluate the property better,” and the second is the depth of market
reports.

An experienced retail broker with a major firm, who asked not to be identified while commenting
on another brokerage firm, said it takes years to develop strong retail contacts.

“Even though they are capable of securing landlord agencies for leasing, it’s a whole different
world to find strong tenants to fill the spaces. They are going to have to rely on tenant brokers
for a few years until they get their feet wet,” the broker said.

But most, such as Chris Havens, chief executive of Brooklyn-based commercial brokerage
Creative Real Estate Group, agreed the new division was a logical progression.

“I think it is a natural for them because they sell so many buildings with retail. They have been
leaving money on the table,” Havens said.

But he said he does not expect Massey Knakal to have any near-term impact on firms strong in
retail like Winick Realty Group, Ripco Real Estate, CB Richard Ellis or Robert K. Futterman &
Associates. Each of those now has strong relationships as landlord brokers. He expects Massey
Knakal to find business first from landlords who now form their client base — smaller property
owners.

“I don’t expect them on Fulton Street,” Havens said, referring to one of Brooklyn’s busiest retail
thoroughfares with properties represented by major firms. “The biggest impact will be on the
little guys.”

One such little guy, Gabriel Bullaro, a retail and office broker specializing in Midtown South, said
he did not feel threatened by the firm, in the short term, anyhow.

“Retail leasing requires expert knowledge of the retail commercial lease,” Bullaro said. “Even
though a company may be larger, it will have to train the agents if they are going to venture in a
new department. It takes many years to train agents properly in this very complex area.”