On this episode of Brokers Angle, Hal Coopersmith sits down with JD Cohen to talk about the journey from leasing broker to real estate owner. JD shares how more than a decade and 900+ office and retail transactions helped him develop a unique edge when acquiring and repositioning Class B office buildings, why he sees opportunity in today’s market, and how pre-built, furnished office space is changing what tenants want.

Transcript

JD Cohen: I grew up in a real estate family, although it wasn’t what I wanted to do initially. I did study art, but as I mentioned while we were off camera, my old man did give me my start in the business because he was the first hire at Newmark, in 1986 as the first leasing broker. I started working at Newmark in… Actually, while I was still finishing art school at the Pratt Institute in September 2015. So I was living on the Lower East Side. I was working in the mornings, I had afternoon classes, and then vice versa on some days. And, back then, I was still riding my fixed-gear bike over, over the Williamsburg Bridge, which was a cool experience, very cathartic experience. Single speed bike. I got to observe a very high number of completed transactions very early on in my career, which was a huge benefit, Because our team did a mix of landlord representation and tenant representation. So I distinctly remember we, represent, Garden Homes, Skyline Developers, the Wilf family, at 1040 Avenue of the Americas, and we completed three transactions in, like, the first six months, eight months I was, at the company one of which was, Adecco, the other was the New York City Building Congress, and the third one escapes me. But, I was just showing space and marking up proposals, but I got to watch several transactions happen start to finish, and I learned. While I was at the Pratt Institute, I actually studied photography, and I did what I thought was pretty obvious, but apparently wasn’t, where I sort of used that to take really pretty pictures of all of our team’s listings, and then I put it online on a website called 42 Floors, which was a company that was acquired by NoTell and then Newmark bought.

I don’t know what happened to it, but I had all the floor plans, all the photos, and I was paying for the premium account, which I think was $500 a month, and I was getting inbound tenant rep leads out of that. And because I had so much exposure very early on in my career, early on in my career, I was able to take that demand and run with the ball and close these 4,000 to 10,000 square foot leases very early on without really, the need of a senior broker. When I was about 24 or 25, my friend Arthur Schmalevsky, who I met at the Pratt Institute adjacent Chabad on Myrtle Avenue, had joined a new company called Sonder, which you might have seen in the news recently because it went Chapter 11. Yeah And Sonder had just raised like $50 million. And they wanted to open up what was essentially legal Airbnb’s in New York City So I got exposure working with them for several years to things that weren’t just office and retail brokerage. I got to meet some really cool developers. I got to learn about concepts like debt and equity and what a sponsor was and how all this stuff worked, and just at a very high level. We did arrange several, Sonder transactions both in New York and in Miami and Detroit, actually. My favorite one was the one that we did on Jackson Avenue right off the Court Square stop.

You’ll see it was 2320 Jackson Avenue, and this was a building that Peter Papamichael of the Varea Group built bespoke for Sonder. And when the Chapter 11 proceedings were going on, it was released to qualified bidders on the debt of Sonder, on the assets of Sonder. That, that was the second best performing Sonder in the country. So we arranged like a 40,000 square foot lease for them. Office leasing, tenant rep, and landlord rep was and still is today my core competency and core business. But when COVID happened in 2020, I was a young guy that had gone from making a lot of money that I thought would never stop to nothing, and I cut expenses. I moved back in with my parents in Westport, Connecticut. I locked myself in a room, made calls all day, and tried to figure stuff out. What I ended up figuring out was that there were a few deals out there for sale that I was trying to broker, which is all I really knew how to do, but there were a couple that I knew were great deals, but I wanted to buy them, and I didn’t know how.

I tried bringing them to more experienced friends who had the knowledge of how to actually acquire real estate, which is absolutely a skill set. It was a lot more legal work than I had expected, Operating agreements and actually completing an acquisition. But I think at that time in my life, we did about five or six of those, all while still, you know, brokering leases and representing landlords, representing tenants. I even did a few, few food and beverage transactions. I did the Chelsea Living Room lease on, West 14th Street. I recently, with the cooperation of a, of a Newmark broker in South Florida, we did the Kechi Palm Beach, but just, mainly office and retail leases. I started to not really like the lack of control I had working with the partners I was working with because I wasn’t a signer on the bank account, and I had friends and family who had placed trust in me- This is

Hal Coopersmith: For your brokerage?

JD Cohen: No, this was for some small-scale syndications I had done over COVID.

Hal Coopersmith: So you were not happy with the lack of control

JD Cohen: 100%. I wasn’t happy with the transparency that was going on and the lack of reporting to the partners, to the limited partners. I was basically having to prepare all this stuff myself. And my uncle, Uncle Mark, if you’re watching, you were a part of this. My Uncle Mark was an LP in a couple of these, and the K-1s were consistently late. And I wanted to deliver the K-1s on time. So, you know, people have placed the, their trust in you, and everyone shouldn’t have to file an extension just because someone can’t, you know, get the management reports and the books over to an accountant in a reasonable fashion.

Hal Coopersmith: Which is indicative of other things.

JD Cohen: It may or may not be. But regardless, what I realized is, yes, I was finding deals that I liked, partnering with a more established operator, and bringing in friends and family, and essentially leveraging my reputation. Which it’s the truth. Prior to this, I had no operational experience, no acquisition experience. So I think that that’s a natural step for anyone who wants to do this, is to sort of like piggyback on someone else’s deal, That’s sort of like how you need to start. How else would you just get started? So that had happened. Then about two years ago, I started buying apartment communities in Pittsburgh, Pennsylvania. And those transactions were the first of which that I was the managing member. I was the, the s- signatory, opening the bank accounts, putting in the operating agreements, putting in the business plan, signing all the documents, control the bank accounts, everything.

Hal Coopersmith: Why Pittsburgh?

JD Cohen: Ah, love that question. Pittsburgh had and still has a huge density of eds and meds, There’s like 30 colleges in a 20-mile radius. Duquesne University, U Pitt, Carnegie Mellon University, like just to name a few. Huge employment base there because of the ability to hire these kids, right, out of those schools. UPMC, Amazon, Apple, Duolingo, I just looked at what the in-place rents were And then looked what the cost per unit was, and it was very compelling. So I think we bought about 70 apartments. we, meaning with partners and also just me. I invested a lot of my own personal capital in that portfolio, where we, we bought things for about 50 grand a door, and the in-place rents were 750, and market rents for were 950 it wasn’t that complicated on how we were going to create value. So I  like that about Pittsburgh. I also had had some bad experiences with my Long Island portfolio trying to get non-paying tenants out. So when they told me that, you know, the outside date was three months no matter how bad it got, I was like, “Let’s do it.”

Hal Coopersmith: So you were looking for deals, office and commercial deals in New York?

JD Cohen: Prior to that, I’d always wanted to buy Manhattan office.

Hal Coopersmith: Because that was your business.

JD Cohen: Yes. I found it hard to believe that people would enter the world of Manhattan commercial real estate brokerage and not aspire to be an owner.

Hal Coopersmith: Why is that weird to you?

JD Cohen: I guess it just never occurred to me that not everyone thought like me.

Hal Coopersmith: What do you think that you think?

JD Cohen: What do I think that I think is that commercial leasing is what drives all the value. There’s a reason leasing brokers get paid such big commissions is because the amount of terminal value an executed lease creates for the building is way more than what a leasing commission is. Otherwise, you’d give me a portion of it. Sure. But, you know, if you ever sat down and look at those numbers on a, I think I’m doing the math now on the one we just bought, is every lease we sign makes the building worth, like, another $2 million. So it’s, the fact that I spent a decade doing exactly this gives me an edge. Well, first off, I, I don’t want anything to do with Manhattan apartments, period. But workforce housing is, is a good asset class, but I have no edge. Like, I’m not going to be able to operate that better than anyone else. Unless it’s off market, I’m not buying it better than anyone else. I don’t have a better debt facility. I don’t have a relationship lender. I don’t own a flooring business where I can get all the floors for cheap. But I have completed over 900 New York commercial office and retail transactions. So I have an edge in that regard.

Hal Coopersmith: You have an edge in that regard.

JD Cohen: Yes.

Hal Coopersmith: Characterize what the edge is.

JD Cohen: Well, I think the edge is having done as much leasing as I have. When you work for an owner, you fill out a forward 12-month budget where you do leasing assumptions for what the next year is going to look like. If an owner is buying a building, he will ask you, you know, what your leasing assumptions are. I am pretty good at estimating future funding requirements, which is a opaque scenario. A lot of acquisitions associates will just assume 150 TI, 12 months downtime, and blump rent, Spend a lot of time working on improving existing installations in ways that wasn’t a full gut and build on behalf of our third-party clients. New kitchen, new floor, new lights. I mean, it’s not rocket science, but I am able to look at a space, look at a floor plan, and understand what needs to be done to that space in order to attract what type of tenant, who’s going to come in what amount of time, and how long they’re going to stay, what type of rent they’re going to pay. So I think that that gives me an edge.

Hal Coopersmith: And you know that based off of the number of deals for the tenants and how long it’s going to take to get them there?

JD Cohen: Yeah. I mean, in addition to representing landlords and doing that, I also represent tenants, so I’m out in the field doing space tours. I see the competition. I see what they want. I understand the trends.

Hal Coopersmith: What are some of the trends?

JD Cohen: Tenants on, especially in a side street Class B building, they want built furnished space. They want Amazon same-day delivery.

Hal Coopersmith: For their office space?

JD Cohen: Absolutely. For a variety of reasons. Tenants post-COVID, I think it’s funny. I don’t remember who I was talking to the other day. May- I think it might’ve been a contractor actually who mentioned this, who had built out a bunch of NoTels. But he’s like, “Yeah, like, people started furnishing space,” which I think is true, in order to compete with the furnished inventory on the market in ’21 and ’22, which was left over by dead WeWorks, dead NoTels, and sublease inventory. That’s when we started doing it, and that trend hasn’t gone away. Tenants don’t want to have to deal with buying furniture, and it’s always a fight with who delivers power to the workstations, It’s a job. It’s another layer. It takes time away from an employer’s core business to set all this shit up. They just want to snap their fingers and move in.

Hal Coopersmith: How do you know how long it’s going to take the tenant to get into a space?

JD Cohen: It varies. It varies space by space, building by building, and block by block. Obviously, smaller spaces rent quicker. The average Manhattan employer is 20 or fewer people, which makes the mean tenant about 3,800 feet. People think that you read the real deal, the observer, you think every deal is 20,000, 30,000 feet on Park Avenue or Hudson Yards, but it’s not, It’s y- a 3,000 to 5,000 square foot lease for five years for 50 bucks a foot is the average lease. Those are getting done all day, every day. So you have a nice, nice space that’s built out with some furniture in that size range and is priced right, that’s going to rent.

Hal Coopersmith: And you saw that and you said, “This is my edge, and I can bring this to an office building.”

JD Cohen: Yes. But I think it was more like I had watched a ton of, I’m just going to be honest, I’ve watched every trade happen over the last decade in New York City,  Every commercial office sale. I’ve watched it up to 800 a foot, 600 a foot, 500 a foot, Class B buildings were going for about 500 a foot at the peak post-COVID, like, just these mid buildings, mid-block commodity assets. Those same assets today are probably going for about 250 a foot. The rents haven’t changed much in these buildings today, to where we are today from where we were in 2019, the rents are about, about the same.

Hal Coopersmith: What has changed?

JD Cohen: Well, the lending environment.

Hal Coopersmith: The interest rate.

JD Cohen: Absolutely. The lending environment, the equity being available or not available, and, now I think you need to put more into these buildings because a lot of them require furniture and a facelift, and, there’s perceived risk, and that’s, that’s why there’s no equity available, or there’s limited equity available, or it’s only guys who pray at Safra Shul investing in these deals. But they’re the ones who’ve made the best acquisitions ever.

Hal Coopersmith: So you see this opportunity. What type of buildings in this Class B environment do you think are best suited for what you’re doing? Or what you want, what a facelift to attract tenants.

JD Cohen: The Midtown South rezoning, which passed recently, which I think is from 40th Street to, 40th Street to 30th Street from 5th Avenue to the east side of 8th Avenue, has made this business plan a little bit harder to put into action because the capital markets environment for a residential conversion is much easier than let’s buy a Class B office and keep a Class B office. Even though the yield on cost might be far lower, it’s, it’s still an easier deal to source equity and debt for. And because of that, the product that can be converted and can be converted at scale is going for big numbers despite whatever’s happening on Second Avenue. 42nd. Yeah, right. Look, we have a, we have a lack of apartments, so that’s a story people understand, but we also have a lack of quality Class B office.

Hal Coopersmith: But you just said it made it harder, but what are you looking to do?

JD Cohen: In an ideal acquisition is a building where a lot of the heavy lifting has already been done. The lobby’s been done. The majority of the ACs have been done. on the building that we acquired, there were I have to re- release like four or five floors, but the floors are in white box condition. They have bathrooms done. They have AC done. They, you know, I’m not, all I’m doing is adding offices, lighting, furniture. It’s not, some massive rehabilitation project.

Hal Coopersmith: If the heavy lifting is done, how can you add value to the property?

JD Cohen: I am a firm believer on a building like this of pre-building space that will transcend multiple tenancies. So instead of just sitting there waiting, signing a five to 10-year lease with some, you know, garment tenant, giving them a you know, a modest modification, and then hoping they don’t screw me over the lease term, and then I have to go find another garment tenant, I invest time, effort, and energy, and I actually spend more money in reimagining those former garment spaces as An office for technology companies, media companies, advertising companies, engineering firms, architecture firms who open space, 65% open with enclosed meeting rooms and spaces, and I really try and max it out,  creative, modern vibe. I expose some brick, redo the kitchen a little bit, do the LED linear pendant lights, and I, I set it up with furniture, so all they have to do is move in. So we bought the building in May. We signed a lease for the top floor right away with a client that I represented. And then, the 10th floor, we’re about to sign a lease, I think tomorrow, God willing, with, 35… We had, like, three offers on the space. It was amazing. So, just like I would for a, a landlord rep, rep client, we held a series of broker events.

I was there every morning for a month having, you know, guys from, middle market leasing brokers who would have visit the space. I purposely tried to get every broker under the age of 30 into the building, because the spaces were 4,000 feet. Like, you know, Paul Americh isn’t, isn’t coming to see the building. So I was like, “Who are your juniors?” I was like, “I’m old now. Who are the juniors? I don’t know. Get them here.”  So we would break it up by brokerage, one day we had the CBRE juniors come. One day we had the Cushman guys come, and the JLL, the Adams and Company, the LSL advisors, we attracted a tenant pretty quickly, and, I actually got to pick my deal. So we had three offers. I picked the one, who was the scion of a family business, third generation. And look, it was a, it was a three-year lease, but, you know, it was $40 a foot in a building where I paid a buck 80 per foot. So those are good metrics, and all we did was furnish and paint the space, and we’re adding a closet for them,

But that was a recently built installation that the seller had done that I was able to reimagine for an office space. So when you ask me what’s my edge, how do I do that? I’m just able to walk a building and have a pretty good sense of how much capital I’m going to have to put into it in order to get a lease and how long that’s going to take. And that’s a skill set that when you’re doing an acquisition for multi is obvious, everyone’s going to walk that building, and unless you own a GC or you own a flooring company or a tile company or something like that, everyone’s going to come up to about the same number. Those deals are like, who has the lowest cost of capital, that’s what those deals come out to be. But I think this decade plus experience creates a unique edge for me. Also, I was able to slot my own clients in. That’s amazing.

Hal Coopersmith: I wanted to come back to why you think a little bit differently than other brokers and that you wanted that ownership stake.

JD Cohen: So there was a major client of my dad’s. He has his brokerage business, I have mine. We work on a lot together, but there are absolutely accounts that are his and I don’t work on. I felt like I was passed over the ability to work on one of those major accounts, and the very next day I started buying real estate. So I realized that, you know, I couldn’t inherit these accounts. They weren’t his to give, we were at the whims of people who owned and controlled the real estate, and I wanted to own and control the real estate. Also, I think everyone thinks they want passive income, that’s what everyone thinks.

Hal Coopersmith: Or it’s obviously not passive because you’re putting in the work on it.

JD Cohen: No, it’s not passive. But I’ve been screwed in the stock market, and I think that it’s, it’s good for a meaningful return. But, I like to operate. I like to get my hands dirty. I like to create value. I think it’s fun

Hal Coopersmith: So you mentioned that you were getting reps in early on, seeing deals, all that sort of stuff. What were the things that you were learning?

JD Cohen: I remember negotiating the work letter, so an aha moment for me was, when I represented a company called Korin Knives.

Hal Coopersmith: They’re in the Woolworth building.

JD Cohen: So they were in the Woolworth building. They left- They

Hal Coopersmith: they used to be across the hall from my old office.

JD Cohen: Yes. So I arranged that lease. That was the, my first, I think, a real office lease that I did.

Hal Coopersmith: When was that?

JD Cohen: 2016 maybe. I arranged a lease for Korin. I was 24 maybe. I actually spoke to the principal the other day just to check in. Her name is Sari. Very nice woman.

Hal Coopersmith: And they have their retail store.

JD Cohen: On Warren Street, yeah. Huge knife and commercial kitchen accoutrement manufacturer. Great, great company. I just remember, like, watching these leases get done at 1040 Avenue of the Americas, seeing a proposal come in, seeing how a test fit gets made, and then commented on, and then a work letter comes out, it gets negotiated, and I, I was like, “Okay, I got this,” when the ball got thrown to me. We got it done in, in 23 days from show space to signed lease. Full. And which is rare when you. If a space is pre-built, that’s normal, but we got it done pretty quick. So that was a really good feeling.

Hal Coopersmith: So you were learning about the work letter and doing it quickly. What were the things you were learning as just, you know, when you said, ” I started in the business and I just got to see all these deals.” you saw the work letter. What are some of the other things that you saw?

JD Cohen: I remember paying special attention to specific clauses that got negotiated during the lease drafts, and it was different every time, but, that was something I was learning and just the whole process from how you go from show space to commission.

Hal Coopersmith: So you have your building.

JD Cohen: Yes.

Hal Coopersmith: And you wanted to attract the younger brokers. The juniors.

JD Cohen: Yes.

Hal Coopersmith: What were some of the things that you were seeing in them and as you are showing your space?

JD Cohen: Meaning what?

Hal Coopersmith: Meaning what are things that they needed to learn? What are some trends that you were seeing? What were questions that you were hearing?

JD Cohen: Well, I think a lot of them were, not to sound un-humble, but were, like, impressed that, you know, I was owning this building, but were also, like, you know, giving the thumbs up because they were like, “Wow,” like, “This is what you’re supposed to be doing with a space like this,” right? Having it pre-built and pre-furnished on spec for a 3,500, 4,000 square foot loft space like this, and it was very well received by the market because that is not a sub-market of New York where you can find that. It exists in Flatiron, Because you have a lot of second generation former technology spaces of tenants that have not renewed their lease or blown out and left the furniture behind. So, like, office tenants are like… They’re like hermit crabs, you know what I mean? Like, they’ll, they’ll crawl into the shell of another office that’s already been built out. And I would say most, most tenants don’t want to build space, Maybe a wall comes up, a wall comes down. Right. Paint this, do the kitchen. So you want to shorten the downtime between show space to sign lease to tenant move-in, and I think you get a premium for that.

Hal Coopersmith: One of the things we always ask our guests is advice that you would have for younger brokers.

JD Cohen: Oh, my God. I give the same advice every time, which is I wish I had spent more time as a younger broker cataloging meticulously everyone I meet and their contact information. So something that Ariel Harwood, who works with me, and I have started to do is we now send out this newsletter. We make a monthly newsletter, which, you know, it… People, people act like what commercial brokers do is so much more elevated than that of a residential broker, but it’s, it’s, it’s very similar. There’s this one broker, out in Suffolk County, I think his name is, David Zizula, And he sends out the Ziz Report, which is an email with a few houses he likes for sale, a few spaces he likes for purchase, and then a few tidbits about his life, and I love it. I read it all the time because it’s got cool deals in there. And I, I think as a salesperson of any kind, you need to be personable. So whether you’re making content and inviting people with adjacent businesses to your conference room to do interviews, or you’re doing a monthly newsletter, you have to do something to keep your name and your face in front of prospective people who might want to do business with you or introduce you to people that you can do business with.

Hal Coopersmith: Well, that is a wonderful note to end things on. JD Cohen, thank you for being a part of Broker’s Angle.

JD Cohen: Thank you very much.