Paul Massey, Founding Partner and CEO at B6 Real Estate Advisors, joined the Real Estate Daily Beat for an interview. We discussed the brokerage landscape, Paul’s bullish outlook on rent-regulated assets throughout New York City, and other interesting topics.
Daily Beat: Is there a specific sector of the market that excites you the most?
Paul Massey: The retail market is poised for a big comeback. I thought it had bottomed out pre-virus, but it ended up feeling the effects of the pandemic in a big way.
At this point, I think we are at a place where technology has eliminated all the tenants that they were going to eliminate. Personal services tenants have come back and the landscape is ready for a big uptake.
Daily Beat: Very interesting. CoStar expects to see about 40 million SF of store closures around the country this year, a big change from the record 160 million SF that shuttered last year. Are you bullish on the entire sector?
Paul Massey: I’m on the board of a company that just IPO’d – Phillips Edison. Prior to the pandemic, their portfolio was 93% occupied and subsequently decreased to around 88%. Occupancy is back up to 94%.
Phillips Edison is primarily owners of supermarket anchored strip malls, which are complemented with a lot of personal services tenants. Supermarkets are obviously doing very well.
Daily Beat: Francis Greenburger recently shared with us an interview that he’s bearish on high-street retail because bricks-and-mortar was essentially advertising, which has now shifted online. What are your thoughts on that segment of the market?
Paul Massey: High street retail is the other side of it. I might share some of Francis’ feelings of concern there, but rents are half of what they were three or four years ago, which in my mind presents an opportunity. Restaurants, bars, and personal services are going to come back. I think there’s been significant adjustment in rents and values and that we’re bottomed out.
Daily Beat: Are there any other segments of the market – except for last-mile facilities – that you see a lot of demand for in this environment?
Paul Massey: I would look for opportunities on the multi-family side because it has been so wounded by irrational rent regulation. The big picture is that so much of the city’s New York city’s tax revenue comes from multi-family buildings and commercial properties. The city has effectively said you can’t raise rents and you can’t even pass through the expenses of fixing up units.
This has resulted in the value of these buildings decreasing dramatically. I think the real estate tax assessments are going to show that the city’s going to be facing a $10 billion budget shortfall based on the self-inflicted wound that is rent regulation. This isn’t sustainable and the city will eventually realize that it’s strangling the golden goose.
With pension & bond obligations and employees, there isn’t much variability in the budget. The first thing to go if there’s a budget shortfall will be social programs – the very people the politicians were trying to help. Once they wake up and realize what they did, there will be a reversal on regulation, which will make those investment properties more valuable.
Daily Beat: Many of the local investment sales shops on the multi-family side are expanding to other states because of the drop of business since the new rent laws were enacted. Has B6 explored that at all or are you just all in on NYC?
Paul Massey: There’s such a good opportunity in our line of work in New York City where all the brokerage firms are fragmented. Our old business is there waiting for someone to scoop up big market share and that’s our plan.
We are also contemplating the Miami and Chicago markets. We want to be a super regional player because fragmentation exists in all of the big cities in the middle market. Also, half of our focus is on debt brokerage because that’s another segment that doesn’t have a lot of institutional market share in the mid-market. It’s very complimentary in a strategic way to be able to offer people another road to liquidity.
Daily Beat: Steve Kaufman mentioned that cold calling isn’t as effective as it used to be with caller ID. Is it still possible for a younger broker to break into the business that way?
Paul Massey: The key in the business is to approach people and provide useful information about the value of their property. They can’t read a stock quote about their real estate, so people want to be in touch with what’s going on.
We try to provide useful information just like the way the Real Estate Daily Beat is doing. Our firm is focused on delivering useful info to people as a way of building long-term relationships. Don’t forget the average building sells once every 39 years. So if you aren’t in the relationship building business, you got to find a new line of work right now.
And to that point, we’re absolutely hot in the trail of recruiting great people, including students right out of school. We have an associates program where we bring in young people and train them. This is the best job known to man.
Daily Beat: Have you seen a shift in the last decade with on-market versus off-market deals in New York and also nationally?
Paul Massey: I think off-market is irrational. Why would you put yourself in a vacuum with a particular investor? Every brokerage firm – if they are doing their job properly – is really conducting a controlled auction that they control the timing on. The deficit of an auction company is you set a day and if you don’t have a crescendo of activity on that day, you hurt yourself as a seller. We’re really all in a controlled auction business to some degree and that’s in the best interest of the seller.
Daily Beat: Regarding the institutional investment sales side of the business, do you think the likes of Doug Harmon and Adam Spies at Cushman and Roy March from Eastdil should be marketing their deals more broadly?
Paul Massey: In that segment of the market, it’s easier for them to identify who has the capability to acquire something of the size they are selling, so I can understand why they don’t broadly market to people who can’t afford those properties.
Daily Beat: But in the mid-market sales, you need to cast a wider net.
Paul Massey: Yes. You could know who the top 10 buyers are likely to be, but Mr. 11 might have a 1031 exchange. Mr. 12 might have foreign equity burning all in his pocket. The 13th buyer might have just lost out on something, so they are super motivated. You can’t know everything about the middle market buying community. We have 6,000 people on our investor list that we all share who are active buyers in the New York City market.
Daily Beat: If the brokerage business is all about relationships, what are your thoughts about technology in the space?
Paul Massey: If you look at companies that people consider tech companies, most of them have a fundamental business. Think of Uber – it’s technologically enhanced – you are still matching riders with drivers, but technology makes it more efficient.
Most brokerage firms are not technology companies, but they’re much more effective if they embrace technology to help them do their jobs better. The technology augments brokers, but doesn’t replace them.
Think of how disappointing Ten-X has been with auctions. Look at what that company sold for compared to what people thought it was worth.
Daily Beat: They used to always talk about the 80-20 rule at Eastern Consolidated; meaning. 20% of the brokers are doing 80% of the business – classic sales stuff. When it comes to the territorial system, do you think it’s more evenly spread?
Paul Massey: There are always big originators, but I think territories enable people to be more effective, so I think it’s probably more evenly spread.
Daily Beat: With re-election looming, will Governor Kathy Hochul be able to govern as a centrist or will political forces push her to the left?
Paul Massey: This is a fresh start and there’s optimism and opportunity that comes along with it. She’s known to be pragmatic and get along with people. I am really positive about the fact that she’s in place now.
Daily Beat: Eric Adams is also good news for the industry.
Paul Massey: Yes. Eric’s another person who is more of a centrist, which I think probably 85% of us are socially minded, but financially pragmatic.
Daily Beat: What are your thoughts looking back and reflecting on the experience of running for Mayor in 2017?
Paul Massey: I loved running for office. That was a very positive experience. I’m glad I did it. I used to think I was Mr. New York prior to running because of the business we’re in and the fact that we’re in so many sub markets, but boy did I learn a lot more about New York and meet great people. It was a really positive experience.
*The interview has been edited and condensed for clarity.