The Eight Percenter: In 1H12, Massey Knakal’s Stephen Palmese Closed 8% Of All Brooklyn Sales Deals. How?
Daniel Edward Rosen Aug. 21, 2012, 7 a.m.
The sale of 204 Huntington Street, a 62,404-square-foot asset in south Brooklyn, was 10 years coming.
The investment sales firm Massey Knakal Realty Services had first noticed the property, a warehouse-turned-multifamily development, in 2003-2004. Later, Area Property Partners owned and managed it between 2009 and 2010, before its principals decided to place the asset on the market.
To market such a property, Massey Knakal tapped a Bay Ridge-born broker whose tenacity in the investment sales sector had already earned him a reputation as one of the borough’s most active up-and-coming agents.
“We were prepping for this in late 2011, and there naturally had not been many, if [any], multifamily transactions,” said Stephen Palmese, a 30-year-old director of sales at Massey Knakal.
This multifamily offering, however, had an “added value play.”
“This was something that, on a price per square foot [basis], was being offered for almost $400 a foot on a net number,” said Mr. Palmese.
Located near Carroll Gardens, the area had seen an influx of new restaurants and developments, while condominium prices and rental prices swelled to favorable highs.
“It was a perfect opportunity where somebody was going to sit on it, and then convert it and sell the balance of the units for who knows what number in the future,” he said.
The property was formerly a collection of industrial properties that had been converted into apartments in 2003, Mr. Palmese explained. At the time, there had been a J-51 tax benefit program put on the property, which kept the rents in place at a 20 percent discount from normal market rates. With rents at $36 per square foot, a developer could swoop in, convert the property and raise the rents to levels similar to 360 Smith Street, a neighboring new development that was renting out at $49 per square foot.
His selling point was simple: “Take this property, turn it into a Class A property by way of a rental or by way of a condo,” said Mr. Palmese.
Aided by low interest rates and flush with cash, developer Doug Steiner of Steiner Studios closed on the 60-unit property for $24.5 million in May.
“This was a very rare property in that everyone is looking for a conversion or a vacant building,” said Mr. Palmese.
His intimate knowledge of the market has helped position him as one of the most prolific brokers in Brooklyn. Of the $1.5 billion in building sales in Brooklyn recorded in the first half of 2012, Mr. Palmese and his team of three full-time salesmen have accounted for approximately 8 percent.
He sold 313 Gold Street for $19 million, 109 Gold Street for $14.5 million and 131-137 Emerson Place for $13 million, among several of his most notable deals so far in 2012.
What’s attracting buyers to Brooklyn is the potential for transforming these buildings into market-rate rentals or condos.
“To a degree, Manhattan is an island, and a lot of pension money and a lot of hedge fund money is now looking at Brooklyn,” he said. “In Manhattan, 1 million [square] feet is big. In Brooklyn, it’s 100,000 [square] feet. So you have a lot of developers competing for sites that are 100,000 to 200,000 square feet, and there aren’t that many of them.”
The youngest of four siblings, the Bay Ridge native was educated in Staten Island and followed his two brothers to Georgetown University. When he graduated in 2004, he reached out to Jonathan Hageman, a friend of his sister’s who was a longtime employee at Massey Knakal.
“I applied for a bunch of finance jobs, [but] I knew I wanted to be in real estate. It was what my friends were doing, and they went on to do banking, private equity or hedge fund work,” said Mr. Palmese.
He was told that if he wanted to learn real estate, he should join Massey Knakal, where he would receive his “real estate 101” education before eventually moving on to work for a REIT or a major developer.
That landed him back in Bay Ridge, the Brooklyn neighborhood of his youth, to sell 447 86th Street for a Greek family.
“I’ve focused in that market for a period of time, and then in 2008 I shifted to this downtown Brooklyn market,” he said.
In making that shift, he essentially started his own business. He now has three full-time people under his charge during a period that he believes has become one of the most active in the Brooklyn marketplace in recent memory.
“I am calling 2012 ‘The Great Sell-Off of 2012’ because the volume in the market is 1½ percent,” he said. “In an average year [like] ’04, ’05 and ’06, it was 2½ percent. So it’s not even a function that there’s more deals, but what’s got me taken and why I’m calling it ‘The Sell-Off of 2012’ is the ferocity of people buying and selling.”
The draw for Brooklyn is the borough itself, he says, and not the so-called residual value that will be created by the impending debut of Ohio-based developer Forest City Ratner’s Atlantic Yards Development, which other brokers and developers have been boasting about ever since the Barclays Center broke ground in 2010.
“I think that’s hogwash,” he said of the shared benefits of the Atlantic Yards development on residential real estate. “I don’t think it’s going to affect residential rates at all. You can argue that it could decrease rents.”
“It has sort of insulated and propped up the retail in the surrounding corridors that were trying to find their identity,” Mr. Palmese said. “So yes, it has had a positive effect for retail, but I think it has a negative effect on residential.”
Despite being an Italian who was raised Catholic, he has been an active board member of the Jewish Children’s Museum and the Museum of Jewish Heritage. Meanwhile, his distinctly Mediterranean appearance helps him pass as either a Greek or Israeli national to his clients.
“In the Greek community, and largely, I was ‘Stavros Palmesolopis,’” he said with a laugh. “With the Jewish community, I am ‘Stefan Palmis.’”
Whatever the ethnic background, Mr. Palmese’s work has made an impression on his company’s co-founder.
“Stephen is certainly the next generation of superstar sales brokers in the city,” said Robert Knakal, chairman of Massey Knakal. “He is tenacious, he has tremendous integrity and he understands the business.”