Matchmaking in the Middle Market: A Q&A with David Schechtman
Bendix Anderson May 5, 2016, 9:33 a.m.
Relationships help David Schechtman and his team close big deals as the real estate market changes.
Over his career, Schechtman has completed more than $5.4 billion in real estate sales transactions. Since joining as a senior executive managing director for Meridian Investment Sales in April 2015, his team has signed-up two-dozen hard contracts totaling $700 million. He leads the firm’s middle market sales group, focusing on properties priced from $5 million to $100 million. The group, whose talent includes managing director Lipa Lieberman, director Abie Kassin, and director Mark Steinmetz, has expanded to a total of ten brokers. Helen Hwang, who heads up Meridian Investment Sales’ institutional practice focusing on larger transactions, joined the firm with a team of ten additional professionals in the fourth quarter of 2015.
“The real estate market is still fervent, but for the first time in almost 60 months there is an increased element of thought and caution on the part of the buyers,” says Schechtman. As deals are taking more time to go to contract, Schechtman relies on long-term relationships to create opportunities for Meridian’s clients. “As I always tell my clients, a competitive bidding process is the most powerful force in nature,” says Schechtman. While some sellers have extraneous considerations such as partnership disputes or reputational considerations, Meridian argues that the best guarantee of a seller achieving top dollar price is through a rigorous listing process.
Before he made the move to real estate investment sales, he worked for years as a bankruptcy attorney for DLA Piper, a major law firm based in New York City. “I remember back in 2005, I was in a room reviewing files for a case at 3 a.m. and came across a document wherein a 26-year-old real estate broker was paid $250,000 simply for introducing two people,” he recalls. “I quit several weeks later.”
“I believe that the middle market business has shifted. It’s no longer solely about mass marketing opportunities; while that is still an important part of our outreach program, we are seeing increasing returns in taking a surgical approach to finding the most efficient buyer.”
Schechtman still has an attorney’s eye for detail – and a dealmaker’s ability to bring buyers and sellers together.
Commercial Observer: How is your business changing?
Mr. Schechtman: I believe that the middle market business has shifted. It’s no longer solely about mass marketing opportunities; while that is still an important part of our outreach program, we are seeing increasing returns in taking a surgical approach to finding the most efficient buyer. In 2012, my business was predominantly exclusive engagements where we would use broad-reaching and glossy campaigns to sell real estate… gorgeous offering memoranda that cost thousands of dollars to print and distribute, not to mention the extensive email and print advertising campaigns. Throw the ball up in the air, and someone would leap a mile high to catch it above everyone else.
We still use those gorgeous offering memoranda today, but at the same time we also have to be more thoughtful. Who should we be giving special attention to? For whom would this be a strategic acquisition? At current valuations, who is willing to forego current yield in favor of long-term capital appreciation? Who has a 1031 exchange that is expiring shortly? What new foreign source of capital is looking to make their mark?
Discretionary sellers come to us first because Meridian has been arranging their financing for years, is their trusted advisor, and because they know that no other brokerage has Meridian’s reach into the ownership community across this great city. Sometimes sellers have reasons for wanting a quiet process – they will only sell if someone brings them the number they want, and they don’t want their information distributed to the real estate universe.
My team just shook hands on two multifamily deals each in excess of $45 million. The sellers did not want us to perform a broad marketing process, and we were able to bring them the number they needed given our pulse on who is the most efficient buyer for a given submarket and property type.
“We don’t need the instant gratification of a sale. What we need is another ten years of transacting on a regular basis.”
How is the real estate market today different than it was last year?
While the buyer pool is deep, it is moving more slowly. Buyers were flying fish two years ago. The fish would just land in your boat. The good news is the water is still full of fish, but you have to cast a line and use the right tackle.
For example: A year and a half ago a 60,000-square-foot vacant development site in Midtown priced at $900-a-square-foot would have flown off the shelf before I could write the offering memo. By contrast, today we are in hard contract for that site, but the deal took eleven weeks. Still a record – closing in June.
What has surprised you about this year?
We are making a lot of deals – candidly, more than we expected. There will be cap rate expansion – however, in the first quarter of 2016 we haven’t seen it yet.
So if buyers are still eager and prices still high, are the deals buyers and sellers agree to really any different?
People are taking a look at cautionary pressures today. When I tell someone that I have one hundred rent-stabilized units, I get the same enthusiastic response today I might have gotten three years ago – but not because they want to turn the building into a condominium. Instead, they see real value in the proven cash flow from the existing renters.
There has also been material pushback on the pricing of development deals in Manhattan, Brooklyn and the Bronx. Prices were in outer space for the past three years. Prices are still high, but buyers are now more careful about their assumptions.
It’s still very active. I have been getting phone calls from Meridian clients seeking valuations for their properties, maybe not even with an eye toward selling today. I completed 20 opinions of value last month. Of those, probably 15 will sit in the file.
You’re a sales agent. Why provide these valuations, when they don’t immediately turn into transactions?
We don’t need the instant gratification of a sale. What we need is another ten years of transacting on a regular basis. Providing the best-in-class service and advice to our clients ultimately will result in many, many sales – even if they’re not today.
David Schechtman, senior executive managing director at Meridian Investment Sales can be reached at (212) 468-5907 or email@example.com.