The Real Deal New York

Newbies fight for market share

More national brands launch NYC commercial shops, but breaking into the upper reaches of the sector can still be a pipe dream
By Rich Bockmann | March 01, 2018 10:00AM

(Illustration by Dean Rohrer)

UPDATED, March 19, 2:33 p.m.: Winning the assignment to lease up a trophy Midtown building is a brass ring for any brokerage. Not only can it generate millions of dollars in commissions, but it also serves as a towering billboard announcing a firm’s place in the upper echelons of the commercial world.

Last year, HNA Group was dangling one of those trophies: 245 Park Avenue, which it had recently purchased for $2.2 billion.

The commercial industry’s Big 3 — CBRE, Cushman & Wakefield and JLL — were all invited to pitch the Chinese conglomerate. But another, more under-the-radar firm was also in the mix: Avison Young, the Canadian firm that’s been trying to muscle its way up New York’s brokerage food chain since launching in New York seven years ago.

“We were at the table pitching that,” said Mitti Liebersohn, president and managing director of Avison’s local office.

While HNA never selected a firm in 2017 (it is now once again looking to sell the tower under pressure from the Chinese government), for Avison, getting the invite was significant — a sign of the inroads it’s made here, even if it has yet to break into the top ranks of the brokerage world. And, perhaps more importantly, the firm is not alone in its quest to make a name for itself in New York.

In the years since the Great Recession, at least six brokerages with strong track records in other parts of the country — from Hodges Ward Elliott to Transwestern to Berkshire Hathaway — have launched in New York, with varying degrees of success.

But getting a piece of the pie here is easier said than done: Competition is fierce, and the landscape is dominated by a few major firms.

Eastern Consolidated’s James Famularo put it bluntly: “If you’re relevant somewhere else, it doesn’t necessarily mean you’re going to be relevant here in Manhattan.”

“It takes years to establish a name here, and unless somebody has the bandwidth to actually spend a lot of money for a really long time, they’re not going to get market share,” he added.

Joe Harbert, president of Colliers International’s New York office, echoed that point. “There’s a limited amount of capital and a limited number of people who have it,” he said. “There’s probably only ever going to be five or six or seven teams of any substance, even in a market like New York.”

Foot in the door

Hodges Ward Elliott, which is based in Atlanta, took the plunge into the New York investment sales sector in 2015.

The company has long been a major player on the hotel brokerage scene both nationally and in New York. It 2015, for example, it brokered the $805 million mega-sale of the 899-room Lotte New York Palace at 455 Madison Avenue.

But the three-year-old New York operation is attempting to go beyond the hospitality niche.

Will Silverman, who left Savills Studley to launch the firm’s investment sales practice here, said New York is the first step in that national expansion. “We’re pivoting our company from a specialist in one asset class to a company that will focus on bringing global capital to gateway markets around the United States,” Silverman said.

The company has made headway. It clocked in at No. 10 with $1.3 billion worth of investment sales deals on The Real Deal’s 2016 ranking of top firms and No. 11 with $577.9 million last year. Silverman’s team accounted for the majority of the firm’s five deals last year, with the hotel group closing just one: an $118 million sale. (It should be noted that last year was a brutal one all around, with the top 40 firms seeing dollar volume plummet by 48 percent.

Will Silverman

And while Silverman’s team only has five brokers, it’s managed to poach some big names, including Paul Gillen, who worked under Darcy Stacom and Bill Shanahan at CBRE; Lawrence Britvan of the real estate finance group at Credit Suisse; and fellow Savills alum Daniel Parker, who also did a stint at the Related Companies.

The team is currently working on its largest assignment to date: the sale of One Queens Plaza South in Long Island City, a 391-unit rental building owned jointly by Property Markets Group, the Hakim Organization and Howard Lorber’s New Valley.

Sources told TRD that teams from the Big 3 all made pitches. But Dan Kaplan, head of operations for PMG, said he selected the HWE team because it made a data-heavy pitch that emphasized the area’s demographics.

“They clearly put in the most amount of work prior to the pitch,” he said. “They not only visited the building, but they visited every building in the submarket.”

“They were incredibly fact-driven,” he added. “As far as institutional buyers go, that resonates very much with them.”

The firm began marketing the building in January and is reportedly expecting bids to come in north of $275 million.

But even while HWE has gained some traction, it’s still selling only a tiny sliver of what the major brokerage behemoths are unloading. By comparison, CBRE and Cushman took the top two spots on TRD’s most recent ranking with $5.58 billion and $5.21 billion, respectively, for 2017, and that was down dramatically from 2016.

Avison — which did $14.5 billion worth of global deals in 2017 compared to CBRE’s $322.2 billion, JLL’s $219.1 billion and Cushman’s $191 billion, according to National Real Estate Investor — has also made strides on the poaching front.

When it launched in New York, it brought on industry leasing veteran Arthur Mirante, Cushman’s former CEO. More recently, in February, it snagged top-flight agent James Nelson from Cushman in a major coup.

“Everybody in the market would’ve offered a body part for him,” said Catherine O’Toole, managing principal of Coldwell Banker Commercial Advisors’ New York City office.

Avison’s Liebersohn said Nelson — who was at Massey Knakal before it was bought by Cushman for $100 million in 2015 — is setting up his own operation at the firm and is actively recruiting brokers. His hire is also a show of the firm’s first true push into New York’s investment sales game.

Mitti Liebersohn

Nelson, whose contract with Cushman expired at the end of 2017, received the remaining 25 percent of his share of the proceeds from the Massey Knakal sale before making the move. Sources said he will have more runway at Avison to build his business with less internal competition.   

He told TRD he made the move to Avison in order to “work differently.”

“Almost all full-service firms work in silos when it comes to sales, leasing and financing,” said Nelson, who added that he’ll be doing away with the “team approach” in favor of a more collaborative platform.

For firms like Avison, those hires are high-stakes and could mean the difference between success and failure in New York. So firms are often willing to spend substantially to reel in big fish.

The company has brokered some sizable leasing deals, such as Comcast’s 100,000-square-foot deal last year at 1407 Broadway and the Hershey Company’s lease for a flagship retail store at 20 Times Square. Avison said it’s handled 6.1 million square feet of New York City transactions, valued at $6.4 billion, since 2011.

Yet it’s still never mentioned in the same breath as the city’s top players, and it suffered an embarrassing black eye last year when the Moinian Group replaced it with JLL as the leasing agent at 3 Hudson Boulevard.

Liebersohn conceded the company has a long way to go to catch up to New York’s top-tier brokerages, but he said it does compete with them on some deals.

“I know that we’re competing in that next tier, because I know we’re at the table for most of those deals,” he said. “I’d like to say we’re at the table for all of those deals. We’re not, but we are at the table for many of those deals.”

Body blows & billionaires

For some fledging New York teams, losing even one top player can be a major body blow.

Houston-based Transwestern, for example, opened its New York office in 2011, hiring leasing veterans Patrick Robinson and Lindsay Ornstein to run the show. But Robinson decamped for landlord George Comfort & Sons after launching the office, and the New York arm hasn’t achieved the same success as nearby offices like Boston, which leapfrogged New York and became a major player by buying one of the city’s top brokerages. (It’s now seeing brokers in that office jump ship to bigger firms, though.)

The Manhattan office had 23 agents as of February, up from 18 in mid-2016, according to a review of state licensing records.

Representatives for Trans-​western declined to comment.

Firms with national reputations often face the challenge of making a local name for themselves.

Berkshire Hathaway HomeServices — a franchise of the megafirm headed by billionaire investor Warren Buffet — launched its New York office in January 2017. While it’s known as a residential firm, it’s building a New York investment sales team. The team — headed by Herb Hirsch,  a former Engel & Völkers broker who previously owned his own eponymous firm — has seven brokers so far.

Candace Adams — CEO and president of Berkshire Hathaway’s New York, New England and Westchester operation — said there’s a perception that the brand is focused solely on residential. But she noted that it has more than 2,000 commercial agents nationwide.

“Our goal is to be a full-service commercial brokerage as well as residential,” she said. “From our perspective, the commercial focus that we have was born, obviously, out of Warren Buffett’s desire to service all aspects of the real estate market, so we clearly have commitment to growth in that arena.”

On the residential side, the firm snapped up Westchester’s largest firm, Houlihan Lawrence, for an undisclosed amount about a week after opening in NYC. And Adams said the company will consider making acquisitions to grow on the commercial side, noting that it has the firepower to do so.

“Berkshire Hathaway probably has the most significant financial strength in the world,” she said.

Adams added that the New York investment sales team is in negotiations on deals worth more than $1 billion in New York and elsewhere, though she decline to provide details, citing nondisclosure agreements.

Yet not all firms have that kind of billionaire money to burn.

For example, Coldwell Banker — another national brand — has struggled to get the kind of market share it expected. The company has more than 40 brokers, but it’s seen its local franchise change ownership multiple times in the last eight years.

Last year, the brokerage did roughly 188,000 square feet in office leases, a little more than 15,000 square feet in retail leasing and two building sales.

In April, the franchise took a hit when co-founders Peter Sabesan and Richard Selig left the company. Six months later they joined Cresa, which opened its New York office in 1989.

O’Toole said the firm is beefing up its marketing efforts to win new agency assignments and actively recruiting brokers with “generous splits.”

“The brand is looking to grow its platform and be well-received and get more market share,” she said. “We were not achieving that.”

To merge or not to merge?

Complicating matters for New York firms trying to make a name for themselves is the elephant in the room: consolidation.

In the last decade, big and small firms have ramped up their market share by merging with — or buying out — competitors.

And that trend isn’t slowing.

The latest buyout that has real estate tongues wagging is Newmark’s planned purchase of retail brokerage powerhouse RKF. Sources say the move, which comes on the heels of Newmark’s lackluster IPO, will further tighten the grip on the retail leasing market and make it harder for new players and smaller shops, particularly in today’s struggling market.

“Many of the smaller firms are struggling, and some of their brokers are looking to move,” said David Firestein of SCG Retail, which represents Starbucks and other megaretailers, like Whole Foods. “The Newmark/RKF merger will probably happen, and will further impact brokers moving.”

Firestein predicted that larger, more national firms, like SCG — which was formed out of the merger of the White Plains-based Northwest Atlantic Real Estate Services and the Atlanta-based Shopping Center Group in 2011 — will “continue to grow and do well.”

His said his firm, which opened a New York office in 2012, is expanding into a bigger space this month.

The California-base Lee & Associates followed a similar path in 2011, when it entered the New York market by merging with local brokerage Sierra Real Estate.

“We were the new guys in town,” said James Wacht, president of Lee’s New York operation. “Lee was primarily looked at as a West Coast-based company doing industrial deals. We had to really struggle to get our name out there and get brokers to talk to us.”

Since then, Lee has scored some sizable deals, such as representing investment firm Silver Lake in its 56,000-square-foot deal to relocate to 55 Hudson Yards.

Wacht said the firm’s business is about 40 percent office leasing, 40 percent retail leasing and 20 percent “miscellaneous,” such as investment sales and industrial deals.

In 2013, Wacht told TRD that he was “very happy hitting doubles,” going after deals in the 10,000-to-50,000-square-foot range instead of megadeals.

But he said the company has now set the bar higher. “Singles have become boring. We’re now interested in doubles and triples, and we’re striving for a couple of home runs,” he said.

Not surprisingly, success often takes time and money.

Texas-based mortgage broker HFF, for example, opened its NYC office in 1996 and went public in 2007 with a $257 million IPO.

But it took until last year for it to join a rarefied club, brokering its first 10-figure deal: the $1.04 billion sale of a 95 percent interest in Deutsche Bank’s 1.6-million-square-foot headquarters at 60 Wall Street from Paramount Group to GIC.

When asked if, in 20 years, he would like to be where HFF is now, HWE’s Silverman wasn’t shy about his vision.

“No,” he said. “I’d like to be further than they are 20 years from now.”

Correction: A previous version of this story incorrectly stated the month Peter Sabesan and Richard Selig left Coldwell Banker.