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Inside JLL’s investment sales shakeup

Bob Knakal’s contract with the brokerage has big implications for its investment sales division, but will it really alter </br>the playing field?

JLL’s Peter Riguardi (left) with Bob Knakal. Photograph by Axel Dupeux
JLL’s Peter Riguardi (left) with Bob Knakal. Photograph by Axel Dupeux

It’s been a busy year for the personnel departments at New York’s commercial real estate brokerages.

But of all the changes at such a tumultuous time in the city’s investment sales arena, Bob Knakal joining JLL may be the biggest reshuffling of the deck in 2018.

The veteran broker, widely seen as one of the industry’s top players, is starting the next chapter of his career after he was unceremoniously fired from Cushman & Wakefield this summer. And JLL, the world’s second largest commercial brokerage, has been eager to regain traction since it lost its team of top investment sales producers in late 2016.

Now as Knakal becomes JLL’s chairman of New York investment sales — a role that lets him focus on deals more than day-to-day management — the looming question is whether he can help the brokerage get its groove back.

“I think it’s going to be a great move for JLL to have brought him on board,” said Jakub Nowak of Marcus & Millichap. “What remains to be seen is how well that works out for Bob.”

For the first time since before he co-founded Massey Knakal Realty Services in 1988, Knakal found himself in the job market this June after his acrimonious split with Cushman. It had been a three-year-plus stretch of highs and lows since he and his former partner, Paul Massey, sold their brokerage to Cushman for $100 million — an acquisition that instantly gave the firm a huge slice of the lucrative investment sales market.

Knakal, 56, closed the largest deal of his career at Cushman: the $685 million sale of two Jehovah’s Witnesses properties in Dumbo to Kushner Companies, CIM Group and LIVWRK in August 2016.

But there were early signs that he and his colleagues were unhappy at the firm, which went on to become New York’s leading investment sales brokerage after it hired Eastdil Secured brokers Doug Harmon and Adam Spies.

On the heels of Knakal taking a leading role in JLL’s investment sales division, many of his colleagues have already joined him at what could become one of the most competitive firms in the city. The recent hires give JLL a significant leg up heading into 2019, though sources say the tight-knit group of dealmakers could clash with the brokerage’s legacy investment sales team, while the specter of possible legal action from Cushman hangs in the air.

For his part, Knakal told The Real Deal that he’s eager to dive back into dealmaking, and he said he was attracted to JLL’s collaborative atmosphere, its technology and its broader global reach.

“I feel that the access this platform gives me to high-net-worth investors and capital from all over the world is significantly better than [what] I’ve had in my career,” he said.

The Knakal effect

For close to three decades, Massey Knakal established itself as a force to be reckoned with in New York’s investment sales market, thanks to its army of brokers that adhered to its famed territory system.

Massey Knakal’s ubiquitous green-and-white signs are now a thing of the past, but in many ways its core remains intact.

When Knakal joined JLL last month — under what sources say is likely a five-year contract — he brought 14 of his support-staff members with him. And since then, a number of familiar faces have also joined him at the brokerage. In Brooklyn, Massey Knakal alumni Stephen Palmese, Brendan Maddigan, Winfield Clifford and handful of other dealmakers have left Cushman for JLL.

And in Manhattan, more than half a dozen brokers indebted to the territory system are making the move: Guthrie Garvin and Tom Gammino, who focus on the Upper East Side; Hall Oster and Paul Smadbeck, who cover the Upper West Side; and Brock Emmetsberger, Clint Olsen and Will Suarez, who specialize in Chelsea, Midtown East and Lower Manhattan, respectively.

Olsen and Garvin worked with Knakal on the Elghanayan family’s $375 million sale of a portfolio of Upper East Side properties in 2016. And Oster and Smadbeck teamed up with Knakal to sell a block of 70 sponsor units at the Apthorp building to Thor Equities and Imperial Companies for $112 million that year.

“I think he’s got a pretty big following,” said Peter Riguardi, chairman and president of JLL’s New York tri-state region, who signed Knakal in early September. “We expect that Bob’s going to do as many deals with us or better.”

JLL’s Cushman poaching may have ruffled some feathers, though. And Nowak said the outcome could hinge on what happens to the relationships that Knakal and his colleagues established at Cushman.

“I think a big part of it is going to be how he and the other brokers who joined JLL handle the listings they had,” he said, “how they handle those relationships with sellers.”

A spokesperson for Cushman — which took the top spot on TRD‘s latest ranking of the top investment sales firms with $6.36 billion in deals last year — said the brokerage is confident it can maintain its dominance.

“Unfortunately, the business that was a good home for some of our producers when we were No. 4 is unable to accommodate those producers when we are No. 1,” the spokesperson said.

While Knakal declined to comment on the brokers who joined him, he said he plans to implement a modified version of the territory system at JLL.

But that could cause friction at the brokerage, sources say, similar to what happened when Cushman bought Massey Knakal in December 2014. The move forced out Cushman’s legacy investment sales brokers, who felt they didn’t have a place in the new system, according to several insiders. Cushman investment sales co-head Nat Rockett ended up leaving for Marcus & Millichap, and Helen Hwang, one of the firm’s top producers, left for Meridian Investment Sales.

One industry source predicted that a similar dynamic would play out at JLL. “There are some investment sales people at JLL right now [who] are going to be marginalized,” the source said on the condition of anonymity. “They’re not going to be part of the real team, and they’re going to try to figure out how to reinvent themselves.”

Mo Beler has headed JLL’s investment sales team for the past year. The brokerage hired the New York private equity player last fall for a newly created managing director role in its capital markets group. Prior to that, Beler worked at the private real estate investment firm Rockwood Capital — for which Knakal sold some multifamily properties — and at former Goldman Sachs director Andrew Chung’s Innovo Group.

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JLL has said Beler and Knakal will run its investment sales division together, but outside sources question whether there will be room in the new system for the company’s legacy sales brokers.

Beler — who said he plans to focus on highly structured deals using his background in private equity — downplayed the notion that there was an inherent conflict with the new team. He said JLL’s existing focus on institutional investment sales, combined with Knakal’s knack for middle-market deals, gives JLL a competitive edge.

“With that, we can provide an offering to our clients that nobody else has,” Beler said.

I-sales slump

Though JLL never led the city’s investment sales pecking order, it had long been among the top five firms.

But that changed after the brokerage’s top sales team of Richard Baxter, Yoron Cohen and Scott Latham left for Colliers International in December 2016. JLL’s share of that market plunged, and the firm went from doing about $3 billion in sales in 2015 and 2016 to just over $700 million in 2017 — a nearly 80 percent decline.

JLL’s remaining investment sales brokers, including Glenn Tolchin, Yoav Oelsner and Anthony Ledesma, were left to pick up the pieces, but 2017 was a tough year for the capital markets group.

David Schechtman, of Meridian Investment Sales, said JLL was likely planning for a slowdown when it parted ways with its top sales team. “I think JLL anticipated a dip, and it was a very calculated dip,” he said, adding that Knakal “was the A-list acquisition they wanted.”

Most of JLL’s commercial sales last year were handled by its hotels group — which operates independently from its investment sales and debt brokers. The capital markets team, meanwhile, worked on just three deals in 2017, which totaled $157 million, according to TRD’s analysis.

But so far this year, the group has shown a significant uptick in volume.

Ledesma and Peter Nicoletti, the division’s international director, negotiated the Blackstone Group’s $640 million sale of 5 Bryant Park to Savanna in March. Blackstone originally put the property on the market with HFF in 2016, but Blackstone later brought in JLL to help find a buyer.

JLL’s capital markets team also brokered the sale of Itzhaki Properties and Continental Ventures’ 368 Third Avenue to Minrav USA for $64 million in May and recapitalized a pair of Midtown South buildings in a $54 million debt and equity deal last month.

Already this year, the group is well ahead of where it was in 2017, and bringing on Knakal could provide even more of a boost.

“They won the lottery the day they hired Bob,” said Tim King, managing partner at the commercial brokerage CPEX Real Estate. “It’s hard to imagine anyone who is harder working or more focused, and he will bring a lot of firepower to their investment sales.”

Friendly competition

Overall, 2018 has been a wild year for New York’s commercial brokerages.

Eastern Consolidated’s sudden closure over the summer put a number of high-earning brokers on the job market, and competitors have snatched up those dealmakers to expand and, in some cases, launch all new investment sales platforms.

And as the Massey Knakal co-founders reached the end of their contracts with Cushman, the two went off in their own directions. That means that as Knakal helps shake up things at JLL, he’ll be in direct competition with Massey and several other former partners.

Massey launched a new investment sales and debt brokerage, B6 Real Estate Advisors, in July and has hired Massey Knakal alumni. That includes the company’s former CFO, Michael Wlody, and its former COO, Neil Heilberg, who have taken on the same roles at B6.

Meanwhile, the new brokerage, which has implemented its own version of the territory system, has hired about a dozen teams in the city — including two run by former Massey Knakal brokers DJ Johnston and Tom Donovan in Brooklyn and Queens, respectively. Massey offered brief words of support for Knakal, telling TRD it was “great for JLL, and I think it was great for Bob.”

Elsewhere, James Nelson left Cushman in January for Avison Young, where he’s built an investment sales team of nearly three dozen people. “On one hand, it’s sad, as it’s an end of an era, but there is plenty of business out there for all of us,” Nelson said, noting that of all the commercial properties that trade hands in a year, only about a third have a broker.

Though Massey, Knakal and Nelson are all implementing some form of the specialized system that made Massey Knakal so dominant, Nelson said his is differentiated by a unified sales team that covers the whole city by asset class. “I’m sure we will also have different approaches that sellers should consider,” he said.

For his part, Knakal said that there’s “more than enough to go around for everybody here,” adding that about 3,700 out of 165,000 investor properties in the city sell each year. “If you view us as competitors, I would say we’re friendly competitors,” he said about Massey and Nelson. “And I certainly wish both of them well.”

Marcus & Millichap’s James Ventura, who has known Knakal for decades, said his move to JLL wouldn’t have much of an impact on the level of competition in the city. “There’s plenty of money for everybody to make it in the city,” Ventura said.

Riguardi echoed that point and noted that the number of top-producing brokers in the city hasn’t changed; they’re just working at different companies now.

“They’re all the same players,” he said. “They’re just under different labels.”

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