In this episode of Broker’s Angle, Hal Coopersmith sits down with Richard Plehn who shares how market insight and client-first thinking have shaped his success over decades in New York City’s commercial real estate. Tune in to hear why data is the new differentiator and what it really takes to make a smart deal in today’s market.

Transcript

Hal Coopersmith: Welcome to Brokers Angle. I’m Hal Coopersmith, and today we are speaking to Richard Plehn. Welcome to the podcast, Richard.

Richard Plehn: Thank you.

Hal Coopersmith: So you wanted to talk about data and what’s going on in the market, but before we do that, why don’t we talk about you, how you kind of gotten into the business. Then we’ll let you walk out on data.

Richard Plehn: So first of all, my background is I grew up on the Upper East Side. I went to private school in fifth grade I went to boarding school and then I went to NYU and my father was a mortgage broker. He was very successful mortgage broker, and he used to tell me stories about all the developers he represented and how he saved the money. And he also told me about the leasing brokers and everything. And what was good about the different firms, and one of the firms was Williams Real Estate. And Williams Real Estate was known to train the best brokers in the industry. And if you look at the top brokerage firms in the top brokers in these different firms, you will see somebody from Williams Real Estate being one of the top brokers. One of them are is the head of JLL. Another one runs the New York, New York City for Newmark.  Another one’s called Mr. Big over at CB. So they all started at Williams and what we all learned was how to find our own business and they really spent time with us understanding a lease and it was a good, really good environment. Where you learned a lot, and that’s where I began my business. I started at like 23 years old and at the time I started, it’s a funny story. I bring this Macintosh in the office and one of the brokers come up to me and says, what is that thing, that doesn’t get you meetings? We didn’t have even computers on our desk. We had to go to a machine to do our space reports. We were doing cash flows with Lotus, but the whole industry has changed.

Hal Coopersmith: What are some of the lessons, or one lesson that you remember from Williams that still applies today?

Richard Plehn:  I think one of the first things I learned was that you have to help the client. It’s not about you, it’s about the client. And if you do that, you will do better. So it’s like you want to sell something, you’re not selling, you’re consulting, you’re trying to think like the client so that you can help find a solution to his problem or her problem. Another thing I felt that was important from my first mentor was, if you’re going to a meeting bring presentation materials, prepare beforehand. Think of all the questions they’re going to ask you and be ready to answer. I think those are two things. And you have to work harder than everyone else.

Hal Coopersmith: So you talked about some things that are constant.  You mentioned you grew up in New York City, you’ve been doing this a while. What are some things that have changed over the time that you’ve been doing that?

Richard Plehn: I think what really changed is, but I think it started is the premise of an office leasing broker is, it’s an open listing system, because it’s an open listing system everyone has access to the same data. So even back in the nineties, I feel old, feel like it was just yesterday, we competed on services and I remember being interviewed. How do you distinguish yourself from everyone else if you have the same service? We still compete on services, but the difference today is how you use the technology and data to distinguish yourself from your other clients, from your other brokers. And what’s interesting is it’s like a lawyer. Certain lawyers, when you talk to a lawyer, they don’t want to give their intellectual capital away before they get hired. I always feel give them everything. If they’re going to hire you, they’re going to hire you. If not, they don’t. But if they see how you work. They will hire, they will say, Hey, this person’s really working hard. This person really wants to make it work for me, and I can see that he’s going to do what he says he’s going to do. Now today, what’s different is when I started, if I needed to get mortgage information, we had to get an expediter to go down to the city hall and pull the mortgage information.

Today I can go onto Property Shark, I can go onto CoStar.  If I wanna see building violations, I can go onto Property Shark. So today, when you sit down and analyze a building, you have a lot of different data sets you can go through.  I’ll just talk to you about some of the data sets I use. I use Property Shark to find mortgage information, building violations, for example, I was doing a deal down in Gramercy Park, union Square, and we were doing it on a side street deal and we’re looking at this building. I went, I looked at the building violations and I saw that they had a note there. Elevator breaks down, people are complaining, noise outside. I couldn’t do that before. So I brought it to my client. My client knew beforehand. We addressed that issue. And another situation, we were doing a 40,000 square foot deal for a home furnishing tenant. We had two different landlords. We pulled the mortgage, the taxes, and figured out the break even. And we realized one landlord could only do like a $45 deal and the other landlord could do a $25 deal because he had no debt on the building. So when we were doing the negotiations, we knew which way it was going to go. We knew who was going to make the cheaper deal.

So data is very important, but you have to know how to use it. And the other thing we have today is Comstack.  Comstack is a program where brokers send deals in, completed deals in, and they can pull deals out. Before every firm had their own database. Now that information’s more readily apparent in the market. So you can use that information when you go into a client’s office and say, here are the last five deals done. Your building here are the last 10 deals in the area. It doesn’t have everything, but it helps a lot. And what I would say is we’re going through a revolution right now in real estate where, when I was in college, I was with this physics professor, and this physics professor was so smart that his parents gave him money when he was in 10th grade. He played the stock market and paid for his entire education for, and the parents didn’t have to do anything.

And Stewart said to me at the time. It’s about taking the data and how you manipulate the data is the difference. We are becoming more like Wall Street in the sense that it’s all about the data. And the other thing I think that’s going to be revolutionary in our business, is there are programs out there that can lay out a space for a tenant in a matter of three minutes or four minutes and come up with it. So I think the transaction, how fast the transaction’s going to start from start to finish is going to get less because all this information will be able to get to the bottom line faster. I hope I answered your question.

Hal Coopersmith: Yeah. So it’s a great segue to the actual data. You came here armed with data, you’re ready to analyze it, ready to show that you are the difference maker. Let’s get to it.

Richard Plehn: I’m not the difference maker. I do it because when I go in with a client. The first question everyone asks is, where are we in the market? What is going on? So every pitch you go on, you have to realize they’re going to ask the question. And what I try to do with the data is I try to figure out what’s really going on or what do we really see as trends in the marketplace? And I think what we see first is we see that the economy is improving, even though it’s improving. We have certain issues. We have the tariff issue. We have people are a little nervous about that. I believe we will get through that. We have federal funding.  Federal funding is going to be a big issue because we’re cutting back,  on funding for universities, pharmaceutical companies, nonprofits. That’s gonna have an impact on our country. I’m hearing it already. But I believe that in the end the United States will be better. It is always will become better. So I think right now we’re seeing the economy has been getting better, we have a hiccup on the road, but there were 20,000 more jobs today than a year ago in New York City.

The second thing I think when you look at the market today. Is the rents are, the availability rate is dropping. It’s still above what it is. It’s about, I’ll pull it out for you right now, it’s about 15.7%. Before COVID it was about 11.4%. And what’s interesting about it is I was speaking to a mentor of mine and he says, that’s not the right statistic. And I said, what do you mean? And then we started talking because you have buildings being converted to residential. So you have net lease buildings where you can’t make a deal today. On top of that, you have buildings that are in financial stress. They’re coming off mortgages where the mortgage was a rate of 3% or 4%, and they’re going to have to pay 7%. So these buildings have to figure out how to get these buildings refinanced. They’re going to special services. When you take all that into account, that availability rate is close. It takes off three to 5%. So that means that, you’ve just lowered the availability rate, so you’re getting close to pre covid levels.

Another thing that I find that’s very interesting in the market today is that the type of buyer of a building today, what I’ve seen in the market, and I haven’t seen this, is users are buying buildings. B and H photo just bought a building on 34th Street from Brookfield. There was a two Park Avenue. This is a million and like a million square foot building. A family bought the building. They’re going to backfill it with their company and their friends and families. Same thing happened at 1375. That’s a new trend that hasn’t happened in this industry. What else I see in the marketplace that I think is interesting is there’s been a flight to quality. What it is is that usually in a recession, two to three years, we’re out of the recession. However, because this has been a slow recovery, everyone has been moving, all these companies have been moving up in space so a tenant who’s looking for class A space today, can’t find it in the marketplace, or is having a harder time finding in the marketplace. And when you look at new construction, new buildings coming online in the middle of Covid, it was about 17 million square feet. We’re down to four and a half million. So what all this is saying to me is that we’re probably going to have a spike in the rent because the high-end market, what a tenant has to pay for a private equity firm, a hedge fund, a law firm, isn’t that much comparison to the revenue. If you’re an engineering firm or an architectural firm, usually they need to be in a low rent area where it’s five to 10%. So for a hedge fund that’s doing very well, it’s just nickels and dimes.

What I also see that’s going on in the market today is if a tenant is taking space in the market, they’re usually getting about one month for every year they signed and they’re getting, I would say about $15 a foot in work for every year they sign. So what you’re seeing on a 10 year basis, you’re seeing about 150 in work and you’re seeing about 10 months of free rent. It’ll vary in which market it is. That’s not healthy. But what is healthy is a leasing in the city. And what you see, what you see in leasing in the city that’s very interesting is that for the last four quarterss we are ahead of pre Covid leasing average. And I think when you look in the class A market, you’ll see that we are above that. And when you talk about the class A market, and I think the statistic is 77, it’s close to 69% of all leasing transactions are done in Class A markets. So Hal, do you want to talk about Midtown South? What would you like to talk about?

Hal Coopersmith: Why don’t we talk about, you brought up Midtown South. Why don’t we talk about Midtown South?

Richard Plehn: Well, Midtown, I just want to point one thing out. Midtown, I feel, has recovered from pre Covid and it’s on its way to full recovery. It’s going to take some time, but I believe it’s a pretty healthy market now.

Hal Coopersmith: Our office is in Midtown, so we can certainly feel it and see it and saw that momentum picking up.

Richard Plehn: And you can see it because third avenue’s going to be residential and that’s going to lower the inventory in the market. And tenants want to be near transportation. That being said, the overflow is going into Midtown South and what we see that’s really interesting in the market, is Goodwin Proctor, a major law firm, just took 250,000 square feet at the toy building, 205th, that’s an AM 100 law firm, and we’ve never seen that. The other law firm is, I think it’s Quinn, is it Quinn and Emanuel?

Hal Coopersmith: Quinn Emanuel.

Richard Plehn: Quinn Emanuel took space at 295 fifth Avenue. They were at the New York Life Building, but I thought they were going to move uptown. So you’re starting to see law firms move downtown, move into pre-war buildings in Midtown South. You’re starting to see financial service firms, hedge funds, venture capital firms take space. So Midtown South is starting to see a recovery. Also, they’re going to benefit from artificial intelligence. We’re in the infancy stages right now. You’re seeing these companies start up, they’re taking two year deals, they’re taking three year deals. The next couple years, they’re going to start taking more space. Open AI took a hundred thousand square feet in Midtown South, so I feel that Midtown South is starting to recover. It still has some time to recover, but it will recover, and if you look at lower fifth Avenue, I always thought lower fifth Avenue was the best indicator. It’s the Park Avenue 23rd to 14th Street is the Park Avenue of Midtown South, and you’re seeing healthy deals down there in the seventies, eighties, and nineties.

So it’s recovering, and will continue to recover. However, when you look at downtown New York, downtown is very interesting because we did about 1.8 million square feet of leasing downtown, and out of that 1.8 million square feet, Jane Street took 900,000 of it. If you subtract that out, you only did about 900, 800,000 square feet in that range. So downtown still has some time to recover, but when Midtown recovers and Midtown South recovers the overflow starts to come into downtown. And what’s interesting about downtown is that there’s some very big office buildings being converted, and that will help tenants move downtown because their employees can live to work. If you live on the Upper East Side in the seventies, or you live out on the Upper West side in the seventies or eighties, you can’t walk to work. You got to take a subway. And I think that live to work is a great thing. And the other thing about downtown, it has it’s close to Brooklyn and people like to live in Brooklyn, so I feel very bullish about New York City.

Hal Coopersmith: That’s a wonderful note to wrap up kind of the market intelligence. Why don’t we talk about you, sort of one chance that you had, one client that you worked with, where you were able to really provide value to them kind of capitalizing on this knowledge of the market.

Richard Plehn: I think I add value to 99% of the clients I work with, and I think it’s because I take a Socratic approach to it. You first have to understand the business needs of the client. What is their objective? That is really not about real estate? Is it to sell the company in five years down the road? Is it to keep the company for the next 20 years? Is it to go public? You got to figure out the objective. The second thing after you figure out the objective, is then you have to figure out after they have that goal of what it is, what’s going on in their industry and how does that play into their goal? After you’ve have that picture, we then sit down and we figure out how much space do you really need? And we sit with an architect and figure that usable out. At the same time, we do an audit. And what’s funny about an audit is I’ve done audits on tenants leases for the past 20 or 30 years, and I always run into tenants in Midtown South, particularly where they’re paying a low rent, but by the time they add up all the escalations, everything, they’re double what they thought they were paying.

So you got to understand we look at the lease, we look at how to improve that lease from an economic, from an exit strategy. And then the next step of the process is the education. And I always joke with my partners always, and I say, it’s like buying a house. They’re going to say, I want to live in Scarsdale. That’s the only place I’m going to live. That’s the only place. They end up in Middlesex, New Jersey. It’s an education process. And when you take that tenant out, they start to see the market. And when they start to see the space, their minds start changing what they want and what they need. And what’s interesting about this market today, I think, is you asked the question about what’s changed in the market. It’s this. Do I really need to come to work? Does the employee need to come to work? And it’s more today in these Class A buildings, you’re seeing amenities, amenitized buildings, and some of the tenants I represent, they look at those amenities and they think that’s going to be a big difference bringing their clients in before their employees into the office entertaining there. It’s an education process when you take them out. And then the next step, as I had mentioned, you create that controlled auction process. And the goal of the controlled auction process is you can handle the rent, you can handle the free rent. It’s the rights. I’m working on a deal right now where we have the right to take the floor above, we have the right to take the floor below. We have the right to give back half the space at a certain point, it’s the flexibility of the deal. Two deals I’m working on, we’re doing that right now. And when I look at a deal, I don’t look at just the rent. I look at do they have exit strategies from it?

And we have a good friend in common, Brian Robinson, when I represented him, council press, he was in 40,000 square feet at the time. He was just about to sign, he had all those little escalations in, and we moved to the building called three 40 West 34th Street. He took space at $25 a foot, 25,000 square feet. This was about 15 years ago. He wrote we had options to extend our lease in the building. He left the company because he wanted to do executive coaching and what happened was the new management came in, the building was being converted. They had to buy them out of the lease because they were so far below market. And what makes me proud of that deal was that he was in another building in the area. He was going to renew at $35 a foot. And I moved him to that building. He got a $25 deal and he was below market. And what you learn is I can be as good a broker as possible, but I need that client to go out and see as much space as possible and be educated. It’s like educated consumer is your best customer.

And yes, it’s about negotiations and everything, but the more space, the more test fits, the more cash flows that you run, the client gets a clearer picture of what they need. And what’s interesting about New York City is you have institutional owners, you have private equity owners, and you have families that own real estate. You have to look at your client and say, what type of building do they need to be in? If you’re a corporate user and you’re part of a big corporation, you’re probably going to end up in an institutional quality building,  because everyone who’s on the decision committee knows that the building be, will be run a certain way. If you’re an entrepreneurial company, you typically do a less expensive deal in a family building. That’s not true. There are a couple owners out there, I can tell you that you go in their buildings, they’re doing as aggressive deals as these private equity firms. So by educating the customer to the market, they start to understand.

And, what’s tough about our market is, you could be in one building next to another building, and one building could be getting a $200 a foot and the building next door is only getting $70 a foot. So you really have to see, do you really need that $200 a foot building or can you get that $70 foot building? I hope that answered your question.

Hal Coopersmith: It does, and it is a great note to end things on. Richard Plehn, thank you for being a part of Broker’s Angle.

Richard Plehn: Thank you.