Sunday Summary: That Escalated Quickly


Midway through last week a bomb dropped on commercial real estate.

Bob Knakal, one of the great brokers of commercial real estate, co-founder of Massey Knakal with Paul Massey, and claimant of some $22 billion in sales under his belt, was abruptly fired from his perch as head of JLL (JLL)’s New York private capital group. (Knakal is also a regular columnist for Commercial Observer.)

SEE ALSO: Brooklyn Investments Sales Dollar Volume Down 34%: Report

This came after Knakal was the subject of an admiring New York Times piece about the extensive maps of 27,649 properties that Knakal created during the pandemic — and was, apparently, the final straw that sent Knakal packing from JLL.

A source told CO that the firm was moving away from “star brokers” and toward a greater emphasis on teamwork. The fact that JLL was mentioned only once in the article irked the higher-ups.

This was the latest personnel shakeup in a series that has been roiling commercial real estate. Aside from Darcy Stacom announcing that she was leaving CBRE (CBRE) the previous week, we also learned last week that Google’s head of real estate, Paul Darrah, was ditching the fourth-richest company in the world for investment firm Citadel.

In the Washington, D.C., area, Jim Lindsey and Kevin Woodley of Buvermo Investments are spinning off their business into a property management, investment and development firm that they’re calling BVO Capital.

And this is not an East Coast phenomenon, either. In Southern California we learned that Robert Prouty joined JPMorgan Chase (JPM)’s Irvine-based lending team, Eric Nelson is going to Savills as executive managing director, Troy Pollet is moving from Cruzan to Cushman & Wakefield (CWK), and Suzanne Lee was named executive managing director of Newmark (NMRK)’s West L.A. office.

They named it San Diego…

Speaking of Southern California, CO was on the ground in SD last week for the Mortgage Bankers Association’s Commercial/Multifamily Finance Convention and Expo (aka, MBA CREF) where in addition to embracing our innermost Ron Burgundy associations we learned the following tidbits:

  1. The boundless optimism that we picked up on in the last few months is being tempered … but not abandoned. “I think the sentiment from everyone is relatively optimistic with some realism built in,” Axos Bank’s Michael Lorch told CO at the conference. “It does however seem a little bit more transaction forward than last year, so that’s good.” 
  2. Office needs a big reset and prices will likely fall, but conversions are still not going to be the savior of the office market that many people once thought they were.
  3. Borrowers are sniffing around for money for adaptive reuse projects anyway.
  4. The Sun Belt is facing multifamily oversupply problems and “bumpiness” is anticipated in 2024, but, as per Freddie Mac’s Kevin Palmer, multifamily overall remains relatively resilient.
  5. The market needs to get out of its head. “There’s so much noise, and people will extrapolate from the weakest point in the market, and that contaminates everything else,” said speaker Mohamed A. El-Erian, the former CEO of PIMCO.

Kind of a big deal

Let’s talk about leases. We’re always looking for the big ones or the boldface names, and we saw both last week.

Let’s take the boldface names first.

We definitely had to read the headline twice when we learned that Nick Jonas and John Varvatos are teaming up to open a tequila bar at Miami Worldcenter called Villa One Tequila Gardens. We’ll drink to that!

And the D.C. bagel shop and deli with perhaps the greatest name ever conceived of for their products — Call Your Mother — announced that it was expanding into the Vienna Marketplace in Vienna, Va.

There were certainly big leases too. In Miramar, Coaster Fine Furniture renewed its 250,441 square feet at Sunbeam Properties’ Miramar Park of Commerce. 

In Glendale, Queens, MBS Group leased a whopping 300,000 square feet of space to Manhattan Beach Studios, a TV and film production company.

And there were sales, too. CoStar (which dropped commercials starring Dan Levy and Weezy for its residential website during the Super Bowl) dropped even more money on its 552,000-square-foot headquarters in Rosslyn, Va., which it laid out $339 million on!

But the most exciting player in leasing last week was a lease that didn’t happen yet. We learned that ChatGPT’s owner, OpenAI, is on the lookout for 60,000 square feet of space in New York — proving once and for all that artificial intelligence is no substitute for the old, reliable real estate broker. (Raise Commercial Real Estate got the assignment in this case.)

And there were redesigns that haven’t happened yet, either. Specifically, we learned that LVMH is proposing a new Louis Vuitton flagship on what is perhaps the chicest strip (Rodeo Drive) of the chicest town (Beverly Hills) in the nation. The proposal is for something 50,000 square feet large, but other details are still murky.

Luxury is also coming farther south in L.A. in the form of Arya Group’s new plans for a 15-story, 174-key hotel in Inglewood next to the Intuit Dome in time for the 2027 Super Bowl and 2028 Olympics. (Speaking of leasing and purchases: If you haven’t signed up for CO’s Deals of the Week newsletter, you should not hesitate one minute longer! Do so here.)

That doesn’t make sense

There were a number of earnings calls last week, and we learned some unwelcome news from the Vornado call:

Facebook parent company Meta is shedding 275,000 square feet at 770 Broadway. (Meta is still in about a half-million square feet at the property.) But… Vornado is also (maybe) planning a new tennis complex at the old Pennsylvania Hotel site. So there’s that!

Hudson Pacific Properties was pretty sober on its earnings call, with CEO Victor Coleman saying that a “once-in-a-generation dual studio union strike effectively shut down the entertainment industry” last year, resulting in a $50 million drop in revenue from 2022. The REIT’s stock fell 16 percent after the call. (Hey, we thought there were studio deals happening! Maybe it’s an East Coast thing?)

All things considered, CBRE had a pretty good earnings call, announcing that revenue had risen 4 percent to $32 billion. The deal to take over Brookfield’s property management business last month (broken by CO!) was discussed on the call, as well as plans to acquire J&J Worldwide Services.

“Even though 2023 was a difficult year for commercial real estate, we delivered the third highest full-year earnings in CBRE’s history, as our resilient businesses continued their strong growth,” said Bob Sulentic, the CEO of CBRE. “This partly offset market-driven revenue declines in businesses that are sensitive to interest rates and debt availability.”

Sulentic and CFO Emma Giamartino also said they were “cautiously optimistic” that the worst is over for office.

Milk was a bad choice

When he was down in the dumps, Ron Burgundy should have probably gone with something cool. And it’s not as though he wouldn’t have options because there’s a lot of cold storage out there.

Thanks to changing eating habits and pharmaceuticals, cold storage has been going through a nice boom with a predicted 13.2 percent annual growth through 2030, according to Colliers.

“You can see it in the frozen section at the store. The number of frozen aisles has expanded,” said Rick Kingery, a senior vice president at Colliers.

A dive into cold storage might be nice on this wintry February Sunday, but there were several other features from our industrial and data centers issues that we would welcome you to check out, like our interview with Franz Colloredo-Mansfeld whose Cabot Properties just raised $1.57 billion for industrial investment, and how data centers are using proptech in their operations.

You stay classy, CO readers!