The Forward Thinker: Stephen Schlegel Keeps Momentum High at JLL

As international director and chief operating officer for New York City and tristate operations for Jones Lang LaSalle, Stephen Schlegel oversees the bustling New York City market, along with the surrounding markets in New Jersey and Westchester County. Since Mr. Schlegel took over the position in 2005, the brokerage firm’s tristate business has seen its revenue increase fivefold, and has employed more than 1,000 professionals. Mr. Schlegel spoke with The Commercial Observer last week about the lingering uncertainty in the market and how New York City and neighboring territories can adapt to that unknown future.

steve schlegel for web The Forward Thinker: Stephen Schlegel Keeps Momentum High at JLL

Stephen Schlegel. (Photo courtesy Peter Lettre)

The Commercial Observer: How would you describe your overall role at Jones Lang LaSalle? Is there much overlap with Jones Lang LaSalle New York and tristate operations President Peter Riguardi?
Mr. Schlegel: Riguardi and I operate as partners in running the business. He focuses more externally: client relationship and executing transactions and revenue generation. And I tend to focus more internally, operating the business.

Jones Lang LaSalle is a public company, so we have a fair amount of rigor around how we run the business. We want to have operating procedures in all of our businesses, we want to run our businesses profitability. Our goal is not really to grow revenue; it’s to grow profit.

My focus on the business day to day, and my mandate and the number one mandate I have, as does Peter, is to grow the business. We want to grow; we want to develop a plan to generate sustainable, profitable growth and increase our market share in the region. This is our biggest and most lucrative region for real estate, for any real estate services company in the world.

I see Zacks Investment Research gave Jones Lang LaSalle a “neutral” rating recently. 
Historically, our stock has done well relative to other service firms, because we are a company where we don’t have a lot but we also focus a lot on profitability. Our margins have been fairly healthy, and that’s another part of why we run the business the way that we do. It’s not about revenue or market share at all costs. It’s about growing revenue and market share in the segments of the business where we can generate a return on the revenue.

How would you characterize the market right now?
There is an uncertainty around what will happen politically in the election, and what kind of impact that is going to have on the economy next year. There continues to be uncertainty in the largest segment—at least in New York City—[of the] economy, which is the financial services business. And there continues to be a lot of questions about where sustainable job growth will come from.

Do you think this will lead to some financial firms consolidating space in markets other than New York City?
The near-term prognosis for the financial services industry—and I am going to use the word one more time—continues to be a lot of uncertainty. So no, we are not seeing a lot of bold decisions being made by our financial services clients in terms of taking more space, making long-term commitments, lots of absorption.

The decision that drives the tenant mind-set as much as anything is capital, and any kind of a real estate decision that is going to use a lot of firm capital is going to be one that is, at best, reviewed very carefully over a long period of time, and in this market, in all likelihood, [deferred] as long as possible—which is one of the reasons why you see an increasing number of tenants renew and extend in their existing location as opposed to move. They don’t want to spend the capital right now. It’s as true of the financial services as it is of any other sector.

A market like Connecticut, that’s probably the most acute example of what I said before. There are some very high-quality [assets] that are going to continue to perform well.

How are the other suburban markets faring?
The challenge in some of the suburban markets is that as New York City has assets that get more affordable, sometimes the differential between corporate occupancy in some of the suburban markets and New York, that gap starts to get smaller. It takes a lot for a company to invest the capital to make a major relocation. But one of the things that originally, a couple of generations ago, drove migration out to the suburbs was because it was a lot less expensive. New Jersey, we believe industrial is a leading indicator. It is going to go down first. We are starting to see some strengthening in the industrial market, a little tightening in the pricing, more movement of space in the agency assignments that we have. So I think that’s a good sign for the New Jersey market. New Jersey is also a market that has so many submarkets that some will perform and some will struggle. But I will say if you are looking for where the growth is coming, New York would be first; New Jersey—it’s just such a big and diverse market that’s always going to be a safe investment.

Westchester, Connecticut, and Long Island, the right assets and the right clients will work fine, but they are just smaller markets, and I think they will recover more slowly.

Do you think we’ll be seeing more consolidation in New Jersey and Long Island?

No question, absolutely no question. I think one of the biggest phenomena you see in the industry right now is not only are you seeing tenants tend to stay in their existing location more for capital reasons, but their footprints are shrinking.

We spend as much time with our clients, we go see a big tenant and we are talking about what the process will be. We talk as much about occupancy planning, and alternative workplace strategies, and how to make the footprint more efficient and minimize square feet per person, and, frankly, how the asset fits on the company’s balance sheet or financial statements. We talk about those factors as much as we talk about rent and square footage. It is different sort of decision than it was even a third of a generation ago. That is a phenomenon that is going to continue.

Does that affect the way you staff your offices in the suburban markets? Do you now have fewer people operating out in the suburbs?

Well, we have different people in our offices. If we go call on a tenant to pitch a tenant rep assignment, maybe 10 years ago we’d send three brokers to that meeting. Now we send a consultant and a broker and a project management person who can talk about the sustainability of the asset. We might bring a corporate finance person that can talk about how you might structure the asset and fit it onto your balance sheet.

We staff it with different people because the decision-making process by the clients is different. We haven’t found that we need to downsize our staff much, so you have different people in different submarkets. The other thing that we have discovered is that if you want to deliver service to a client, you have to know those markets. We have to have people on the ground in Stamford, Conn., and in Long Island and in Parsippany, N.J. We can’t assume that brokers from New York City can go do that, and we’ve built big businesses in those places, because the clients expect more.

Our ability to downsize may be a little less so because of the nature of the business. But one of the things for us in terms of our corporate occupancy is most of our professionals are salespeople. You want them out a lot. Our footprint might be smaller, because I don’t want the brokers sitting at their desks all day. I want them out.

How many people do you staff?

Different size offices in different places. We have 15 people in our Melville, Long Island, office. We’ve got 25 people in Stamford, Conn. The downtown office here [NYC] has about 25 people in it right now. Midtown, we’ve got almost 300 people. We’ve got 200 people in corporate offices in New Jersey; we have three offices there.

How many people you have depends, number one, on the size of the market, but number two, what businesses you’re in. If we have grown our project management and our brokerage businesses in this market, they tend to be fairly people-intensive businesses, so the staff is going to be larger. If it’s corporate outsourcing accounts or it’s property management business, those people are still employees, but they tend to sit at client locations as opposed to sitting in our corporate office.

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