Brokers 'Acting Like Therapists' To Close Deals Amid The Crisis
A year ago, when DJ Johnston and his B6 Real Estate Advisors team were hired to market a large piece of land on Wyckoff Avenue in Bushwick, the selling strategy seemed simple.
At first, they decided to pitch it as a play for when Bushwick was supposed to be rezoned — but that didn’t actually happen. They pivoted to pushing the location at 900 Wyckoff Ave. as a self-storage development location, but then the coronavirus hit the city and new city council laws killed a crucial incentive that encouraged that form of development.
Plan C, Johnston said, was pushing the 0.74-acre site — currently an amalgam of parking structures, low-slung commercial buildings and pavement — as a potential industrial site or nonprofit location. A buyer signed a contract for the parcel in July, paying roughly $9M, a discount from the $9.9M price tag the site was originally listed for last year.
“Everything is harder. It's 100% harder," he said. "You just have to find the angle where you can create a premium.”
New York City office leasing has slowed, investment sales have plummeted, many restaurants are struggling to survive and scores of retailers are caught up in legal disputes with their landlords. But some deals have closed throughout the crisis — though uncertainty and a frosty climate means they are taking more work, lateral thinking, term renegotiations, and sometimes a dose of compassion — to get them over the finish line.
“It’s impacting buyers and sellers in personal ways … [everyone] needed time to catch their breath," Johnston said. "At first, we were acting like therapists."
He said the day Tom Hanks announced he had contracted the coronavirus, March 11, he had two contracts out on investment properties. Within days, they were on pause, and have since been renegotiated with 4% and 7% price discounts apiece.
Of the 30 listings Johnston has, he said there is now an average of between 5% and 10% discount on each.
“There is still plenty of transaction volume for brokers in the city to make a living and survive,” he said. "It’s just a harder transaction process."
Across the board, real estate players said the sudden impact of the crisis meant deals that looked like a sure thing were in jeopardy, basically overnight.
In early March, CBRE brokers for Greek restaurant concept Avra and Rockefeller Group were sitting around a conference table hammering out the details for a big lease for 1271 Sixth Ave.
A company email hit their inboxes about a lawyer from New Rochelle who had the virus and had been commuting into the city each day. By late March, the deal was in a whole new phase. Avra, which finalized a 16K lease that was announced earlier this month, had to consider how the build-out would work and face up to the uncertainty about indoor dining, which is still forbidden in New York City.
“Conversations stalled as soon as everyone’s business shut down,” said Eric Gelber, who represented the landlord.
The deal got across the line with some restructuring, representatives said. It includes a base rent, with a percentage rent as the restaurant’s sales volume increases.
“Given what occurred … Avra decided to take a step back,” Rockefeller Senior Vice President Ed Guiltinan said. “But we had a great relationship with them, and over time they realized it really is a special space, so while we adjusted the deal to reflect the current market conditions, we ended up with a deal that works for both parties.”
He declined to give exact figures or details on the deal, citing nondisclosure agreements. But ultimately, it came down to the restaurant operator’s faith, the brokers said, that New York City will survive this battering.
“The belief from both sides was that we wanted this thing to happen,” said CBRE's Gary Trock, who represented Avra.
The death, or lack thereof, of the city is back on the public agenda this week, after a former city hedge funder wrote a blog post about the city being “dead forever,” which sparked a rebuke from comedian Jerry Seinfeld published in The New York Times.
Still, the immediate future does appear strained, sources said, and the buyer pool is altered.
“I think you’ve got to be selling to people who have a vision for the city and believe it has a bright future,” B6 CEO Paul Massey said.
Overall, the company has closed about 15 transactions since the crisis hit, he said, though many had to be renegotiated and many looked tenuous at times.
“There are a lot of people who believe that the world isn’t over," said Massey, a Republican candidate for New York City mayor in 2016. "You’ve got to be selling to people who have a long-term vision and who aren’t dealing with their own struggles.”
Arch Brokerage principal Larry Roberts — who represented Albee Development and Acadia Realty Trust in a deal announced this week that has private school BASIS Independent Brooklyn taking 62K SF at City Point in Downtown Brooklyn — said even in the best of times these kinds of negotiations can be tough.
“A true deal guy is always working hard,” he said, declining to provide specifics on negotiations. “A true deal-maker, I don’t think there is a difference. You are wired that way and you get the deal done ... I was just sweating a little more.”
While much of the market has been frozen, there have still been headline-grabbing deals.
Video-sharing app TikTok took 232K SF at Durst Organization’s 151 West 42nd St. back in May. RXR Realty signed a 13K SF lease with Chicago-based hospitality collective 16" on Center to a food hall concept at the Starrett-Lehigh building, which is set to open next year. Both landlords declined to comment for this story.
Hunton Andrews Kurth partner Laurie Grasso said a newfound sense of collaboration and understanding has become part of the deal-making process, as well as a new sense of urgency.
“Pre-COVID, a week delay would have been OK. Now people are more inclined to wrap things up quickly," she said. "Everyone wants to do a good job, show the economy is still working. And deals are still getting done, we are all wanting it all to come back."
While the first three months of the crisis were focused on mending broken deals, these days she is focused on new work, as players shift to looking further toward the horizon.
Remote work, the emphasis on video calls over travel has paved the way for partnerships and “matchmaking” that wasn’t there before the pandemic, she said.
“If you are an investor and there’s a developer you want to meet, you just set up a Zoom call. I’m putting people together that are in different states that otherwise would have had to fly to meet each other,” Grasso said. “This is a great time to do deals or to at least look at opportunities.”