Published on: Dec 1, 2014 @ 7:22 am
A new study by George Washington University’s Center
for Real Estate
and Urban Analysis has rekindled the
debate over whether there are conflicts of interest at
some of the country’s largest commercial real estate
brokerages. Brokers who represent only office tenants
have argued for years that conflicts exist at firms
that represent both landlords and tenants—and that
their tenant clients often suffer as a result. Brokers
at the so-called full-service firms that represent both
have argued back that such potential conflicts aren’t
an issue, partly because they typically disclose such
relationships to all of their clients. The George
Washington study, written by Peter Smirniotopoulos, an
adjunct professor, supports the critics of the
full-service firms, arguing that conflicts may not be
resolved through current disclosure practices. “The
conflicts of interest issue has not been addressed in
any systematic way benefiting tenants,” the study
says. “If legal ethics prohibit an attorney or a law
firm from representing both the landlord and a tenant
[in a lease]…how can the divergent interests of those
same parties nonetheless be adequately represented by
the same [real estate firm]?”
Executives at full-service firms who have read the
study, which was released late last month, have
challenged its conclusions, pointing out that their
professional ethics require them to represent their
clients’ best interests, whether they are landlords
or tenants. They also noted that the study was
undertaken by the Center for Real Estate and Urban
Analysis in partnership with Boston-based Cresa, one of
the largest firms that represents only tenants and a
big critic of the full-service firms. Mr.
Smirniotopoulos, who also is a consultant in the real
estate industry, said in an interview that Cresa
provided a “gift letter” that helped finance the
research. But the Center has complete control over the
study’s scope and objectivity. “It had to be
consistent with scholarly work,” he said. New York
City long has been at the center of the
conflict-of-interest debate because Julien Studley, one
of the pioneers of the business of representing only
tenants, founded his firm here. Earlier this year, that
firm was acquired by Savills PLC in a deal that valued
Studley at up to $260 million. While Savills is full
service, its US division—now named Savills
Studley—has remained a tenant-only shop. “The
industry is replete with conflicts,” said Mitchell
Steir, the head of Savills Studley, which represents a
number of major tenants in New York. “Each side
deserves an advocate.”
Cresa’s office in New York has been a relatively
small player, but it has grown since it was taken over
by Mark Jaccom, who worked at Studley at an earlier
stage in his career. Mr. Jaccom said the New York Cresa
office employs about 45 people and will represent
tenants in about 1.5 million square feet of deals this
year, up from 600,000 square feet in 2013. The deals
brokered by Cresa this year included Affinity Health
Plan’s lease of about 95,000 square feet of space at
Simone Development’s Metro Center Atrium in the
Bronx, Mr. Jaccom said. Brokerages that only represent
tenants use the conflict-of-interest issue to lure
business from full-service firms. “You question how
hard [full-service firms] push the landlord who gives
them tens of millions of square feet of business for a
tenant looking for 20,000 square feet,” Mr. Jaccom
said. But executives at the firms with the largest
offices in New York say that tenants clearly like the
service they get from full-service operations. “We
represent more tenants for more space than any other
firm,” said a spokesman for CBRE Group Inc. “That
speaks volumes for the value that we deliver for
them.”
Executives at the top firms also pointed out that
tenants get more insight into the market when brokerage
firms also represent landlords. “Having a broad
perspective from all angles in the market coupled with
a strong adherence to confidentiality is a clear
advantage to our clients,” a spokeswoman for JLL said
in an email. Some brokers at full-service firms
acknowledged that the potential for conflicts of
interest exists. But they said it happens very rarely
because both tenants and brokers are becoming more
sophisticated. The issues raised in the George
Washington report “are valid issues,” said Peter
Hennessy, head of the New York region for Cassidy
Turley. “But the level of sophistication of brokers
is such that they’re able to manage the conflict
issue,” he said. The report recommends further
study, better self-regulation and the development of a
“model code of conduct” in the commercial brokerage
industry.
WSJ – ISM manufacturing index slows slightly in
November
The US manufacturing expansion slowed only a bit in
November, even as foreign producers struggled,
according to a survey released Monday by the Institute
for Supply Management (ISM). The ISM’s manufacturing
purchasing managers index fell slightly to 58.7 in
November from 59.0 in October. Of the 18 industries in
the survey, 14 reported growth. Economists surveyed by
The Wall Street Journal had expected the latest PMI to
drop to 58.0. Other factory sectors around the world
aren’t doing as well as US goods producers. In
November, China’s two factory readings and the
Eurozone PMI were barely above 50. The readings for
Germany, France and Italy stood at contractionary
levels. In the US, however, manufacturing is still
fairly robust although a little off the boil from
September and October. “Comments from the panel are
upbeat about strong demand and new orders, with some
expressing concerns about West Coast port slowdowns and
the threat of a potential dock strike,” the ISM
report said. The new orders index edged up to 66.0 in
November after it jumped to 65.8 in October. Moreover,
the exports index rebounded to 55.0 from 51.5 in
October. The ISM production index slowed to 64.4 after
it hit a multi-year high of 64.8 in October. Labor
demand remained solid last month. The employment index
eased to 54.9 from 55.5. The ISM’s prices paid index
plunged to 44.5 from 53.5. The ISM said it was the
first report of falling input prices since July 2013.
US manufacturers continued to build inventories last
month. The ISM inventory index stood at 51.5 from 52.5
in October.
The great divide in California’s housing market
The divide in California’s housing market is vast and
shows no signs of stopping. According to an article in
Zero Hedge, the upper end of the housing is market on
fire, while everyone else struggles. For majority of
the borrowers, record-low mortgage rates are not enough
to boost originations and offset tight lending
standards. But the luxury housing market in California
depicts a completely different story. “It’s pretty
mind-blowing, to be honest,” Los Angeles real estate
agent Cindy Ambuehl told the LA Times. “The luxury
market has been completely on fire.” “It’s just
a completely different story between the two segments
of the market,” said Selma Hepp, senior economist for
the California Assn. of Realtors. “Those who are
doing well are doing really well.” To put this in
perspective, the article noted that in the third
quarter, 1,431 homes worth over $2 million were sold in
the six-county Southland, up 14% from a year ago. In
the second quarter, 1,436 of such homes were sold, the
highest number ever. Sales of homes worth over $10
million are on track this year to double the prior
record set during the peak of the last housing bubble.
Meanwhile, for the overall California housing market,
Madeline Schnapp, director of economic research for
Property Radar, said in its September housing report,
“The California real estate market is stuck in low
gear. High prices and relatively tough lending
standards have pushed many would be homeowners to the
sidelines.”
For many Americans, retirement won’t be golden
The blissful vision of retirement may die hard, but the
financial contours of most Americans’ post-career years
are changing rapidly and radically. Born of the
optimism during the post-World War II economic boom,
when private and public pension systems expanded,
“retirement” for decades became a distinct period when
people could expect to spend more time with
grandchildren, indulge in their hobbies and generally
enjoy the fruits of their labor. But demographic,
economic and political factors have altered that
landscape. Although the needs of longer-lived retirees
are increasing, most notably from a health-care
perspective, traditional sources of income are
dwindling. Gone are defined-benefit pension plans and
retiree health benefits, and going are Social Security
benefits. Retirement costs are rising, while expected
returns on personal savings are falling. The upshot is
that Americans of all ages and most income levels will
have to alter their plans. They will have to work
longer and change their lifestyles both before and
during retirement. And in many cases, they will have
to rein in their expectations about their “golden”
years. “Retirement was a 20th-century idea that won’t
exist in the same way in this century,” said certified
financial planner Ric Edelman, chairman and CEO of
Edelman Financial Services, which has about 25,000
clients.
For millions of Americans, the retirement outlook is
bleak. The latest annual study of the retirement
readiness of baby boomers and Generation X by the
Employee Benefits Research Institute found that 38% of
Americans in the lowest-income quartile of those
generations will likely run out of money during their
first year of retirement. By year 10, 64% of them will
be penniless and 11% of those in the next-lowest
quartile will be in the same predicament. When
long-term-care costs—the biggest wild card—is
factored in, the numbers get worse. “It’s astounding
how fast retirees in the lowest-income quartile will
run out of money,” said Jack VanDerhei, research
director at EBRI. “An abundance of other people are
going to become indigent when they need nursing care,
and no one knows who is going to pay for it.”