Industry Legend Paul Massey on the Coronavirus, Midtown and B6


Industry veteran Paul Massey is waiting out the pandemic at his beach house on Cape Cod.

If it were up to him, he would be back home, running the second brokerage he founded, B6 Real Estate Advisors, and traveling the five boroughs of the city where he once ran for mayor.

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But, his kids advised him against it. With the coronavirus outbreak raging in Gotham, the city’s streets eerily empty, and the white-collar workforce typing from their living rooms, it was unnecessary to return.

Massey sold his eponymous brokerage Massey Knakal Realty Services, which he founded with his partner Bob Knakal, to Cushman & Wakefield for $100 million in 2014. He started B6, which stands for “Building by Building, Block by Block” in the fall of 2018, after a brief stint as a mayoral candidate.

Massey has spent the last 18 months building up the business, with a focus on recruiting and developing a capital advisory team led by Joseph Tufariello. Similar to his previous brokerage, the B6 brokerage operates with a territorial strategy, where each broker focuses on a geographic location.

Commercial Observer rang Massey up and spoke about the real estate market pre-coronavirus, the current crisis, and how he ran the New York City marathon last November for the first time in 30 years.

Commercial Observer: How are you? Hanging in there?

Paul Massey: Yeah, I feel like a caged animal. I’m at the Cape, and I was thinking about going back [to the city] for a couple of days and my kids were like, “Don’t do it. You’ll bring it back with you!”

Suddenly I’m really appreciating mobility and the freedom to travel around. So you’re at your house on the Cape now?

Yep. I’m sitting here looking out at the Nantucket Sound right now.

What took you up there?

Well, my daughters — I have a son who’s 30, he works at Brookfield on the leasing team and I’ve got two girls, 27 and 23 years old — were heading to Tulum, Mexico, for a bachelorette party and of course that unraveled, so they said, “Hey Dad, can we bring the bachelorette party up to the beach house?” I said absolutely. And they said, well you and Mom can be invited too. So we all piled up here last Friday and we had a bunch of their friends here, and they left on Monday to go onto where they were going. But the three kids and my son’s wife and my wife and I are sitting up here, basically hiding out.

I am really not used to being housebound or whatever. We’re getting some biking in, some running, walking the dogs. And hoping this abates as fast as it can.

I definitely want to talk about the fallout from the coronavirus, but let’s start with an update on B6 prior to the virus. How have things been evolving since you started B6, was it a year and a half ago now?

Yeah, exactly. Things are going well. We brought on 21 members on our sales team and debt team. Our focus is on what our first business was, which is selling buildings, but we’re also building up a big debt practice because we thought that goes hand-in-hand. We’ve got 150 assignments in the market now, with roughly a billion-and-a-half dollars worth of consideration.

What are some recent deals that you did that you’re proud of?

We sold a Rego Park residential portfolio which was of note because the contract was signed prior to the June rent law and closed afterwards, so that’s an accomplishment. We’re in the market with a $70 million dollar apartment building at 809 Madison Avenue, and advising on 576 Fifth Avenue, which is on 47th and Fifth, so we’re feeling like we’re punching a little bit above our weight and I’m happy.

Is there a particular asset class that you’re focusing on?

We are territory based. We’re trying to cover, [once] we’re done recruiting, every submarket in the metro area — so the five boroughs [and] New Jersey. It’s more geography based than asset class based because there can be four different zoning lots  on a single block, so you’re dealing with all different kinds of properties.

How about multifamily in the wake of the rent laws?

We are waiting on the residential side to see where it is in terms of rent-regulated asset values, but we’re staying close to that market because we think that they’ll stabilize. There’s probably some likelihood that regulations will be modified again to be more asset-creation friendly as opposed to what they are now. So, we were not ignoring that asset class at all.

Other places we’re seeing positive activity are industrial and flex space around the city. That market’s super hot right now.

Can you elaborate on the impact of the rent regulations and what you’re anticipating moving forward in that sector?

People used to buy multifamily property, more between [a] 3.5 and 4 cap, in broad strokes, with a business plan to drive rents up to achieve an 8 percent stabilized return on investment. So people went from having a business plan of driving from 4 percent to 8 percent to now, we think people are probably going to invest more in the 6 to 6.5 capitalization rate range, because they’re fearful that inflation on real estate taxes and operating expenses won’t keep up with the allowed rents.

Do you potentially see the legislature enacting new laws or changing the laws that passed last June?

[I see them] changing those laws because I don’t think they’re sustainable. You have to be able to encourage people to maintain our housing stock, which is over 80 years old, and you have to put in place programs where the private sector is incentivized to create affordable housing. We’ve got a diminishing stock just by age, and as population increases we need to create housing on a much bigger scale than we currently have.

Encouraging more housing is connected, but separate, from the regulation laws passed last year. Are there particular things that you think the city should be doing or could be doing to encourage more affordable housing development?

More uniform zoning allowances that encourage housing creation — the current zoning structure was put in place in the 1960s and each individual zoning area has as-of-right building guidelines. What the city is now doing is making every significant development a one-off negotiation with the city around affordable housing and around homeless shelters. It’s really difficult for developers who used to rely on as-of-right zoning to build a project. And a developer isn’t operating in a vacuum. They have investors who want to anticipate a return; they have bankers who want to help finance this. So if all of those parties to a development don’t have certainty around what can be done, it’s very hard to acquire properties, and very tortuous to go through the approval process when, at the beginning, you don’t know what the likely outcome is going to be.

You mentioned that B6 operates using geographic specialization, where brokers focus on a local area, which was the trademark of the Massey Knakal method. How is that translating in today’s market?

It’s still such a fundamental, helpful thing to clients to be able to have knowledge on a micro level that we think it’s the best way to operate. It requires that everyone in the company be bought into it and it requires collaboration because business is generated in all different parts of the city. As a result, we share a buyer’s list companywide. The culture is really good because people are really rooting for the success of their neighbor; it allows for a completely collaborative culture.

You said that you’re also in New Jersey. Why expand there?

Yeah, so, we have always been in New Jersey. We think it’s a great market, there’s a lot of sale and financing velocity, especially in the dense counties that surround New York City. It’s a great market for multifamily, great market for office and retail and also shopping centers. And on the industrial side, folks like Amazon are gobbling up a big swath of what’s out there so it’s also a constrained market in a healthy way.

On the debt and financing side — why get into that side of the business?

The big reason we’re focused on that is that there are about 3,000 buildings that sell every year, but the average building sells once every 39 years … [However,] there’s 13,000 debt transactions, so just on a pure velocity basis, it’s a great market. Last year, there was $130 billion of debt flow, as opposed to $45 billion in building sales. And the competitive landscape is fragmented and fractured. Of those 13,000 loans, 10,000 of them are done by a non-national brokerage firm or a firm you never heard of, or someone just didn’t shop their loan. So it’s very easy to convince somebody that if you go out and shop their loan opportunity to a multitude of banks you can get a better result and get cheaper rates.

What range of loan sizes?

Our sweet spot is gonna be $1 million to $100 million.

Okay, so let’s talk about the moment that we’re in now. You’ve been in the business for a while. Given your experience, what have you seen in past crises that may or may not apply today?

I think there are elements of each of the big inflection points in what’s happening today. For instance, the first [crisis] in my career was very early on, when the stock market crashed in October of 1987. That did not immediately affect the real estate market but it caused major upheaval a year or two later, so the stock market will impact the [real estate] market at some point, if not immediately. That’s the lesson from that experience.

In some ways this is, you know — hopefully without the human toll — very much like the 9/11 experience where we had a real freeze up in business for a month or two. Then, like today, interest rates became very low and we had a seven-year amazing run once people got over the shock of 9/11. And hearing what’s happening in China and Korea, this is likely to be that same kind of time period where we’re frozen up, but then there’s every possibility that the market could come back.

Unlike in the Great Recession, this crisis isn’t stemming from the capital markets, and the fundamentals of the real estate market aren’t the problem. Nevertheless, if retailers are closed, customers are staying home, and people are losing their jobs, there can be a domino effect.

Absolutely. The real estate industry should be very concerned about helping retailers who have been shut down, and find a way to help as many of those tenants get through this period of time as we can. They’re under a lot of stress. They should receive our help any way that we can.

Do you think that landlords are better positioned than tenants? They also have bills to pay.

Look, it’s a partnership, any good landlord-tenant relationship is a good partnership, where you want everyone to do well and right now it’s impossible for the retailers to be doing well who aren’t in essential services.

Has there been anything like this before?

One of the things that we’re talking about is that in ‘08-‘09, in the Great Recession, there was a flight to safety to New York and Washington, D.C., from around the globe. Those were the only two markets that people would consider [to invest in]. So I think there could be some positive outcome there in terms of people wanting to move [capital] here. We roughly calculated that foreign investment in New York City in those years went from 7 percent to 13 percent after, so I think we can very easily see a flight to safety in New York and Washington if there’s an economic downturn that’s global.

That’s interesting, because it feels that with the virus, cities like New York City will be the hardest hit.

I have friends who work and own property in Shanghai and they said it [has] significantly abated. It lasted seven, eight weeks and now they’ve reopened their shopping malls and reopened Disneyland.

So, in regular times, when you weren’t working remotely, what would a normal “day in the life” look like for you?

I’m an early bird, I’m usually at my desk a little after 7 a.m. I love to spend the first few hours a day before 9 o’clock, you know, on whatever paperwork I can’t avoid and then I’m on the phone talking to clients and helping our team. I do an 11 o’clock workout every day. I love it because it kind of breaks up the day and I come back all showered up and fresh, either a crossfit, or a one-on-one session with a trainer, or I box, which is great, great exercise and a lot of fun. Then I’m on the road in the afternoon. I’m in every borough at least once a week, including New Jersey and Westchester. I roam around and help our teams, I meet with clients, but I’m very mobile. In the absence of an evening event I head home around 7 o’clock, but I’m out two or three nights a week.

Do you do anything to disconnect or are you always on call?

I’ve got a million hobbies. I love to ski, we have the house at the Cape, so a whole bunch of different fun stuff. I’m not afraid to take time off and recharge.

And running?

That’s been one of my stress reliefs for a long time. I just turned 60, but when I was in my twenties, I used to run a lot of marathons. I ran New York City four times and a couple of others. But my hips started to go, and I got two new fake hips.

Then I saw my daughter-in-law do the marathon two years ago and, it was one of those beautiful days, one of the nicest days of the year. That night we were having dinner after the marathon, and I said, “Hey kids, what about Dad doing one more marathon?”

So I called up my hip doctor and he said, “Five years ago we didn’t know how it would work, but you have new technology and we can’t find any wear-and-tear, so go run your race.” So this past November, I ran my sixth marathon, 30 years after I ran the last one. I had a blast. My times were way different than when I was 28 years old, but I finished and I felt great about it.

Wow, that’s so great!

As soon as I’m done with you, I’m going to get out there and run three or four miles right now.