Greg Kraut’s Park Avenue office isn’t your typical executive suite. The rented space is about the size of a small restaurant coat-check room, and Kraut shares it with a secretary and his office manager.
When the 36-year-old commercial broker left a secure position at CBRE to open up Avison Young’s New York City headquarters last fall, he was the only local employee for the Canadian firm. So he rented space on a hallway of tiny temporary offices teeming with start-ups.
On a recent morning, a lawyer could be heard conducting business via cell phone in a men’s bathroom stall. Down the hall, a team of staffers were fielding calls for a dating service.
But a few years from now, Kraut insists, these humble beginnings will be the stuff of company lore. The fast-talking New Jersey native with salt-and-pepper hair — sporting Avison Young cuff links and a lapel pin — said he’s already close to securing long-term space for his rapidly growing team. (At press time, Avison had signed a sublease for a full floor at 623 Fifth Avenue, but was waiting for final approvals on the deal.)
And it looks like he’s going to need the extra space. Between April and June, Avison Young’s New York City staff ballooned from three to 24 (14 of whom are brokers). Kraut said he expects the head count to reach 50 by the end of the year.
For months, however, the firm conducted its hiring largely under the radar, refusing to publicly discuss its plans. Then in April, Avison hired former Cushman & Wakefield CEO Arthur Mirante to serve as tri-state president. Only then did the firm churn out its first local press release touting the official “opening” of the New York office.
Mirante — who led Cushman for two decades and then did a stint as the firm’s president of global development — moved into an office down the hall from the dating service. His secretary set up a desk in Kraut’s closet-sized office.
“Now [brokers looking to jump ship] are calling us,” Kraut said. “I meet with maybe 10 people a day. I take maybe one out of 50.”
“We are here for the long run,” he added. “We will be a top firm in New York. It is not an option — it has to happen.”
Quick company facts
Headquarter location: Toronto, Canada
CEO: Mark Rose
Top NYC Hires: Greg Kraut, Arthur Mirante
Number of U.S. locations: 13
Number of NYC staffers: 24 (including 14 brokers)
Some of Avison’s hires clockwise from left: David Eyzenberg, formerly of NewOak Capital; Justin Piasecki, formerly of the Carlton Group; Amy Levenson, formerly of Goldman Sachs; Michael Gottlieb, formerly of Grubb & Ellis; Martin Cottingham, formerly of Grubb & Ellis; and Vincent Carrega, formerly of Grubb & Ellis
A crowded field
Avison Young was formed in 1996, when Graeme Young & Associates, which was founded in 1978, and Avison & Associates, founded in 1986, merged to form Canada’s largest independently owned commercial firm.
For many years, however, the firm still consisted of three largely independent entities in British Columbia, Alberta and Ontario, owned and operated by three sets of partners. Then in 2008, the umbrella firm hired veteran U.S. real estate executive Mark Rose as CEO, and the 53 partners and 290 employees pooled their resources and merged into a more tightly integrated union with the goal of funneling the firm’s profits into a company expansion.
Indeed, Rose launched an aggressive push in 2009 to open outposts in the U.S. and build the firm into a global force.
While he would not reveal exact figures, “Our revenue is already way over nine figures, or $100 million,” he said. And he insisted that number will continue to grow as the New York operation and other new offices across the country gain ground.
But Avison is by no means the only bright-eyed commercial firm with big growth plans.
Among those in expansion mode in New York are Lee & Associates, which opened its first New York office last November; investment sales firm Stan Johnson Company, which arrived in Manhattan last September; Brookfield Financial, which lured two long-time brokers from Eastern Consolidated to open an investment sales business in September; and Texas-based Transwestern, which opened up shop last February.
Meanwhile, other existing firms are going through their own shake ups.
Newmark Grubb Knight Frank was just refashioned after BGC bought Newmark Knight Frank and Grubb & Ellis. And Colliers International recently saw a leadership overhaul.
Industry experts say the drop-in commissions that resulted from the down market has provided the best opening in years to lure top talent away from other firms. Also driving the upheaval is the growing number of foreign corporations opening New York offices, along with the continued proliferation of private equity firms and other financial players, said Dan Fasulo, managing director of Real Capital Analytics.
“A lot of foreign capital flows through New York to other destinations around the U.S.,” Fasulo said. “As clients have gotten increasingly global, a lot of them are making [decisions about how to run U.S. divisions] in Manhattan. Brokerage companies want a beachhead in New York. They realize that to be a player, you have to have one.”
But as these commercial brokerages attempt to establish themselves in the city, not only do they have to compete with the mega-firms that have more resources, they must also distinguish their pitches from one another.
In an interview with The Real Deal a little more than a year ago, Mark Jaccom — who was then the CEO of Colliers, but who stepped down late last year — touted his efforts to poach veteran brokers from rivals by distinguishing his firm’s culture and approach.
“We weed out assholes,” said Jaccom, who joined the brokerage Cresa last month. He also stressed the firm’s well-financed Canadian backer FirstService.
Avison’s principals also play up their firm’s wealthy Canadian mother ship, which they said has zero debt, as well as their positive corporate culture. In fact, Kraut has a plastic cover over a chair in his office with the word “asshole” printed inside a red circle with a line through it.
In a phone interview with The Real Deal, Rose mentioned his firm’s emphasis on “honesty” and “integrity” so many times, it would seem brokers at rival firms had been recruited out of prison.
Both Rose and Kraut, however, insist it’s more than just lip service. They point out that Avison is run by its principals — a structure, they said, that ensures employees are invested in working together for the company’s overall fortunes. Rose argued that at firms owned by shareholders or outside investors, brokers have an incentive to operate as free agents.
“We wanted a company where there was complete alignment — where [clients] are being served by people with financial, reputational risk,” he said. “The cultural fabric is all about the partnership — we don’t have disputes over fees. [A broker’s] need for winning their percentage of the deal is mitigated by the fact that the year-end distribution and the increase in the equity value really dwarf people’s current compensation.”
The case against
As of press time, Avison’s New York office had not closed any deals. It had, however, been hired to represent several tenants looking for spaces ranging in size from 20,000 to 60,000 square feet, Mirante said, predicting that the firm would be closing those deals by midsummer.
The firm has hired six office leasing brokers (who will handle both the tenant and agency sides of deals), and a nine-member investment sales team from Grubb & Ellis. Mirante said all of the brokers are currently in various stages of their initial deals. They have not yet hired any retail brokers, but are actively interviewing candidates, he added.
Despite the lack of closed deals, many established New York brokers are watching the firm with interest. Still, they are hardly convinced Avison will soon be a top player here.
“There is nothing to think at this point,” said retail broker Bradley Mendelson, an executive vice president at Cushman. “They don’t have a very large presence, they don’t manage anything, they’re looking for brokers. If they are looking to lure powerhouses out of firms that are making money, they are going to have to pay a lot of money.”
Still, he said, “Arthur Mirante is a smart guy; I wouldn’t discount anything. It all depends on who they can get.”
Patrick Robinson, who opened Transwestern’s northeast regional office in New York a little more than a year ago, said that unlike Avison, his company already has solid U.S. roots.
Avison has “no U.S. base of operations,” said Robinson, who founded and ran Staubach’s New York operations for 10 years before it merged with Jones Lang LaSalle in 2008. He has hired some 30 Transwestern brokers, but would not reveal revenue numbers for the privately held company.
“We are a company that has had a national presence in the U.S. for 33-plus years, and we have a large existing client base.” Avison Young, he said, “is starting from ground one.” (According to the National Real Estate Investor, Transwestern did $6.5 billion in investment sales and leasing globally in 2011, while Avison did $2.8 billion.)
But Avison is growing fast.
Since its first foray into the U.S. in June 2008, it’s opened 13 locations in cities including Atlanta, Chicago, Dallas, Houston, Los Angeles, Reno, San Francisco and Washington, D.C.
Yet some argue there’s only room for a few newbie commercial firms in New York.
Cushman managing director Sandy Monaghan, who heads the firm’s capital markets group, noted that the New York market is “large enough that there is probably room for some new entrants,” but added that they are all “clearly jockeying for top talent” and not all will prevail.
Even if some do, he still believes that firms like JLL, Cushman and CBRE have the edge.
“The money flows through New York, but a lot of times it originates in Asia or Europe,” Monaghan said. “Global firms have a clear advantage.”
In addition, Jeffrey Gural, chairman of Newmark Grubb Knight Frank, noted that the startup costs facing Avison may be prohibitively expensive.
“It’s hard to start up a new company because the amount of infrastructure you need today to back brokers is very expensive,” he said. “Research and tech cost millions of dollars. That’s one of the reasons we haven’t really seen any of these smaller companies for the last few years make a big splash, with the exception of JLL, which had access to capital markets and bought another company.”
These critiques are all challenges Avison’s principals insist they’re well aware of.
Certainly, Rose is no neophyte to the real estate big leagues. He was Grubb & Ellis’s CEO from 2005 to 2008, and both chief operating officer and chief financial officer of the Americas operation at JLL, where he spent 12 years.
And brokers elsewhere in the U.S. appear to have responded to his pitch. In his four years at the helm, he’s also grown the company from 300 to almost 1,000 real estate professionals.
Rose said Avison is investing much of its profit (he declined to reveal numbers) to finance its current expansion. He said the company also tapped its original 53 partners and 290 employees to put up their own funds, adding an additional $10 million to the pot. The amount of money each partner and staffer put up varied, with each receiving ownership shares proportional to their investments.
In October 2011, Avison also agreed to sell a minority stake in the company to the Vancouver-based private equity firm Tricorp Pacific Capital, raising upwards of $40 million. (Employees and partners still own about 73 percent of the firm.)
Rose — who said he and his team have “literally handpicked all of the [new U.S.] partners” — noted that he’s not trying to replicate what the existing commercial firms are doing.
“We don’t want the scale of the two largest companies — we think that CBRE and JLL are too big,” he said. “They have between 40,000 and 60,000 people, and everybody’s territory is so small right now and there is so much internal competition. That is not our model.”
Manhattan expansion
Kraut, an established, mid-level broker, said he was happy at CBRE when he was put in touch with a friend-of-a-friend who had recently signed on in Avison’s Washington, D.C., office.
Kraut — whose big deals include representing Time Warner Cable for 37,000 square feet at 1633 Broadway in 2010, along with David Hollander, and working on Siemens’s 50,000-square-foot deal at 498 Seventh Avenue last year — said he wasn’t looking to move.
But after a lengthy conversation with the tenant rep broker (a newly minted partner), he began to consider it. “I said, ‘You know what? This is going to work,’ ” Kraut recalled thinking.
He signed on last September and set to work selling others on Rose’s vision.
Avison initially focused on setting up a New York infrastructure that would quickly put the company in the commercial leasing game with analysis, marketing and financing expertise to back up brokers.
One of his first hires was Jim Delmonte, vice president of research at JLL, and his team. Soon after, he recruited Elliot Baum, former head of marketing at Colliers. He hired capital markets experts David Eyzenberg, former head of commercial real estate at NewOak Capital, and vice president of investment banking at Madison Capital Group; Justin Piasecki, a senior vice president at investment bank Carlton Group; and Amy Levenson, a Goldman Sachs veteran.
Other hires include two high-powered Grubb & Ellis brokers, Michael Gottlieb and Martin Cottingham.
But it’s Mirante who may make the biggest difference, most agree. A number of brokers and executives in the industry said his arrival added a sheen of credibility to Avison’s local efforts.
During his 20 years as Cushman CEO, Mirante grew the company’s revenue from $100 million to almost $1 billion, according to published reports quoting his company’s chairman. Mirante also played a key role in selecting his successor Bruce Mosler, after grooming him for the position. (The two joined forces to form a brokerage team in early 2011, after Mosler stepped down as CEO.)
Rose contacted Mirante in early April. The two had met when Mirante was Cushman’s CEO and Rose was heading up JLL. They met for drinks at the Metropolitan Club.
“Frankly, I was part of a 13-person brokerage team at C&W, and we were doing very well, working on Manhattan West, probably the most significant leasing agency for Brookfield,” Mirante said. “I wasn’t looking to move. But I listened very carefully to [Rose’s] vision. I was very intrigued.”
Mirante said Avison’s partnership structure reminded him of the way Cushman was structured before it was bought by an Italian parent company, Exor.
And he was also impressed by the other prominent executives who joined Avison offices in Chicago, Washington, Houston and San Francisco.
The idea of building a tri-state operation “as I once did a long time ago” was “pretty exciting for me,” he said — especially with an energetic young partner to help carry much of the load.
Playing for equity
Rose, Mirante and Kraut would not say how much they are paid — or how much the company is paying to lure brokers over.
“I would say it’s competitive,” Mirante said. “The bonuses are intended to make up for the lost income that the brokerage professional is going to have to expect by changing firms. But I can assure you, we’re not paying people any more than they could get anywhere else.”
Hires are “not coming on board here for the cash,” Kraut said. “They’re coming on board for [the] culture and for the equity. We’re building a business. You can make current comp anywhere you go, but with equity you have the chance to make real money for your family for the next couple of generations.”
During the first two years of his five-year expansion plan, Rose said, the firm’s original partners have done extremely well. In addition to earning a normal commission split of about 56 percent, they have received an undisclosed portion of the company profits through cash disbursements. The value of the shares they own in the company, meanwhile, has skyrocketed as the company’s size and revenues continue to grow. Taken together, these cash disbursements and paper equity profits more than double the amount the average Avison broker has made on commissions, Rose said.
Overall, of the firm’s almost 1,000 employees, about 140 are now partners, Rose said, another 30 to 50 have partner shares, and the other 80 percent have the chance to become a partner.
And the goal in the next five years is to be “many multiples of our size in terms of people and revenue,” he said.
Currently, Avison has about 10 principals in New York, a total that will likely reach as high as 30 in the next two years.
Mirante said the firm’s capital markets group recently won the assignment for a job finding a joint venture partner for a $75 million-plus, four-acre residential development site on the East River in Astoria, Queens. Meanwhile, Avison’s note-sales group has been hired by seven banks to sell debt on properties ranging from $5 to $40 million. And the investment sales team has the exclusive agency for three sellers on New York office buildings ranging from $30 to $100 million.
Rose said he hopes to grow the company as a whole to revenues of upwards of $500 million by 2013 or 2014. And Mirante said they’re looking to build the company’s tri-state revenue to above $100 million over the next five years.
“We got a shot at being number four or five in the market,” said Mirante.