Stacking up sales brokers

In TRD ranking, commercial firms that targeted midsize trades surged as bigger brokerages stalled

Mar.March 01, 2013 07:00 AM

Commercial property sales in New York City surged in 2012, boosting transaction volume and revenue for most, but not all, of the city’s investment brokerage firms.

Buyers spent $39.1 billion purchasing commercial real estate in New York City last year, according to figures from Massey Knakal Realty Services. That was the highest dollar volume since 2007 — when sales peaked at $62 billion — and up 53 percent from 2011’s $25.6 billion.

And while in 2011, mid-market firms captured a piece of the commission pie that was roughly on par with their megafirm counterparts, they trounced them in 2012, according to an analysis and ranking by The Real Deal.

To conduct the analysis, TRD combed through more than 1,000 deals valued at $1 million or more in the five boroughs, the vast majority of them below the headline-grabbing $50-million-and-up price range.

For the first time, TRD also estimated the total commissions the firms received through these transactions.

What we found was that Massey Knakal, which specializes in building sales ranging from $1 million to $20 million, saw its sales volume more than double last year to nearly $2.1 billion. Relative newcomer Rosewood Realty Group, operating in the same market segment, similarly saw its sales surge by roughly $900 million to $1.4 billion.

But it was a mixed year for the city’s top two firms — Eastdil Secured (which had $7 billion in sales) and CBRE Group (which had $3.5 billion). Those firms saw their totals level off or fall as large building sales slowed, according to TRD’s figures.

Nonetheless, they still ranked No. 1 and No. 2, respectively, on the ranking of overall investment sales volume in New York City in 2012. Also brokering more than $2 billion in deals were Jones Lang LaSalle and Massey Knakal, which ranked No. 3 and No. 4, respectively.

Richard Baxter, a vice chairman at JLL, credited the market in part for his firm’s sharp rise over 2011.

“We benefited greatly from the improved market conditions … [as well as from] the financing market. The low interest rate environment and capital coming from all over the world to invest helped us to increase our market share,” Baxter said.

When it came to estimated commissions, Massey Knakal topped the list with about $50 million to $60 million — far ahead of Eastdil, which TRD projected had about $30 to $35 million. Eastern Consolidated and Rosewood earned about $20 to $25 million each, while CBRE took in a bit less.

The analysis, however, did not count note sales, advisory services, matching up capital partners and other consulting work that firms such as Eastdil, CBRE and Eastern Consolidated are often paid hefty fees for. Those services are provided entirely out of the public eye.

“We are very pleased with the 2012 increase in our transactional sales deals, and when you include our substantial note sales, equity raise, financing and advisory business revenues, 2012 was a great year for Eastern Consolidated,” said Daun Paris, president of Eastern Consolidated.

In a sense, it’s no surprise that Massey Knakal came out on top in the commission category because the year was a veritable feeding frenzy for the firms that sell properties priced below $50 million.

In fact, nearly 90 percent of the brokered transactions that TRD reviewed were below that threshold, and about two-thirds of the estimated $350 million paid in brokerage commissions last year was paid to those who brokered smaller deals.

Foreign investment continued to spur sales on the lower-priced deals in the city.

“[Overseas buyers] started to pull the trigger a lot more than a year ago. There is a lot more confidence in the New York market,” Josh Rahmani, CEO of Venture Capital Properties, a Midtown-based brokerage, said.


A widening gulf

The top firm for sales volume, Eastdil, saw its transactions fall by about 7 percent, according to TRD’s figures (although sources familiar with the firm’s deals dispute that and claim the company saw an increase over 2011 to $9 billion).

Either way, the firm — whose New York office is led by Doug Harmon and Adam Spies — widened its lead over its chief rival, CBRE, and captured a larger stake in what was left of the thin trophy deal market. It brokered seven of the city’s top 10 building sales of the year. Harmon and Spies declined to comment.

The two firms, who typically hit similar sales volume marks, are now separated by more than $3.5 billion, because CBRE saw transaction totals fall by nearly 40 percent. Officials at CBRE declined to comment.

But insiders attribute the drop at CBRE, where the New York capital markets group is headed by Darcy Stacom, to the meager trading by large institutional players of big office buildings in Manhattan, the global firm’s go-to clients. Sources also note that several of the firm’s biggest listings were pulled from the market, such as 11 Madison Avenue, which had an asking price of $1.5 billion.

However, most of the other national firms that focus on large deals grew their sales volume totals last year, including JLL, which saw a roughly 76 percent spike, and HFF (Holliday Fenoglio Fowler), which experienced a 47 percent jump.

Sources said that the trophy office sales market dried up partly because investors were wary of the slow leasing activity by still-cautious financial tenants.

However, David Ash, a principal at the boutique firm Prince Realty Advisors, said the rise in leasing by media and technology companies has helped fuel sales of the older buildings those firms are locating to outside of Midtown’s core.

“There are a lot more creative companies around today bucking the traditional trends of corporate America,” he said.

Still, the question many are asking is: Why did some firms gain ground and others lose it when the overall investment sales trading volume jumped by 53 percent last year?

In order to better understand the lay of the investment sales land and TRD’s ranking, insiders say it’s important to grasp the difference between the types of commercial firms.

For example, in New York, institutional firms like Eastdil, CBRE, Cushman, JLL and HFF often revolve around one highly productive team of brokers and deal with global funds and high-end institutional investors locking up transactions with exclusive listings. Those buyers and sellers were less active in making trophy office trades last year.

Meanwhile, regional players like Massey Knakal and Eastern Consolidated, and local offices of national firms such as Marcus & Millichap, typically have larger rosters of brokers who manage their own deals. They often specialize in sales below $50 million and also typically work on exclusive listings.

Next are smaller companies that are often built around one key dealmaker or a team that specializes in open listings: Rosewood, Ariel Property Advisors, Capin & Associates and broker Ivan Hakimian’s new firm, HPNY, fall into this category.

Finally, there are the commercial arms of the residential brokerage firms. As hybrids, they often attract little attention, although the Corcoran Group’s commercial team did a respectable $295 million in deals in 2012.

One team at Corcoran — the Corcoran Wexler Healthcare Properties team — focuses on the medical property market and boomed last year in part because of the U.S. Supreme Court’s upholding of President Barack Obama’s Affordable Care Act, according to Paul Wexler, who heads up the group.

“A great level of interest came as a result of Obamacare,” Wexler said. He explained that with 30 million more Americans set to get insurance coverage, healthcare providers and investors are anticipating greater demands and started making real estate acquisitions to prepare.


Extraordinary gains

Insiders say that in addition to the increased volume on the lower end of the market, some firms were also boosted by old-fashioned pavement pounding in 2012.

They point to Rosewood president Aaron Jungreis’s unusually aggressive commission pricing and work schedule.

Insiders say brokers often reduce fees, but most are loath to admit it. Jungreis, however, was unapologetic.

“A smaller fee is better than getting no fee at all,” he said, although he attributed the bulk of his success last year to hard work, not to cutting fees.

“I know I am not the smartest guy in the room, so I stick to one thing: multi-family,” he said. “I live and breathe and sniff multi-family all day. I know every building in the boroughs — how many units, who’s next door and across the street. That, to me, is the most efficient way to do so many deals.”

Whatever his strategy, it worked. Jungreis’s scrappy company, which was founded in 2008, nearly tripled its sales volume last year to $1.4 billion, placing it nearly in the same league as firms like JLL, a global company, and Massey Knakal, which is local but has been around since 1988. With about a dozen brokers and salespeople, Rosewood did an astonishing 124 deals. Massey Knakal did more than 200 deals, but with about 89 real estate sales professionals at the firm.

Other small firms jumped in revenue, relatively speaking.

The biggest percentage jump was achieved by Colliers International, which brokered one large transaction — the sale of a minority value in a package of buildings including 641 Fifth Avenue, valued at $320 million — that boosted its totals. Shimon Shkury’s Ariel Property saw the second highest percentage jump of the year, rising fivefold to $181 million.

Shkury credited some of that to a hiring surge. “In 2012, we doubled our staff and we’re laying a foundation to accommodate future growth,” he said.

But some of the smaller firms did not fare well in 2012.

Itzhaki Properties (without its top agent Hakimian), Cassidy Turley and retail-focused firm RKF also saw a decrease in sales volume.

Looking ahead, Rahmani said he anticipated a lively 2013. He said many of those who sold last year are now feverishly trying to purchase properties so that they can take advantage of so-called 1031 tax exchanges, which allow for tax deferments in the wake of a sale if another property is acquired within 180 days.

“At the year end, there was a lot of 1031 money in the market that was starting to roll. We are expecting it to be an active year,” Rahmani said.

Correction: In a previously published version of this story, The Real Deal mistakenly excluded several firms from its ranking. Those firms are: Westwood Realty Associates, which did 10 deals worth $368 million; ABS Partners Real Estate, which did six deals totaling $186 million; Portman Realty Group, which did one deal worth $95 million; MNS, which did four deals valued at $84 million and Barcel Group, which did 18 deals valued at $50 million.

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