The potential sale of Massey Knakal Realty Services — New York City’s most active investment sales firm — is the talk of the local industry, with insiders weighing the pros and cons of either a full or partial sale. The catch, however, is that there are major impediments to a large firm buying a full or even minority stake in the firm, insiders said. And that could reduce the company’s sale price to an private investor.
There are four possible scenarios, broadly speaking, for a potential sale: a large brokerage such as CBRE or DTZ buying either a full or a minority stake; or an equity investor buying a full or a minority stake. Founders Paul Massey and Robert Knakal prefer to retain full control of the firm and sell only a 49 percent stake, industry sources said, but putting up the entire company for sale helps to set a benchmark price for a partial interest stake. Furthermore, if for any reason the principals do agree to a full sale, they did not want to blindside their employees.
But the reluctance to sell the whole company could create roadblocks. For one, large buyers would likely look to fold Massey Knakal’s operations into their own — a challenge when the larger company only owns a partial stake, industry professionals not connected to the deal said.
“One should not underestimate the difficulties inherent in merging disparate operations with different cultures. Integration is all about the people and those people often vote with their feet,” Joseph Harbert, president of the Eastern Region for Colliers International, said.
Another challenge for a larger firm could be coming to terms with Massey Knakal’s unique territory system. While some larger firms have territories, they are typically huge, like all of New York City or Manhattan. Instead, Massey Knakal has carved the city into regions and brokers focus on those.(The system has been tweaked as the firm moved into new areas, such as New Jersey, but overall it remains in place.) The main challenge for a large firm would be to allow Massey Knakal to operate under a different platform, or conversely to integrate the brokers into a more typical platform.
Massey Knakal is a choice target, brokers say. It was the third most active brokerage in New York City last year, with total sales volume of $2.5 billion, which is expected to rise dramatically this year. The Real Deal estimated that 2013 sales activity generated revenue between $50 million to $55 million, and insiders reckon the company could fetch as much as $100 million. Representatives for the firm declined to comment for this story other than to issue a statement saying that it is “exploring growth initiatives.” It hired Perella Weinberg to manage a potential sale.
Another option is for an equity investor to buy a controlling or minority stake. Since the preferred option is an investor buying a minority stake, real estate pros expect this to be the most likely scenario if a sale takes place.
The money is sought to help the firm’s expansion into new cities, such as Boston, Chicago and Washington, D.C., a person familiar with the company said.
This is not the first time the company considered selling a stake through an equity raise. In late 2008, the principals entertained the idea, but never took it as far as reviewing offers, sources said. Subsequently, the market recovered and the funds were no longer needed.
Despite the hiccups that come with a partial stake sale, global firms such as CBRE, Colliers International and DTZ have taken a look at the company, as have smaller investors, industry sources said. And there are precedents for a larger brokerage buying a minority or majority stake. Both examples are from the city’s leading investment banking firm, Eastdil Secured, home to top investment sales brokers Doug Harmon and Adam Spies.
In 1986, in the midst of another real estate boom, the company then known as Eastdil Realty sold a 50 percent stake to what was at the time the largest investment bank in the world, the Tokyo-headquartered Nomura Securities, for $50 million.
“It’s interesting you mention 1986,” Joel Herskowitz, COO of commercial brokerage Lee & Associates NYC, said, noting that year there was an investment sales boom fueled in part by a looming tax change that repealed a number of commercial real estate incentives. Eastdil continued to operate independently. So much so that in 1994, it bought back the minority stake. Then in 1999, California-based Wells Fargo purchased the entire company, Despite that full acquisition, the company today remains a largely independent subsidiary.
“Companies time the business cycles,” Herskowitz said. “Everybody wants to take advantage of a market if they are inclined to sell.”